~~0000764038us-gaap:CommercialPortfolioSegmentMemberssb:OtherIncomeProducingPropertyLoansMemberus-gaap:PassMember2020-09-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-12669

SOUTH STATE CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina		57-0799315
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)


1101 First Street South, Suite 202
Winter Haven, Florida		33880
(Address of principal executive offices)		(Zip Code)

(863) 293-4710

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $2.50 par value	SSB	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth ~~company..~~company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☒		Accelerated Filer ☐

Non-Accelerated Filer ☐		Smaller Reporting Company ☐

		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:



Class		Outstanding as of ~~November 4, 2020~~May 5, 2021
Common Stock, $2.50 par value		~~70,949,737~~71,074,747

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

South State Corporation and ~~Subsidiary~~Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)


	September 30,		December 31,		September 30,		March 31,		December 31,
	2020		2019		2019		2021		2020
		(Unaudited)				(Unaudited)		(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	344,389	$	262,019	$	258,357	$	392,556	$	363,306
Federal funds sold and interest-bearing deposits with banks		3,199,101		377,692		396,804
Federal funds sold and interest-earning deposits with banks								5,214,760		3,582,410
Deposits in other financial institutions (restricted cash)		928,149		48,993		64,033		366,821		663,539
Total cash and cash equivalents		4,471,639		688,704		719,194		5,974,137		4,609,255
Trading securities, at fair value								83,947		10,674
Investment securities:
Securities available for sale, at fair value (cost of $3,498,087 and allowance for credit losses of $0 for September 30, 2020)		3,561,929		1,956,047		1,813,134
Securities held to maturity (fair value of $1,180,762 and $957,183)								1,214,313		955,542
Securities available for sale, at fair value								3,891,490		3,330,672
Other investments		185,199		49,124		49,124		161,468		160,443
Total investment securities		3,747,128		2,005,171		1,862,258		5,267,271		4,446,657
Loans held for sale		456,141		59,363		87,393		352,997		290,467
Loans:
Acquired - non-purchased credit deteriorated loans		10,557,907		1,760,427		1,965,603		8,433,913		9,458,869
Acquired - purchased credit deteriorated loans (formerly acquired credit-impaired loans)		3,143,822		356,782		390,714		2,680,466		2,915,809
Non-acquired		11,536,086		9,252,831		8,928,512		13,377,086		12,289,456
Less allowance for credit losses		(440,159)		(56,927)		(54,937)		(406,460)		(457,309)
Loans, net		24,797,656		11,313,113		11,229,892		24,085,005		24,206,825
Other real estate owned		13,480		6,539		8,424		11,471		11,914
Bank property held for sale		24,504		5,425		4,991		31,193		36,006
Premises and equipment, net		626,259		317,321		323,506		569,171		579,239
Bank owned life insurance		556,475		234,567		233,206		562,624		559,368
Deferred tax assets		107,500		31,316		27,844		105,087		110,946
Derivatives assets		953,036		15,463		24,316		416,329		813,899
Mortgage servicing rights		34,578		30,525		28,674		54,285		43,820
Core deposit and other intangibles		171,637		49,816		53,083		153,861		162,592
Goodwill		1,566,524		1,002,900		1,002,900		1,579,758		1,563,942
Other assets		292,809		160,869		146,401		483,196		344,269
Total assets	$	37,819,366	$	15,921,092	$	15,752,082	$	39,730,332	$	37,789,873
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	9,681,095	$	3,245,306	$	3,307,532	$	10,801,812	$	9,711,338
Interest-bearing		20,288,859		8,931,790		8,716,255		21,639,598		20,982,544
Total deposits		29,969,954		12,177,096		12,023,787		32,441,410		30,693,882
Federal funds purchased		351,676		56,581		33,539		479,305		384,735
Securities sold under agreements to repurchase		355,047		242,160		235,533		399,276		394,931
Corporate and subordinated debentures		389,540		115,833		115,666		390,323		390,179
Other borrowings		700,097		700,103		700,105
Reserve for unfunded commitments		43,161		335		335		35,829		43,380
Derivative liabilities		979,155		30,485		43,287		402,256		804,832
Other liabilities		467,323		225,486		248,874		862,113		430,054
Total liabilities		33,255,953		13,548,079		13,401,126		35,010,512		33,141,993
Shareholders’ equity:
Common stock - $2.50 par value; authorized 160,000,000, 80,000,000 and 80,000,000 shares; 70,928,304, 33,744,385 and 33,902,726 shares issued and outstanding, respectively		177,321		84,361		84,757
Common stock - $2.50 par value; authorized 160,000,000 shares; 71,060,446 and 70,973,477 shares issued and outstanding, respectively								177,651		177,434
Surplus		3,764,482		1,607,740		1,617,004		3,772,248		3,765,406
Retained earnings		604,564	��	679,895		646,325		770,952		657,451
Accumulated other comprehensive income		17,046		1,017		2,870
Accumulated other comprehensive (loss) income								(1,031)		47,589
Total shareholders’ equity		4,563,413		2,373,013		2,350,956		4,719,820		4,647,880
Total liabilities and shareholders’ equity	$	37,819,366	$	15,921,092	$	15,752,082	$	39,730,332	$	37,789,873

The Accompanying Notes are an Integral Part of the Financial Statements.

Table of Contents

South State Corporation and ~~Subsidiary~~Subsidiaries

Condensed Consolidated Statements of Net Income (unaudited)

(In thousands, except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Interest income:
Loans, including fees	$	280,825	$	134,953	$	581,566	$	402,175	$	259,967	$	133,034
Investment securities:
Taxable		11,118		10,785		33,951		28,933		15,425		11,915
Tax-exempt		2,136		1,587		5,041		4,700		2,095		1,399
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks		1,215		2,676		3,100		7,565		989		1,452
Total interest income		295,294		150,001		623,658		443,373		278,476		147,800
Interest expense:
Deposits		15,154		16,655		42,215		50,693		11,257		14,437
Federal funds purchased and securities sold under agreements to repurchase		509		612		1,515		2,037		351		615
Corporate and subordinated debentures		5,034		1,397		8,197		4,332		4,870		1,192
Other borrowings		4,249		3,964		10,813		8,492		—		3,543
Total interest expense		24,946		22,628		62,740		65,554		16,478		19,787
Net interest income		270,348		127,373		560,918		377,819		261,998		128,013
Provision for credit losses		29,797		4,028		217,804		9,220
Net interest income after provision for credit losses		240,551		123,345		343,114		368,599
(Recovery) provision for credit losses										(58,420)		36,533
Net interest income after (recovery) provision for credit losses										320,418		91,480
Noninterest income:
Fees on deposit accounts		24,346		19,725		59,166		56,274		25,282		18,141
Mortgage banking income		48,022		6,115		81,040		13,807		26,880		14,647
Trust and investment services income		7,404		7,320		21,931		22,309		8,578		7,389
Correspondent banking and capital market income		26,432		690		36,992		1,536		28,748		494
Securities gains, net		15		437		15		2,687
Recoveries on acquired loans		—		1,401		—		4,615
Other		8,571		1,894		14,125		6,030		6,797		3,461
Total noninterest income		114,790		37,582		213,269		107,258		96,285		44,132
Noninterest expense:
Salaries and employee benefits		134,919		59,551		277,617		176,529		140,361		60,978
Occupancy expense		23,845		11,883		52,091		35,344		23,331		12,287
Information services expense		18,855		8,878		40,317		26,558		18,789		9,306
OREO expense and loan related		1,146		597		2,840		2,229		1,002		587
Pension plan termination expense		—		—		—		9,526
Amortization of intangibles		9,560		3,268		17,232		9,817		9,164		3,007
Supplies, printing and postage expense		2,755		1,418		5,870		4,417		2,670		1,505
Professional fees		4,385		2,442		9,727		7,463		3,274		2,494
FDIC assessment and other regulatory charges		2,849		228		7,310		3,218		3,771		2,058
Advertising and marketing		1,203		1,052		2,548		2,818		1,740		814
Merger and branch consolidation related expense		21,662		—		66,070		3,058		10,009		4,129
Other		15,708		7,047		37,624		23,033		14,600		10,082
Total noninterest expense		236,887		96,364		519,246		304,010		228,711		107,247
Earnings:
Income before provision for income taxes		118,454		64,563		37,137		171,847		187,992		28,365
Provision for income taxes		23,233		12,998		2,741		34,455		41,043		4,255
Net income	$	95,221	$	51,565	$	34,396	$	137,392	$	146,949	$	24,110
Earnings per common share:
Basic	$	1.34	$	1.51	$	0.70	$	3.94	$	2.07	$	0.72
Diluted	$	1.34	$	1.50	$	0.69	$	3.92	$	2.06	$	0.71
Weighted average common shares outstanding:
Basic		70,905		34,057		49,330		34,859		71,009		33,566
Diluted		71,076		34,300		49,636		35,069		71,484		33,805

The Accompanying Notes are an Integral Part of the Financial Statements.

Table of Contents

South State Corporation and ~~Subsidiary~~Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019		Three Months Ended
									March 31,
									2021		2020
Net income	$	95,221	$	51,565	$	34,396	$	137,392	$	146,949	$	24,110
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during period		1,915		7,467		48,573		44,528
Tax effect		(421)		(1,643)		(10,686)		(9,796)
Reclassification adjustment for (gains) losses included in net income		(15)		(437)		(15)		2,679
Unrealized (losses) gains on available for sale securities:
Unrealized holding (losses) gains arising during period										(63,790)		40,450
Tax effect		3		96		3		(590)		15,170		(8,899)
Net of tax amount		1,482		5,483		37,875		36,821		(48,620)		31,551
Unrealized gains (losses) on derivative financial instruments qualifying as cash flow hedges:
Unrealized holding gains (losses) arising during period		165		(4,988)		(34,150)		(18,931)
Unrealized losses on derivative financial instruments qualifying as cash flow hedges:
Unrealized holding losses arising during period										—		(28,512)
Tax effect		(37)		1,097		7,512		4,165		—		6,272
Reclassification adjustment for losses (gains) included in interest expense		3,457		(241)		6,143		(585)
Reclassification adjustment for gains included in interest expense										—		(722)
Tax effect		(760)		53		(1,351)		128		—		159
Net of tax amount		2,825		(4,079)		(21,846)		(15,223)		—		(22,803)
Change in pension plan and retiree medical plan obligation:
Change in pension and retiree medical plan obligation during period		—		—		—		—
Tax effect		—		—		—		—
Reclassification adjustment for changes included in net income		—		—		—		7,888
Tax effect		—		—		—		(1,735)
Net of tax amount		—		—		—		6,153
Other comprehensive income, net of tax		4,307		1,404		16,029		27,751
Other comprehensive (loss) income, net of tax										(48,620)		8,748
Comprehensive income	$	99,528	$	52,969	$	50,425	$	165,143	$	98,329	$	32,858

The Accompanying Notes are an Integral Part of the Financial Statements.

Table of Contents

South State Corporation and ~~Subsidiary~~Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

~~(Dollars in thousands, except for share data)~~

Accumulated

Other

Common Stock

Retained

Comprehensive


Shares

Amount

Surplus

Earnings

Income

Total

Balance, June 30, 2019

34,735,587

$
86,839

$
1,676,229

$
609,444

$
1,466

$
2,373,978

Comprehensive income:

Net income

—

—

—

51,565

—

51,565

Other comprehensive income, net of tax effects

—

—

—

—

1,404

1,404

Total comprehensive income

��

52,969

Cash dividends declared on common stock at $.43 per share

—

—

—

(14,684)

—

(14,684)

Employee stock purchases

5,598

14

360

—

—

374

Stock options exercised

24,256

61

767

—

—

828

Stock issued pursuant to restricted stock units

578

1

(1)

—

—

—

Common stock repurchased - buyback plan

(858,800)

(2,147)

(62,307)

—

—

(64,454)

Common stock repurchased

(4,493)

(11)

(329)

—

—

(340)

Share-based compensation expense

—

—

2,285

—

—

2,285

Balance, September 30, 2019

33,902,726

$
84,757

$
1,617,004

$
646,325

$
2,870

$
2,350,956

Balance, June 30, 2020

70,907,119

$
177,268

$
3,759,166

$
542,677

$
12,739

$
4,491,850

Comprehensive income:

Net income

—

—

—

95,221

—

95,221

Other comprehensive income, net of tax effects

—

—

—

—

4,307

4,307

Total comprehensive income

99,528

Cash dividends declared at $.47 per share

—

—

—

(33,334)

—

(33,334)

Employee stock purchases

9,316

23

399

—

—

422

Stock options exercised

5,471

14

166

—

—

180

Stock issued pursuant to restricted stock units

10,207

26

(26)

—

—

—

Common stock repurchased

(3,809)

(10)

(183)

—

—

(193)

Share-based compensation expense

—

—

4,960

—

—

4,960

Balance, September 30, 2020

70,928,304

$
177,321

$
3,764,482

$
604,564

$
17,046

$
4,563,413

~~Table of Contents~~

~~South State Corporation and Subsidiary~~

~~Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)~~

~~Nine months ended September 30, 2020 and 2019~~

(Dollars in thousands, except for share data)


								Accumulated Other
	Common Stock					Retained		Comprehensive											Accumulated Other
	Shares	Amount		Surplus		Earnings		Income (Loss)		Total		Common Stock					Retained		Comprehensive
Balance, December 31, 2018	35,829,549	$	89,574	$	1,750,495	$	551,108	$	(24,881)	$	2,366,296
												Shares	Amount		Surplus		Earnings		Income (Loss)		Total
Balance, December 31, 2019												33,744,385	$	84,361	$	1,607,740	$	679,895	$	1,017	$	2,373,013
Comprehensive income:
Net income	—		—		—		137,392		—		137,392	—		—		—		24,110		—		24,110
Other comprehensive income, net of tax effects	—		—		—		—		27,751		27,751	—		—		—		—		8,748		8,748
Total comprehensive income											165,143											32,858
Cash dividends declared on common stock at $1.21 per share	—		—		—		(42,175)		—		(42,175)
Employee stock purchases	11,548		29		688		—		—		717
Cash dividends declared on common stock at $0.47 per share												—		—		—		(15,840)		—		(15,840)
Stock options exercised	36,978		93		1,137		—		—		1,230	12,485		31		372		—		—		403
Restricted stock awards (forfeitures)	6,602		17		(17)		—		—		—	498		1		(1)		—		—		—
Stock issued pursuant to restricted stock units	51,543		128		(128)		—		—		—	31,435		79		(79)		—		—		—
Common stock repurchased - buyback plan	(2,000,000)		(5,000)		(139,594)		—		—		(144,594)	(320,000)		(800)		(23,914)		—		—		(24,714)
Common stock repurchased	(33,494)		(84)		(2,219)		—		—		(2,303)	(24,567)		(61)		(1,803)		—		—		(1,864)
Share-based compensation expense	—		—		6,642		—		—		6,642	—		—		2,007		—		—		2,007
Balance, September 30, 2019	33,902,726	$	84,757	$	1,617,004	$	646,325	$	2,870	$	2,350,956
Balance, December 31, 2019	33,744,385	$	84,361	$	1,607,740	$	679,895	$	1,017	$	2,373,013
Comprehensive income:
Cumulative change in accounting principle due to the adoption of ASU 2016-13												—		—		—		(44,820)		—		(44,820)
Balance, March 31, 2020												33,444,236	$	83,611	$	1,584,322	$	643,345	$	9,765	$	2,321,043
Balance, December 31, 2020												70,973,477	$	177,434	$	3,765,406	$	657,451	$	47,589	$	4,647,880
Comprehensive loss:
Net income	—		—		—		34,396		—		34,396	—		—		—		146,949		—		146,949
Other comprehensive income, net of tax effects	—		—		—		—		16,029		16,029
Other comprehensive loss, net of tax effects												—		—		—		—		(48,620)		(48,620)
Total comprehensive income											50,425											98,329
Cash dividends declared on common stock at $1.41 per share	—		—		—		(64,907)		—		(64,907)
Employee stock purchases	16,217		40		767		—		—		807
Cash dividends declared on common stock at $0.47 per share												—		—		—		(33,380)		—		(33,380)
Cash dividend equivalents paid on restricted stock units												—		—		—		(68)		—		(68)
Stock options exercised	23,012		58		682		—		—		740	37,854		94		1,677		—		—		1,771
Restricted stock awards (forfeitures)	8,828		22		(22)		—		—		—
Stock issued pursuant to restricted stock units	306,282		766		(766)		—		—		—	59,462		149		(149)		—		—		—
Common stock repurchased - buyback plan	(320,000)		(800)		(23,915)		—		—		(24,715)
Common stock repurchased	(121,489)		(304)		(7,334)		—		—		(7,638)	(10,347)		(26)		(778)		—		—		(804)
Share-based compensation expense	—		—		18,694		—		—		18,694	—		—		6,092		—		—		6,092
Common stock issued for CenterState merger	37,271,069		93,178		2,153,149		—		—		2,246,327
Stock options and restricted stock acquired and converted pursuant to CenterState acquisition	—		—		15,487		—		—		15,487
Cumulative change in accounting principle due to the adoption of ASU 2016-13	—		—		—		(44,820)		—		(44,820)
Balance, September 30, 2020	70,928,304	$	177,321	$	3,764,482	$	604,564	$	17,046	$	4,563,413
Balance, March 31, 2021												71,060,446	$	177,651	$	3,772,248	$	770,952	$	(1,031)	$	4,719,820

The Accompanying Notes are an Integral Part of the Financial Statements.

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South State Corporation and ~~Subsidiary~~Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2020		2019		2021		2020
Cash flows from operating activities:
Net income	$	34,396	$	137,392	$	146,949	$	24,110
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,471		24,981		15,475		7,853
Provision for credit losses		217,804		9,220
(Recovery) provision for credit losses						(58,420)		36,533
Deferred income taxes		(31,577)		1,457		21,037		(4,878)
Gains on sale of securities, net		(15)		(2,687)
Trading securities revenue		(189)		—
Purchases of trading securities		(108,537)		—
Proceeds from sale of trading securities		108,726		—
Share-based compensation expense		18,694		6,642		6,092		2,007
Accretion of discount related to acquired loans		(43,484)		(9,131)		(10,416)		(10,931)
(Gains) losses on disposal of premises and equipment		(514)		3,648
Gains on sale of bank premises and other repossessed real estate		(21)		(527)
Losses (gains) on disposal of premises and equipment						753		(263)
Losses on sale of bank premises and other repossessed real estate						2,349		69
Net amortization of premiums on investment securities		13,318		5,310		9,481		2,055
Bank premises and other repossessed real estate write downs		770		727		469		111
Fair value adjustment for loans held for sale		(5,125)		1,463		5,852		(926)
Originations and purchases of loans held for sale		(1,943,097)		(583,804)		(842,796)		(239,736)
Proceeds from sales of loans held for sale		2,079,830		525,659		795,124		232,520
Gains on sales of loans held for sale		(74,808)		(7,786)		(20,709)		(4,214)
Bank owned life insurance income		(6,830)		(4,206)		(3,280)		(1,373)
Net change in:
Accrued interest receivable		(21,717)		(134)		4,169		(923)
Prepaid assets		(8,939)		(846)		1,685		651
Operating Leases		6,037		1,134
Operating leases						1,638		268
Bank owned life insurance		(1,231)		(218)		24		2,090
Trading securities						(41,412)		—
Derivative assets		(40,330)		(19,225)		397,570		(45,690)
Miscellaneous other assets		42,018		(27,477)		(172,197)		(9,803)
Accrued interest payable		678		317		1,394		(853)
Accrued income taxes		(30,106)		2,625		19,436		9,131
Derivative liabilities		60,536		38,866		(402,575)		38,143
Miscellaneous other liabilities		58,345		24,307		421,343		5,132
Net cash provided by operating activities		356,103		127,707		299,035		41,083
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale		23,540		231,990
Proceeds from maturities and calls of investment securities held to maturity						16,746		—
Proceeds from maturities and calls of investment securities available for sale		705,381		208,640		217,712		113,381
Proceeds from sales of other investment securities		42,034		45		155		—
Purchases of investment securities available for sale		(1,201,855)		(692,114)		(850,593)		(90,134)
Purchases of investment securities held to maturity						(276,725)		—
Purchases of other investment securities		(80,513)		(23,566)		(1,181)		(13,869)
Net increase in loans		(737,130)		(280,684)
Net cash received from acquisitions		2,566,376		—
Net decrease (increase) in loans						178,078		(129,458)
Net cash paid in acquisitions						(39,929)		—
Recoveries of loans previously charged off		8,287		2,833		3,396		1,909
Purchases of premises and equipment		(13,009)		(11,533)		(5,580)		(2,193)
Proceeds from redemption and payout of bank owned life insurance policies		19,207		1,323
Proceeds from sale of bank premises and other repossessed real estate		8,254		7,405		6,599		988
Proceeds from sale of premises and equipment		704		17		952		9
Net cash provided by (used in) investing activities		1,341,276		(555,644)
Net cash used in investing activities						(750,370)		(119,367)
Cash flows from financing activities:
Net increase in deposits		2,174,838		376,854		1,749,783		167,451
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings		6,436		(1,577)
Net increase in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings						98,915		26,982
Proceeds from borrowings		500,000		700,001		—		500,000
Repayment of borrowings		(500,005)		(150,005)		—		(2)
Common stock issuance		807		717
Common stock repurchases		(32,353)		(146,897)		(804)		(26,578)
Dividends paid on common stock		(64,907)		(42,175)
Dividends paid						(33,448)		(15,840)
Stock options exercised		740		1,230		1,771		403
Net cash provided by financing activities		2,085,556		738,148		1,816,217		652,416
Net increase in cash and cash equivalents		3,782,935		310,211		1,364,882		574,132
Cash and cash equivalents at beginning of period		688,704		408,983		4,609,255		688,704
Cash and cash equivalents at end of period	$	4,471,639	$	719,194	$	5,974,137	$	1,262,836
Supplemental Disclosures:
Cash Flow Information:
Cash paid for:
Interest	$	73,525	$	65,237	$	15,083	$	20,640
Income taxes	$	62,555	$	31,928	$	2,072	$	845
Initial measurement and recognition of operating lease assets in exchange for lease liabilities per ASU 2016-02	$	—	$	82,160
Recognition of operating lease assets in exchange for lease liabilities	$	7,054	$	10,239	$	1,298	$	458
Schedule of Noncash Investing Transactions:
Acquisitions:
Fair value of tangible assets acquired	$	18,937,418	$	—	$	34,838	$	—
Other intangible assets acquired		140,862		—
Liabilities assumed		17,380,016		—		2,343		—
Net identifiable assets acquired over liabilities assumed		563,625		—		15,816		—
Common stock issued in acquisition		2,246,327		—
Real estate acquired in full or in partial settlement of loans	$	4,262	$	9,610	$	1,631	$	2,048

The Accompanying Notes are an Integral Part of the Financial Statements.

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South State Corporation and ~~Subsidiary~~Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, otherwise referred to ~~herein~~ as GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported. Operating results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

The condensed consolidated balance sheet at December 31, ~~2019~~2020 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements.

Note 2 — Summary of Significant Accounting Policies

The information contained in the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~,2020, as filed with the Securities and Exchange Commission (the “SEC”) on February ~~21, 2020, as amended on March 6, 2020,~~26, 2021, should be referenced when reading these unaudited condensed consolidated financial statements. Unless otherwise mentioned or unless the context requires otherwise, references herein to “South State,” the “Company” “we,” “us,” “our” or similar references mean South State Corporation and its consolidated ~~subsidiary.~~subsidiaries. References to the “Bank” means South State Corporation’s wholly owned subsidiary, ~~SouthState~~South State Bank, National Association, a national banking association.

Allowance for Credit Losses (“ACL”)

On January 1, 2020, we adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, sometimes referred to herein as ASU 2016-13. Topic 326 was subsequently amended by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; ASU No. 2019-05, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; and ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This standard applies to all financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities and unfunded commitments. We applied the standard’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2020.With this transition method, we did not have to restate comparative prior periods presented in the financial statements related to Topic 326, but will present comparative prior periods disclosures using the previous accounting guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.

ACL – Investment Securities

Management uses a systematic methodology to determine its ACL for investment securities held to maturity. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held-to-maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. Management monitors the held-to-maturity portfolio to determine whether a valuation account would need to be recorded. ~~The~~As of March 31, 2021, the Company ~~currently has~~ ~~0 investment~~had $1.2 billion of held-to-maturity securities ~~held to maturity.~~

~~Table of Contents~~and no related valuation account.

Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the investment securities and does not record an allowance for credit losses on accrued interest receivable. As of ~~September 30, 2020,~~March 31, 2021, the accrued interest receivable for all investment securities ~~available for sale~~ recorded in Other Assets was $~~11.4~~13.6 million.

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Management no longer evaluates securities for other-than-temporary impairment, otherwise referred to herein as OTTI, as ASC Subtopic 326-30, Financial Instruments—Credit Losses—Available-for-Sale Debt Securities, changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter Management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the Statements of Income.

ACL - Loans

The ACL reflects Management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. The Company established the incremental increase in the ACL at adoption through equity and subsequent adjustments through a provision for credit losses charged to earnings. The Company records loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized.

Management uses systematic methodologies to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. The Company’s ACL recorded in the balance sheet reflects Management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is utilized for each loan in a pool, and the results are aggregated at the pool level. A periodic tendency to default and absolute loss given default are applied to a projective model of the loan’s cash flow while considering prepayment and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (e.g., default rates and prepayment speeds). The Company has identified the following portfolio segments: Owner-Occupied Commercial Real Estate, Non Owner-Occupied Commercial Real Estate, Multifamily, Municipal, Commercial and Industrial, Commercial Construction and Land Development, Residential Construction, Residential Senior Mortgage, Residential Junior Mortgage, Revolving Mortgage, and Consumer and Other.

In determining the proper level of the ACL, Management has determined that the loss experience of the Bank provides the best basis for its assessment of expected credit losses. It therefore utilized its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks). For most of the segment models for collectively evaluated loans, the Company incorporated two or more macroeconomic drivers using a statistical regression modeling methodology.

~~Table of Contents~~

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. ~~The baseline forecast incorporates a 50% probability of the United States economy performing better than this projection and the same as the probability that it will perform worse.~~ Management has evaluated the appropriateness of the reasonable and supportable forecast scenarios and has made adjustments as needed. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally utilizes a four-quarter forecast and a four-quarter reversion period.

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Included in its systematic methodology to determine its ACL, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e., formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) Lending Policy; 2) Economic conditions not captured in models; 3) Volume and Mix of Loan Portfolio; 4) Past Due Trends; 5) Concentration Risk; 6) External Factors; and 7) Model Limitations.

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. During the third quarter of 2020, we consolidated the ACL models and due to the size of the combined company elected to increase the threshold for individually-evaluated loans to all non-accrual loans with a net book balance in excess of $1.0 million. We will monitor the credit environment and make adjustments to this threshold in the future if warranted. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a troubled debt restructuring (“TDR”) with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e., the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions on substandard loans. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions on substandard loans. The Company uses a discounted cash flow methodology for a TDR to calculate the effect of the concession provided to the borrower within the ACL.

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession meets the criteria as defined under the CARES Act.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized,

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respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of ~~September 30, 2020,~~March 31, 2021, the accrued interest receivable for loans recorded in Other Assets was $~~97.8~~89.5 million.

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The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As part of the new combined ACL methodology implemented during the ~~current~~third quarter 2020, Management completed a funding study based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applied this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. Prior to the ~~current quarter,~~implementation of the new combined ACL methodology, the Company applied a utilization rate instead of a funding rate to the South State legacy portfolio to determine the reserve for unfunded commitments. As of ~~September 30, 2020,~~March 31, 2021, the liability recorded for expected credit losses on unfunded commitments ~~in Other Liabilities~~ was $~~43.2~~35.8 million. The current adjustment to the ACL for unfunded commitments is recognized through the provision for credit losses in the Statements of Income.

Note 3 — Recent Accounting and Regulatory Pronouncements

Accounting Standards Adopted in 2020

~~In February 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-02,~~ ~~Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section of Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842~~). This update adds the content of SEC Staff Accounting Bulletin (“SAB”) No. 119 to the FASB Codification. SAB No.119 provides interpretive guidance on methodologies and supporting documentation for measuring credit losses, with a focus on the documentation the staff would normally expect registrants engaged in lending transactions to prepare and maintain to support estimates of current expected credit losses for loan transactions. The ASU also updates the SEC section of the FASB Codification for the delay in the effective date of Topic 842 for public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include its financial information in another entity’s filing with the SEC. The clarification related to SAB No. 119 was adopted in the first quarter of 2020 when ASU 2016-13 was adopted. See ASU 2016-13 below for overall effect of ~~Topic 326 Financial Instruments-Credit Losses~~ ~~on our consolidated financial statements. The change in the effective date for ASU 2016-02 – Leases did not affect the Company in that we adopted the standard in 2019.~~

~~In November 2019, the FASB issued ASU No. 2019-11,~~ ~~Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815.~~ This update, related to ASU 2016-01, clarifies certain aspects brought to the Account Standards Board attention by stakeholders related to these ASUs, but does not change the core principles of these standards. The areas of improvement clarified in this update are related to 1) expected recoveries for purchased financial assets with credit deterioration, 2) transition relief for troubled debt restructurings, 3) disclosures related to accrued interest receivables, 4) financial assets secured by collateral maintenance provisions and 5) conforming amendment to Subtopic 805-20. This clarification was adopted in the first quarter of 2020 when the overall standard was adopted. See ASU 2016-13 below for overall effect of ~~Topic 326 Financial Instruments-Credit Losses~~ ~~on our consolidated financial statements.~~

~~In April 2019, the FASB issued ASU No. 2019-05,~~ ~~Targeted Transition Relief (Topic 326 – Financial Instruments-Credit Losses).~~ This update provides entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses— Measured at Amortized Cost, with an option to irrevocably elect the

~~Table of Contents~~

fair value option in Subtopic 825-10 applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement—Overall, and 825-10. This update was adopted in the first quarter of 2020 when the overall standard was adopted. See ASU 2016-13 below for overall effect of ~~Topic 326 Financial Instruments-Credit Losses~~ ~~on our consolidated financial statements.~~

~~In April 2019, the FASB issued ASU No. 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.~~ This update related to ASU 2016-01, ASU 2017-12 and ASU 2016-13 clarifies certain aspects brought to the Account Standards Board attention by stakeholders related to these ASUs, but does not change the core principles of these standards. The clarifications related to ASU 2016-01 and 2017-12 were adopted in the second quarter of 2019 and did not have a material impact on our consolidated financial statements. The clarifications related to ASU 2016-13 were adopted in the first quarter of 2020 when the overall standard was adopted. See ASU 2016-13 below for overall effect of ~~Topic 326 Financial Instruments-Credit Losses~~ ~~on our consolidated financial statements.~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820)~~~~. ASU 2018-13 removes, modifies, and adds certain disclosure requirements in ASC 820 related to Fair Value Measurement on the basis of the concepts in the FASB Concepts Statement~~ ~~Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements~~. ASU 2018-13 was effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. The ASU requires application of the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirement additions. The ASU also requires prospective application to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty. The effects of all other amendments made by the ASU must be applied retrospectively to all periods presented. This update did not have a material impact on our consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangible-Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment~~. ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under ASC Topic 350 and eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test consists of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance was effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. Based on effects of the COVID-19 pandemic on the economy and on our stock price, we evaluated our goodwill based on ASU 2017-04 at March 31, 2020 and determined there was 0 ~~impairment~~ of goodwill or other intangibles. We also evaluated the carrying value of goodwill as of April 30, 2020, our annual test date, and again, determined that no impairment charge was necessary. The Company will continue to monitor if a triggering event occurs that requires goodwill to be evaluated again.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard was subsequently updated with ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, ASU No. 2019-05, Targeted Transition Relief (Topic 326 – Financial Instruments-Credit Losses), and ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an ACL that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses for loans, investment securities portfolio, and purchased financial assets with credit deterioration. See Note 2 – Summary of Significant Account Policies – Allowance for Credit Losses for further discussion. We adopted the new standard as of January 1, 2020. This standard did not have a material impact on our investment securities portfolio at implementation. Related to the implementation of ASU 2016-13, we recorded additional ACL for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. See table the below for impact of ASU 2016-13 on the Company’s consolidated balance sheet. See Note 2 - Summary of Significant Accounting Policies for further discussion.


				January 1, 2020
		As Reported Under		Pre-ASC 326		Impact of ASC 326
Dollars in thousands		ASC 326		Adoption		Adoption

Assets:
Allowance for Credit Losses on Debt Securities
Investment Securities - Available for Sale	$	1,956,047	$	1,956,047	$	—	A
Investment Securities - Held to Maturity		—		—		—	A
Loans
Non - Acquired Loans		9,252,831		9,252,831		—
Acquired Loans		2,118,940		2,117,209		1,723	B
Allowance for Credit Losses on Loans		(111,365)		(56,927)		(54,438)	C
Deferred Tax Asset		43,955		31,316		12,639	D
Accrued Interest Receivable - Loans		30,009		28,332		1,677	B

Liabilities:
Reserve for Loan Losses - Unfunded Commitments		6,756		335		6,421	E

Equity:
Retained Earnings		635,075		679,895		(44,820)	F

1311

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January 1, 2020

As Reported Under

Pre-ASC 326

Impact of ASC 326

Dollars in thousands

ASC 326

Adoption

Adoption


Assets:

Allowance for Credit Losses on Debt Securities

Investment Securities - Available for Sale
$
1,956,047
$
1,956,047
$
—
A
Investment Securities - Held to Maturity

—

—

—
A
Loans

Non - Acquired Loans

9,252,831

9,252,831

—

Acquired Loans

2,118,940

2,117,209

1,723
B
Allowance for Credit Losses on Loans

(111,365)

(56,927)

(54,438)
C
Deferred Tax Asset

43,955

31,316

12,639
D
Accrued Interest Receivable - Loans

30,009

28,332

1,677
B

Liabilities:

Reserve for Loan Losses - Unfunded Commitments

6,756

335

6,421
E

Equity:

Retained Earnings

635,075

679,895

(44,820)
F

A - – The Company did not have any held-to maturity securities as of January 1, 2020. Per our analysis we determined that no ACL was necessary for investment securities – available for sale.

B – Accrued interest receivable from acquired credit impaired loans of $1,677 was reclassified to other assets and was offset by the ~~reclass~~reclassification of the grossed up credit discount on acquired credit impaired loans of $3,408 that was moved to the ACL for the purchased credit deteriorated loans.

C – This is the calculated adjustment to the ACL related to the adoption of ASC 326. Additional reserve related to non-acquired loans was $34,049, to acquired loans was $16,981 and to purchased credit deteriorated loans was $3,408.

D – This is the effect of deferred tax assets related to the adjustment to the ACL from the adoption of ASC 326 using a 22% tax rate.

E – This is the adjustment to the reserve for unfunded commitments related to the adoption of ASC 326.

F – This is the net adjustment to retained earnings related to the adoption of ASC 326.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying the amending existing guidance. Some of the simplification items included are 1) simplification for intraperiod tax allocations where entities will determine the tax effect of pre-tax income or loss from continuing operations without consideration of the tax effect of other items that are not included in continuing operations, 2) simplification for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year allowing an entity to record a benefit for year-to-date loss in excess of its forecasted loss, and 3) simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. This update did not have a material impact on our consolidated financial statements.

Issued But Not Yet Adopted Accounting Standards

In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848 – Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequently expanded the scope of ASU No. 2020-04 with the issuance of ASU No. 2021-01. This update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update were effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments in this update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments in this update must be applied prospectively for all eligible contract modifications and hedging relationships. The Company has established a LIBOR Committee and various subcommittees which are continuing to evaluate the impact of adopting ASU 2020-04 on the consolidated financial statements including evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates that are being discontinued.

In ~~December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.~~ The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying the amending existing guidance. Some of the simplification items included are 1) simplification for intraperiod tax allocations where entities will determine the tax effect of pre-tax

~~Table of Contents~~

income or loss from continuing operations without consideration of the tax effect of other items that are not included in continuing operations, 2) simplification for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year allowing an entity to record a benefit for year-to-date loss in excess of its forecasted loss, and 3) simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. We do not believe this update will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20. ASU 2018-14 amends ASC 715-20 to add, remove, and clarify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public business entities, ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and requires entities to apply the amendment on a retrospective basis. Early adoption is permitted. ~~At this point in time, we do~~This update will not ~~expect that this guidance will~~ have a material impact on our consolidated financial statements.

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Note 4—4 — Mergers and Acquisitions

CenterState Bank Corporation (“CSFL”)

On June 7, 2020, the Company acquired all of the outstanding common stock of CSFL, of Winter Haven, Florida, the bank holding company for CenterState Bank, N.A. (“CSB”), in a stock transaction. Pursuant to the Merger Agreement, (i) CSFL merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”), and (ii) immediately following the Merger, ~~SouthState~~South State Bank (“SSB”), a South Carolina banking corporation and wholly owned bank subsidiary of the Company, merged with and into CSB, a national banking association and wholly owned bank subsidiary of CSFL, with CSB continuing as the surviving bank (the “Bank Merger”). In connection with the Bank Merger, CSB changed its name to ~~“SouthState~~“South State Bank, National Association” (hereinafter referred to as the “Bank”). CSFL common shareholders received 0.3001 shares of the Company’s common stock in exchange for each share of CSFL stock resulting in the Company issuing 37,271,069 shares of its common stock. In total, the purchase price for CSFL was $2.26 billion including the value of the conversion of CSFL’s outstanding warrants, stock options and restricted stock units totaling $15.5 million. Subsequently, during the fourth quarter 2020, the purchase price (consideration transferred) decreased by $5.2 million due to an update to the value for stock options assumed and converted in the merger. The stock options assumed reflect their intrinsic value based upon a Black Scholes valuation.

In the acquisition, the Company acquired $13.0 billion of loans, including PPP loans, at fair value, net of $239.5 million, or 1.82%, estimated discount, including a fair value adjustment of $29.8 million recorded during the ~~current~~third quarter 2020, to the outstanding principal balance, representing 113.9% of the Company’s total loans at December 31, 2019. Of the total loans acquired, Management identified $3.1 billion that had more than insignificantly deteriorated since origination and were thus determined to be PCD loans.

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $125.9 million, which will be amortized utilizing a sum-of-the-years’-digit method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. During the ~~current~~third quarter 2020, the Company identified an additional intangible related to its correspondent banking business acquired in the CSFL merger of approximately $10.0 million. As a result of the various measurement period adjustments identified during ~~the current quarter,~~2020, goodwill was reduced by $~~36.9~~39.4 million to ~~$563.6~~$561.0 million.

During ~~the~~ three months ended March 31, 2021 and ~~nine month periods ending September 30,~~March 31, 2020, the Company incurred approximately ~~$21.6~~$10.0 million and ~~$65.9~~$4.1 million, respectively, of acquisition costs related to this transaction. ~~There were 0 expenses incurred related to this acquisition for the three and nine month periods ending September~~ ~~30, 2019.~~ These acquisition costs are reported in merger and branch consolidation related expenses on the Company’s Consolidated Statements of Income.

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The CSFL transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition.


			Initial			Subsequent							Initial			Subsequent
	As Recorded		Fair Value			Fair Value			As Recorded by		As Recorded		Fair Value			Fair Value			As Recorded by
(Dollars in thousands)	by CSFL		Adjustments			Adjustments			the Company		by CSFL		Adjustments			Adjustments			the Company
Assets
Cash and cash equivalents	$	2,566,450	$	—		$	—		$	2,566,450	$	2,566,450	$	—		$	—		$	2,566,450
Investment securities		1,188,403		5,507	(a)		—	(a)		1,193,910		1,188,403		5,507	(a)		—			1,193,910
Loans held for sale		453,578		—			—			453,578		453,578		—			—			453,578
Loans, net of allowance and mark		12,969,091		(48,342)	(b)		29,834	(b)		12,950,583		12,969,091		(48,342)	(b)		29,834	(b)		12,950,583
Premises and equipment		324,396		2,392	(c)		5,999	(c)		332,787		308,150		2,392	(c)		2,893	(c)		313,435
Intangible assets		1,294,211		(1,163,349)	(d)		10,000	(d)		140,862		1,294,211		(1,163,349)	(d)		10,000	(d)		140,862
OREO and repossessed assets		10,849		(791)	(e)		(49)	(e)		10,009		10,849		(791)	(e)		(49)	(e)		10,009
Bank owned life insurance		333,053		—			—			333,053		333,053		—			—			333,053
Deferred tax asset		54,122		(8,681)	(f)		(8,952)	(f)		36,489		54,123		(8,681)	(f)		(8,203)	(f)		37,239
Other assets		1,061,136		(604)	(g)		26	(g)		1,060,558		967,059		(604)	(g)		642	(g)		967,097
Total assets	$	20,255,289	$	(1,213,868)		$	36,858		$	19,078,279	$	20,144,967	$	(1,213,868)		$	35,117		$	18,966,216

Liabilities
Deposits:
Noninterest-bearing	$	5,291,443	$	—		$	—		$	5,291,443	$	5,291,443	$	—		$	—		$	5,291,443
Interest-bearing		10,312,370		19,702	(h)		—			10,332,072		10,312,370		19,702	(h)		—			10,332,072
Total deposits		15,603,813		19,702			—			15,623,515		15,603,813		19,702			—			15,623,515
Federal funds purchased and securities sold under agreements to repurchase		401,546		—			—			401,546		401,546		—			—			401,546
Other borrowings		278,900		(7,401)	(i)		—			271,499		278,900		(7,401)	(i)		—			271,499
Other liabilities		1,088,048		(4,592)	(j)		—			1,083,456		977,725		(4,592)	(j)		857	(j)		973,990
Total liabilities		17,372,307		7,709			—			17,380,016		17,261,984		7,709			857			17,270,550
Net identifiable assets acquired over (under) liabilities assumed		2,882,982		(1,221,577)			36,858			1,698,263		2,882,983		(1,221,577)			34,260			1,695,666
Goodwill		—		600,483			(36,858)			563,625		—		600,483			(39,441)			561,042
Net assets acquired over liabilities assumed	$	2,882,982	$	(621,094)		$	—		$	2,261,888	$	2,882,983	$	(621,094)		$	(5,181)		$	2,256,708

Consideration:
South State Corporation common shares issued										37,271,069										37,271,069
Purchase price per share of the Company's common stock									$	60.27									$	60.27

Company common stock issued ($2,246,327) and cash exchanged for fractional shares ($74)									$	2,246,401									$	2,246,401
Stock option conversion										8,080										2,900
Restricted stock conversion										7,407										7,407
Fair value of total consideration transferred									$	2,261,888									$	2,256,708	(k)

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) totaling $46.2 million (includes reclassification of all securities held as HTM to AFS totaling $175.7 million).

(b)— Represents approximately 2.04%, or $269.1 million, total mark of the loan portfolio including a 1.97%, or $259.7 million credit mark, based on a third party valuation. Also, includes the reversal of CSFL's ending allowance for credit losses of $158.2 million and fair value adjustments of $62.6 million. Fair value was subsequently adjusted by $29.8 million due to a reduction in the loan mark (discount).

(c)— Represents the MTM adjustment of $4.0 million on leased assets partially offset by the write-off of deminimus fixed assets of $1.6 million. Subsequently, the fair value on certain bank premises was adjusted by ~~$6.0~~$2.9 million based on updated appraisals received.

(d)— Represents approximately a 1.28% core deposit intangible, or $125.9 million from a third party valuation. This amount is net of $84.9 million existing core deposit intangible and $1.2 billion of existing goodwill from CSFL’s prior transactions that was reversed. Approximately $10.0 million in a customer list intangible related to the correspondent banking business was subsequently identified and recorded in the third quarter of 2020.

(e)— Represents the reversal of prior valuation reserves of $878,000 and recorded new valuation reserves of $1.7 million on both OREO and other repossessed assets. The fair value was subsequently adjusted based on gains and losses recognized from sales of OREO and other repossessed assets.

(f)— Represents deferred tax assets related to fair value adjustments measured using an estimated tax rate of 22.0%. This includes an adjustment from the CSFL tax rate to our tax rate. The difference in tax rates relates

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to state income taxes. Additional deferred tax liability related to subsequent fair value adjustments identified and an updated estimated tax rate of 23.78% was approximately ~~$9.0~~$8.2 million.

(g)— Represents a valuation reserve of bank property held for sale of ~~$3.8~~$3.2 million and a fair value adjustment of a lease receivable of $116,000. These amounts are offset by positive fair value adjustment for investment in low income housing of $3.3 million.

(h)— Represents estimated premium for fixed maturity time deposits of $20.2 million partially offset by the reversal of existing CSFL fair value adjustments related to time deposit marks from other merger transactions of $546,000.

(i)— Represents the recording of a discount of $12.5 million on TRUPs from a third party valuation partially offset by the reversal of the existing CSFL discount on TRUPs and other debt of $5.1 million.

(j)— Represents the reversal of an existing $7.1 million unfunded commitment reserve at purchase date partially offset by a fair value adjustment to increase lease liabilities associated with leased facilities totaling $2.5 million. The discount rate applied to the bank owned life insurance split dollar liability was subsequently adjusted resulting in an increase in the other liability of $857,000.

(k)— The purchase price, or the fair value of total consideration transferred, decreased by $5.2 million to $2.9 million for stock options assumed and converted in the merger. The stock options assumed reflect their intrinsic value based upon a Black Sholes valuation.

Comparative and Pro Forma Financial Information for the CSFL Acquisition

Pro-forma data for the three ~~and nine month periods ending September~~ ~~30,~~months ended March 31, 2020 ~~and 2019~~ listed in the table below presents pro-forma information as if the CSFL acquisition occurred at the beginning of ~~2019.~~2020. These results combine the historical results of CSFL in the Company’s Consolidated Statement of Net Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, ~~2019.~~2020.

Merger-related costs of ~~$65.9~~$4.1 million from the CSFL acquisition were incurred during the first quarter 2020 and were excluded from pro forma information below. ~~In addition, no adjustments have been made to the pro-formas to eliminate the provision for loan losses in 2019 of CSFL in the amount of~~ ~~$3.8~~ ~~million. Pro-forma data for the year 2020 eliminated the non-PCD provision recorded on the acquisition date of~~ ~~$119.1~~ million. If the CSFL acquisition had occurred at the beginning of 2019, the acquisition date loan loss reserve amount would have been recorded directly through retained earnings upon adoption of ASU 2016-13 on January 1, 2020. No adjustments have been made to reduce the impact of any OREO write downs, investment securities sold or repayment of borrowings recognized by CSFL in ~~either~~2020. The Company recorded expenses related to systems conversions and other costs of integration during the year 2020 ~~or 2019. Expenses~~and the first quarter of 2021 for the CSFL merger. The expenses related to systems conversions and other costs of integration are expected to continuously be recorded ~~during 2020 and 2021 for the CSFL merger.~~in 2021. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisitions which are not reflected in the pro forma amounts below. The total revenues presented below represent pro-forma net interest income plus pro-forma noninterest income:


	Pro Forma		Pro Forma		Pro Forma		Pro Forma
	Three Months Ended		Nine Months Ended		Nine Months Ended		Three Months Ended
(Dollars in thousands)	September 30, 2019		September 30, 2020		September 30, 2019		March 31, 2020
Total revenues (net interest income plus noninterest income)	$	361,287	$	1,151,361	$	1,009,372	$	374,136
Net interest income	$	275,217	$	788,031	$	786,383	$	274,214
Net adjusted income available to the common shareholder	$	113,008	$	300,248	$	301,898	$	58,179
EPS - basic	$	1.56	$	4.23	$	4.30	$	0.82
EPS - diluted	$	1.55	$	4.21	$	4.27	$	0.81

The disclosures regarding the results of operations for CSFL subsequent to the acquisition date are omitted as this information is not practical to obtain. Although the Company has not converted CSFL’s core system, the majority of the fixed costs and purchase accounting entries were booked on the Company’s core system making it impractical to determine CSFL’s results of operation on a stand-alone basis.

Duncan-Williams, Inc. (“Duncan-Williams”)

On February 1, 2021, the Company completed its previously announced acquisition of Duncan-Williams, a 52-year-old family- and employee-owned registered broker-dealer, headquartered in Memphis, Tennessee, serving primarily institutional clients across the U.S. in the fixed income business. Duncan-Williams firm became an operating subsidiary of South State Bank immediately following the transaction.

In total, the purchase price for Duncan-Williams was $48.3 million, including an additional premium of $8.0 million that is payable after three years from the date of acquisition. The acquisition was accounted for under the

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acquisition method of accounting in accordance with ASC Topic 805. The Company recognized goodwill on this acquisition of $15.8 million. The goodwill is calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.

Note 5 — Investment Securities

The following is the amortized cost and fair value of investment securities held-to-maturity:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
March 31, 2021:
U.S. Government agencies	$	49,988	$	—	$	(1,919)	$	48,069
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		749,291		—		(19,340)		729,951
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		99,326		—		(4,627)		94,699
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		250,708		44		(5,878)		244,874
Small Business Administration loan-backed securities		65,000		—		(1,831)		63,169
	$	1,214,313	$	44	$	(33,595)	$	1,180,762
December 31, 2020:
U.S. Government agencies	$	25,000	$	1	$	—	$	25,001
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		632,269		1,827		(1,032)		633,064
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		75,767		405		—		76,172
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		174,506		300		(91)		174,715
Small Business Administration loan-backed securities		48,000		231		—		48,231
	$	955,542	$	2,764	$	(1,123)	$	957,183

The following is the amortized cost and fair value of investment securities available for sale:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
March 31, 2021:
U.S. Government agencies	$	25,000	$	—	$	(1,447)	$	23,553
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,560,744		9,607		(21,669)		1,548,682
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		682,412		14,441		(6,303)		690,550
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		581,776		7,021		(8,418)		580,379
State and municipal obligations		589,954		10,510		(4,361)		596,103
Small Business Administration loan-backed securities		439,210		2,741		(3,414)		438,537
Corporate securities		13,549		170		(33)		13,686
	$	3,892,645	$	44,490	$	(45,645)	$	3,891,490
December 31, 2020:
U.S. Government agencies	$	29,882	$	16	$	(642)	$	29,256
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,351,506		16,657		(1,031)		1,367,132
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		739,797		16,579		(825)		755,551
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		229,219		10,939		(50)		240,108
State and municipal obligations		502,575		17,491		(27)		520,039
Small Business Administration loan-backed securities		401,496		4,978		(1,590)		404,884
Corporate securities		13,562		140		—		13,702
	$	3,268,037	$	66,800	$	(4,165)	$	3,330,672

During three months ended March 31, 2021 and March 31, 2020, there were 0 realized gains or losses from the sale of securities.

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~~Note 5 — Investment Securities~~

~~The following is the amortized cost and fair value of investment securities available for sale:~~

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

(Dollars in thousands)

Cost

Gains

Losses

Value

September 30, 2020:

Government-sponsored entities debt*

$
29,882

$
45

$
—

$
29,927

State and municipal obligations

446,068

13,236

(109)

459,195

Mortgage-backed securities**

3,008,562

54,671

(4,078)

3,059,155

Corporate securities

13,575

77

—

13,652

$
3,498,087

$
68,029

$
(4,187)

$
3,561,929

December��31, 2019:

Government-sponsored entities debt*

$
25,356

$
585

$
—

$
25,941

State and municipal obligations

204,150

5,029

(764)

208,415

Mortgage-backed securities**

1,711,257

14,209

(3,775)

1,721,691

$
1,940,763

$
19,823

$
(4,539)

$
1,956,047

September 30, 2019:

Government-sponsored entities debt*

$
40,322

$
645

$
—

$
40,967

State and municipal obligations

183,005

5,720

(43)

188,682

Mortgage-backed securities**

1,566,182

19,791

(2,488)

1,583,485

$
1,789,509

$
26,156

$
(2,531)

$
1,813,134

* - ~~Our government-sponsored entities holdings are comprised of debt securities offered by Freddie Mac, Fannie Mae, Ginnie Mae, the FHLB, and FFCB.~~

** - All of the mortgage-backed securities are issued by government-sponsored entities; there are 0 private-label holdings. Also, included in our mortgage-backed securities are debt securities offered by the SBA, which have the full faith and credit backing of the United States Government.

During the three and nine months ended September 30, 2020, the Company recognized gains of $469,000 and losses of $ 454,000 (a net gain of $15,000) from the sale of available for sale securities compared to a net realized gain of $437,000 and $2.7 million for the three and nine months ended September ~~30, 2019. The net realized gain of~~ ~~$2.7 million for the nine months ended September 30, 2019 includes net realized gains totaling $5.4~~ ~~million from the sale of VISA Class B shares. If the gains from the VISA Class B share are excluded, the Company would have had a net realized loss of~~ ~~$2.7 million on the sale of available for sale securities for the nine months ended September 30, 2019.~~

~~Table of Contents~~

The following is the amortized cost and carrying value of other investment securities:



	Carrying		Carrying
(Dollars in thousands)	Value		Value
September 30, 2020:
March 31, 2021:
Federal Home Loan Bank stock	$	44,838	$	16,283
Federal Reserve Bank stock		129,871		129,716
Investment in unconsolidated subsidiaries		4,941		4,941
Other nonmarketable investment securities		5,549		10,528
	$	185,199	$	161,468
December 31, 2019:
December 31, 2020:
Federal Home Loan Bank stock	$	43,044	$	15,083
Federal Reserve Bank stock				129,871
Investment in unconsolidated subsidiaries		3,563		4,941
Other nonmarketable investment securities		2,517		10,548
	$	49,124	$	160,443
September 30, 2019:
Federal Home Loan Bank stock	$	43,044
Investment in unconsolidated subsidiaries		3,563
Other nonmarketable investment securities		2,517
	$	49,124

Our other investment securities consist of non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for impairment, Management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of ~~September 30, 2020,~~March 31, 2021, we determined that there was 0 impairment on other investment securities.

The amortized cost and fair value of debt and equity securities at ~~September~~ ~~30, 2020~~March 31, 2021, by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.


	Securities				Securities				Securities
	Available for Sale				Held to Maturity				Available for Sale
	Amortized		Fair		Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value		Cost		Value
Due in one year or less	$	7,308	$	7,339	$	—	$	—	$	6,546	$	6,581
Due after one year through five years		57,855		59,731		—		—		90,961		93,481
Due after five years through ten years		531,275		547,293		103,666		99,660		556,874		561,777
Due after ten years		2,901,649		2,947,566		1,110,647		1,081,102		3,238,264		3,229,651
	$	3,498,087	$	3,561,929	$	1,214,313	$	1,180,762	$	3,892,645	$	3,891,490

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Information pertaining to our securities with gross unrealized losses at ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019,~~2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:


	Less Than				Twelve Months				Less Than				Twelve Months
	Twelve Months				or More				Twelve Months				or More
	Gross				Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value		Losses		Value		Losses		Value
September 30, 2020:
March 31, 2021:
Securities Held to Maturity
U.S. Government agencies									$	1,919	$	48,069	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										19,340		729,951		—		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises										4,627		94,699		—		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										5,878		141,438		—		—
Small Business Administration loan-backed securities										1,831		63,169		—		—
									$	33,595	$	1,077,326	$	—	$	—
Securities Available for Sale
Government-sponsored entities debt	$	—	$	—	$	—	$	—
U.S. Government agencies									$	1,447	$	23,553	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										21,669		987,348		—		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises										6,303		140,650		—		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										8,418		271,699		—		—
State and municipal obligations		109		43,880		—		—		4,361		153,477		—		—
Mortgage-backed securities		2,988		697,242		1,090		110,312
Small Business Administration loan-backed securities										2,225		136,824		1,189		123,335
Corporate securities		—		—		—		—		33		6,967		—		—
	$	3,097	$	741,122	$	1,090	$	110,312	$	44,456	$	1,720,518	$	1,189	$	123,335
December 31, 2019:
December 31, 2020:
Securities Held to Maturity
agencies or sponsored enterprises									$	1,032	$	213,146	$	—	$	—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										91		27,445		—		—
									$	1,123	$	240,591	$	—	$	—
Securities Available for Sale
Government-sponsored entities debt	$	—	$	—	$	—	$	—
U.S. Government agencies									$	642	$	24,358	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										1,031		260,411		—		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises										825		140,333		—		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										46		13,594		4		871
State and municipal obligations		764		42,070		—		—		27		8,620		—		—
Mortgage-backed securities		2,422		461,658		1,353		141,982
Small Business Administration loan-backed securities										573		94,981		1,017		104,254
	$	3,186	$	503,728	$	1,353	$	141,982	$	3,144	$	542,297	$	1,021	$	105,125
September 30, 2019:
Securities Available for Sale
Government-sponsored entities debt	$	—	$	—	$	—	$	—
State and municipal obligations		43		5,275		—		—
Mortgage-backed securities		1,113		312,686		1,375		154,111
	$	1,156	$	317,961	$	1,375	$	154,111

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain ~~its~~our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, ~~Management~~management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. The Company performed an analysis

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that determined that the following securities have a zero expected credit loss: U.S. Treasury Securities, Agency-Backed Securities including securities issued by ~~Ginnie Mae, Freddie Mac, Fannie Mae, the~~GNMA, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United ~~State~~States Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities ~~available for sale~~ in an unrealized loss position as of ~~September 30, 2020~~March 31, 2021 continue to perform as scheduled and we do not believe ~~that~~ there is a credit loss or ~~that~~ a provision for credit losses is necessary.

Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 2 – Summary of Significant Account Policies for further discussion.

~~Table of Contents~~

Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance ~~that~~ we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

Note 6 — Loans

The following is a summary of total loans:


	September 30,		December 31,		September 30,		March 31,		December 31,
(Dollars in thousands)	2020		2019		2019		2021		2020
Loans:
Construction and land development(1)	$	1,840,111	$	1,017,261	$	1,025,387	$	1,888,901	$	1,899,066
Commercial non-owner occupied		5,936,372		2,323,967		2,357,730		5,926,453		5,931,323
Commercial owner occupied real estate		4,846,020		2,158,701		2,093,795		4,826,651		4,842,092
Consumer owner occupied(2)		4,311,186		2,706,960		2,760,126		4,026,509		4,108,042
Home equity loans		1,347,798		758,020		773,363		1,287,088		1,336,689
Commercial and industrial		5,419,120		1,386,327		1,261,527		5,087,416		5,047,147
Other income producing property		629,497		346,554		361,879		563,127		587,448
Consumer		900,171		663,422		654,883		880,134		894,334
Other loans		7,540		13,892		1,457		5,186		17,993
Total loans		25,237,815		11,375,104		11,290,147		24,491,465		24,664,134
Less allowance for credit losses		(440,159)		(61,991)		(60,255)		(406,460)		(457,309)
Loans, net	$	24,797,656	$	11,313,113	$	11,229,892	$	24,085,005	$	24,206,825

(1)

Construction and land development includes loans for both commercial construction and development, as well as loans for 1-4 family construction and lot loans.

(2)

Consumer owner occupied real estate includes loans on both 1-4 family owner occupied property, as well as 1-4 family investment rental property.

In accordance with the adoption of ASU 2016-13, the above table reflects the loan portfolio at the amortized cost basis for the current period ~~September 30, 2020,~~March 31, 2021, to include net deferred cost of ~~$50.5~~$27.7 million and unamortized discount total related to loans acquired of ~~$110.4~~$87.3 million. Accrued interest receivable (AIR) of ~~$97.8~~$89.5 million is accounted for separately and reported in other assets. The allowance for credit losses in the comparative periods includes the day 2 valuation allowance on the acquired credit impaired loans, which was $5.1 million at December 31, 2019 and $5.3 million at September 30, 2019.

The ~~comparative periods~~Company purchased loans through its acquisition of CSFL in the ~~above table reflect the loan portfolio prior to the adoption~~second quarter of ~~ASU 2016-13. Prior periods were reported~~2020, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans, at acquisition, is as ~~shown in the below tables, with the acquired loans being net of unearned income and of related discounts,which includes the credit discount on the acquired credit impaired loans.~~follows:


(Dollars in thousands)	June 7, 2020
Book value of acquired loans at acquisition	$	3,091,264
Allowance for credit losses at acquisition		(149,404)
Non-credit discount at acquisition		(14,283)
Carrying value or book value of acquired loans at acquisition	$	2,927,577

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~~The following is a summary of non-acquired loans for comparative periods, prior to the adoption of ASU 2016-13:~~

December 31,

September 30,

(Dollars in thousands)

2019

2019

Non-acquired loans:





Commercial non-owner occupied real estate:

Construction and land development

$
968,360

$
955,318

Commercial non-owner occupied

1,811,138

1,777,327

Total commercial non-owner occupied real estate

2,779,498

2,732,645

Consumer real estate:

Consumer owner occupied

2,118,839

2,118,127

Home equity loans

518,628

521,744

Total consumer real estate

2,637,467

2,639,871

Commercial owner occupied real estate

1,784,017

1,677,695

Commercial and industrial

1,280,859

1,130,847

Other income producing property

218,617

220,957

Consumer

538,481

525,040

Other loans

13,892

1,457

Total non-acquired loans

9,252,831

8,928,512

Less allowance for loan losses

(56,927)

(54,937)

Non-acquired loans, net

$
9,195,904

$
8,873,575

~~The following is a summary of acquired non-credit impaired loans accounted for under FASB ASC Topic 310-20, net of related discount, for comparative periods, prior to the adoption of ASU 2016-13:~~

December 31,

September 30,
(Dollars in thousands)

2019

2019
Acquired non-credit impaired loans:






Commercial non-owner occupied real estate:

Construction and land development

$
33,569

$
53,302
Commercial non-owner occupied

447,441

503,443
Total commercial non-owner occupied real estate

481,010

556,745
Consumer real estate:

Consumer owner occupied

496,431

543,432
Home equity loans

188,732

198,112
Total consumer real estate

685,163

741,544
Commercial owner occupied real estate

307,193

345,040
Commercial and industrial

101,880

126,092
Other income producing property

95,697

103,093
Consumer

89,484

93,089
Acquired non-credit impaired loans

$
1,760,427

$
1,965,603

~~The unamortized discount related to the acquired non-credit impaired loans totaled $20.3 million and $24.2 million at December 31, 2019, and September 30, 2019, respectively.~~

~~Table of Contents~~

In accordance with FASB ASC Topic 310-30, we aggregated acquired loans that have common risk characteristics into pools of loan categories as described in the table below. The following is a summary of acquired credit impaired loans accounted for under FASB ASC Topic 310-30 (identified as credit impaired at the time of acquisition), net of related discount, ~~for comparative periods, prior to the adoption of ASU 2016-13:~~

December 31,

September 30,
(Dollars in thousands)

2019

2019
Acquired credit impaired loans:




Commercial real estate

$
130,938

$
149,134
Commercial real estate—construction and development

25,032

26,930
Residential real estate

163,359

175,044
Consumer

35,488

36,812
Commercial and industrial

7,029

8,112
Acquired credit impaired loans

361,846

396,032
Less allowance for loan losses

(5,064)

(5,318)
Acquired credit impaired loans, net

$
356,782

$
390,714

As part of the ongoing monitoring of the credit quality of our loan portfolio, Management tracks certain credit quality indicators, including trends related to (i) the level of classified loans, (ii) net charge-offs, (iii) non-performing loans (see details below), and (iv) the general economic conditions of the markets that we serve.

We utilize a risk grading matrix to assign a risk grade to each commercial loan. Classified loans are assessed at a minimum every six months. A description of the general characteristics of the risk grades is as follows:

●

Pass—These loans range from minimal credit risk to average, however, still acceptable credit risk.

●

Special mention—A special mention loan has potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

●

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

●

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

Construction and land development loans in the following table are on commercial and speculative real estate. Consumer owner occupied loans are on investment or rental 1-4 properties.

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The following table presents the credit risk profile by risk grade of commercial loans by origination year:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2020

2020

2019

2018

2017

2016

Prior

Revolving

Total

As of March 31, 2021

2021

2020

2019

2018

2017

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$ 310,705

$ 417,268

$ 162,696

$ 87,830

$ 44,234

$ 62,987

$ 17,572

$ 1,103,292

$ 109,475

$ 446,813

$ 392,240

$ 108,104

$ 76,826

$ 92,885

$ 19,029

$ 1,245,372

Special mention

3,873

24,986

434

1,640

4,273

8,469

43,675

828

22,740

2,785

657

2,156

6,209

496

35,871

Substandard

355

2,815

856

1,921

654

3,847

10,448

378

305

2,821

442

857

3,703

8,506

Doubtful

Total Construction and land development

$ 314,933

$ 445,069

$ 163,986

$ 91,391

$ 49,161

$ 75,311

$ 17,572

$ 1,157,423

$ 110,681

$ 469,858

$ 397,846

$ 109,203

$ 79,839

$ 102,805

$ 19,525

$ 1,289,757

Commercial non-owner occupied

Risk rating:

Pass

$ 549,564

$ 1,105,865

$ 878,410

$ 705,532

$ 725,339

$ 1,303,140

$ 59,442

$ 5,327,292

$ 228,835

$ 781,247

$ 1,042,267

$ 795,307

$ 626,399

$ 1,757,376

$ 57,862

$ 5,289,293

Special mention

41,358

76,702

106,855

46,660

35,293

131,472

438,340

725

44,705

76,566

111,653

42,151

157,653

433,453

Substandard

1,317

49,669

8,127

27,310

38,636

45,677

170,736

364

477

74,662

9,855

28,205

90,098

203,661

Doubtful

Total Commercial non-owner occupied

$ 592,239

$ 1,232,236

$ 993,392

$ 779,502

$ 799,268

$ 1,480,293

$ 59,442

$ 5,936,372

$ 229,924

$ 826,429

$ 1,193,495

$ 916,815

$ 696,755

$ 2,005,173

$ 57,862

$ 5,926,453

Commercial Owner Occupied

Risk rating:

Pass

$ 623,490

$ 979,946

$ 752,860

$ 627,298

$ 489,093

$ 1,122,413

$ 35,709

$ 4,630,809

$ 163,545

$ 802,824

$ 966,904

$ 691,577

$ 565,159

$ 1,401,822

$ 32,417

$ 4,624,248

Special mention

4,836

13,658

14,252

14,814

14,729

48,751

111,137

286

6,182

9,813

13,654

14,287

58,571

102,813

Substandard

4,089

4,992

3,796

23,326

15,075

52,441

350

104,069

2,536

4,112

10,499

2,230

20,180

59,972

99,564

Doubtful

Total commercial owner occupied

$ 632,415

$ 998,596

$ 770,908

$ 665,438

$ 518,897

$ 1,223,610

$ 36,156

$ 4,846,020

$ 166,367

$ 813,119

$ 987,216

$ 707,461

$ 599,626

$ 1,520,390

$ 32,472

$ 4,826,651

Commercial and industrial

Risk rating:

Pass

$ 2,944,353

$ 630,152

$ 484,117

$ 339,940

$ 237,691

$ 456,125

$ 227,613

$ 5,319,991

$ 1,611,235

$ 1,313,365

$ 541,430

$ 405,497

$ 289,381

$ 589,987

$ 259,255

$ 5,010,150

Special mention

9,431

6,959

3,768

7,772

2,791

26,921

11,600

69,242

387

2,595

2,978

2,040

7,655

27,674

2,030

45,359

Substandard

526

867

7,513

7,573

3,388

7,159

2,850

29,876

533

2,967

1,196

6,418

5,546

6,879

8,347

31,886

Doubtful

Total commercial and industrial

$ 2,954,310

$ 637,979

$ 495,399

$ 355,288

$ 243,873

$ 490,207

$ 242,064

$ 5,419,120

$ 1,612,155

$ 1,318,927

$ 545,606

$ 413,957

$ 302,585

$ 624,553

$ 269,633

$ 5,087,416

Other income producing property

Risk rating:

Pass

$ 86,891

$ 93,360

$ 79,172

$ 64,528

$ 74,821

$ 138,341

$ 6,425

$ 543,538

$ 18,529

$ 92,394

$ 74,892

$ 76,332

$ 50,745

$ 167,989

$ 7,395

$ 488,276

Special mention

2,649

1,249

1,875

238

885

12,637

100

19,633

496

2,569

1,938

1,370

127

12,245

18,786

Substandard

633

909

849

1,213

996

13,808

18,455

475

926

568

534

124

12,758

15,432

Doubtful

Total other income producing property

$ 90,173

$ 95,518

$ 81,896

$ 65,979

$ 76,702

$ 164,792

$ 6,572

$ 581,632

$ 19,500

$ 95,889

$ 77,398

$ 78,236

$ 50,996

$ 192,998

$ 7,483

$ 522,500

Consumer owner occupied

Risk rating:

Pass

$ 6,990

$ 4,951

$ 612

$ 357

$ 1,564

$ 1,604

$ 13,321

$ 29,399

$ 398

$ 7,283

$ 3,414

$ 239

$ 102

$ 2,202

$ 14,875

$ 28,513

Special mention

3,613

251

140

304

4,402

221

126

3,544

220

101

4,324

Substandard

121

389

143

341

1,089

105

384

143

323

955

Doubtful

146

Total Consumer owner occupied

$ 7,140

$ 8,953

$ 1,006

$ 511

$ 1,570

$ 2,085

$ 13,625

$ 34,890

$ 619

$ 7,514

$ 7,342

$ 602

$ 162

$ 2,723

$ 14,976

$ 33,938

Other loans

Risk rating:

Pass

$ 7,540

$ -

$ 7,540

$ 5,186

$ -

$ 5,186

Special mention

Substandard

Doubtful

Total other loans

$ 7,540

$ -

$ 7,540

$ 5,186

$ -

$ 5,186

Total Commercial Loans

Risk rating:

Pass

$ 4,529,533

$ 3,231,542

$ 2,357,867

$ 1,825,485

$ 1,572,742

$ 3,084,610

$ 360,082

$ 16,961,861

$ 2,137,203

$ 3,443,926

$ 3,021,147

$ 2,077,056

$ 1,608,612

$ 4,012,261

$ 390,833

$ 16,691,038

Special mention

62,176

127,167

127,435

71,189

57,971

228,390

12,101

686,429

2,943

78,917

97,624

129,594

66,436

262,404

2,688

640,606

Substandard

7,041

59,641

21,284

61,432

58,755

123,273

3,247

334,673

4,286

8,892

90,130

19,622

54,912

173,733

8,429

360,004

Doubtful

244

253

Total Commercial Loans

$ 4,598,750

$ 3,418,351

$ 2,506,587

$ 1,958,109

$ 1,689,471

$ 3,436,298

$ 375,431

$ 17,982,997

$ 2,144,432

$ 3,531,736

$ 3,208,903

$ 2,226,274

$ 1,729,963

$ 4,448,642

$ 401,951

$ 17,691,901

~~Table of Contents~~

Term Loans

(Dollars in thousands)
Amortized Cost Basis by Origination Year

As of September 30, 2020
2020
2019
2018
2017
2016
Prior
Revolving
Total
Consumer owner occupied

Days past due:

Current
$ 683,682
$ 702,582
$ 635,065
$ 580,141
$ 444,876
$ 1,212,359
$ -
$ 4,258,705
30 days past due
-
63
237
116
68
2,736
-
3,220
60 days past due
246
330
1,824
134
516
1,445
-
4,495
90 days past due
-
337
364
1,279
905
6,991
-
9,876
Total Consumer owner occupied
$ 683,928
$ 703,312
$ 637,490
$ 581,670
$ 446,365
$ 1,223,531
$ -
$ 4,276,296

Home equity loans

Days past due:

Current
$ 6,134
$ 6,972
$ 8,988
$ 1,758
$ 442
$ 31,746
$ 1,282,226
$ 1,338,266
30 days past due
155
-
-
289
7
314
2,752
3,517
60 days past due
-
6
-
-
-
49
600
655
90 days past due
-
68
-
157
315
3,165
1,655
5,360
Total Home equity loans
$ 6,289
$ 7,046
$ 8,988
$ 2,204
$ 764
$ 35,274
$ 1,287,233
$ 1,347,798

Consumer

Days past due:

Current
$ 229,845
$ 229,491
$ 132,566
$ 74,318
$ 46,477
$ 161,134
$ 21,285
$ 895,116
30 days past due
100
326
243
117
124
934
19
1,863
60 days past due
36
44
68
105
22
646
18
939
90 days past due
47
82
340
161
156
1,466
1
2,253
Total consumer
$ 230,028
$ 229,943
$ 133,217
$ 74,701
$ 46,779
$ 164,180
$ 21,323
$ 900,171

Construction and land development

Days past due:

Current
$ 262,567
$ 269,667
$ 86,778
$ 24,277
$ 7,238
$ 31,980
$ -
$ 682,507
30 days past due
13
-
-
-
-
14
-
27
60 days past due
-
-
-
-
-
47
-
47
90 days past due
-
-
-
-
-
107
-
107
Total Construction and land development
$ 262,580
$ 269,667
$ 86,778
$ 24,277
$ 7,238
$ 32,148
$ -
$ 682,688

Other income producing property

Days past due:

Current
$ 3,226
$ 1,791
$ 2,441
$ 4,091
$ 3,065
$ 33,236
$ -
$ 47,850
30 days past due
-
-
-
-
-
-
-
-
60 days past due
-
-
-
-
-
-
-
-
90 days past due
-
-
-
-
-
15
-
15
Total other income producing property
$ 3,226
$ 1,791
$ 2,441
$ 4,091
$ 3,065
$ 33,251
$ -
$ 47,865

Total Consumer Loans

Days past due:

Current
$ 1,185,454
$ 1,210,503
$ 865,838
$ 684,585
$ 502,098
$ 1,470,455
$ 1,303,511
$ 7,222,444
30 days past due
268
389
480
522
199
3,998
2,771
8,627
60 days past due
282
380
1,892
239
538
2,187
618
6,136
90 days past due
47
487
704
1,597
1,376
11,744
1,656
17,611
Total Consumer Loans
$ 1,186,051
$ 1,211,759
$ 868,914
$ 686,943
$ 504,211
$ 1,488,384
$ 1,308,556
$ 7,254,818

Term Loans

(Dollars in thousands)
Amortized Cost Basis by Origination Year

As of September 30, 2020
2020
2019
2018
2017
2016
Prior
Revolving
Total
Total Loans
$ 5,784,801
$ 4,630,110
$ 3,375,501
$ 2,645,052
$ 2,193,682
$ 4,924,682
$ 1,683,987
$ 25,237,815

2521

Table of Contents

The following table presents the credit risk profile by risk grade of commercial loans for non-acquired loans, for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:

Construction & Development

Commercial Non-owner Occupied

Commercial Owner Occupied

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

Term Loans

(Dollars in thousands)

2019

Amortized Cost Basis by Origination Year

As of December 31, 2020

2020

2019

2018

2017

2016

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

959,206

947,230

1,787,306

1,768,013

1,754,801

1,648,456

$ 457,433

$ 410,075

$ 133,719

$ 79,345

$ 41,018

$ 53,104

$ 15,502

$ 1,190,196

Special mention

7,095

5,601

22,410

7,091

19,742

17,319

20,912

5,668

707

1,757

1,815

7,293

38,152

Substandard

2,059

2,487

1,422

2,223

9,474

11,920

389

2,800

763

2,087

201

3,669

9,909

Doubtful

—

Total Construction and land development

$ 478,734

$ 418,543

$ 135,189

$ 83,189

$ 43,034

$ 64,074

$ 15,502

$ 1,238,265

968,360

955,318

1,811,138

1,777,327

1,784,017

1,677,695

Commercial non-owner occupied

Risk rating:

Pass

$ 799,175

$ 1,082,242

$ 844,988

$ 661,092

$ 676,895

$ 1,196,156

$ 58,021

$ 5,318,569

Special mention

42,492

76,890

111,466

44,790

38,637

131,015

445,290

Substandard

1,351

49,662

7,497

27,224

38,617

43,109

167,460

Doubtful

Total Commercial non-owner occupied

$ 843,018

$ 1,208,794

$ 963,951

$ 733,106

$ 754,149

$ 1,370,284

$ 58,021

$ 5,931,323

Commercial Owner Occupied

Risk rating:

Pass

$ 805,192

$ 957,412

$ 721,808

$ 603,785

$ 458,065

$ 1,042,755

$ 42,239

$ 4,631,256

Special mention

6,993

15,984

13,021

14,457

13,597

48,775

112,848

Substandard

5,729

4,185

4,690

20,122

15,093

48,127

97,982

Doubtful

Total commercial owner occupied

$ 817,915

$ 977,581

$ 739,519

$ 638,364

$ 486,755

$ 1,139,662

$ 42,296

$ 4,842,092

Commercial and industrial

Risk rating:

Pass

$ 2,723,320

$ 595,310

$ 450,238

$ 308,914

$ 223,532

$ 419,555

$ 247,169

$ 4,968,038

Special mention

1,566

3,273

3,031

7,243

2,496

25,727

9,368

52,704

Substandard

347

1,070

6,202

7,718

2,808

6,010

2,240

26,395

Doubtful

Total commercial and industrial

$ 2,725,233

$ 599,655

$ 459,472

$ 323,878

$ 228,839

$ 451,293

$ 258,777

$ 5,047,147

Other income producing property

Risk rating:

Pass

$ 95,530

$ 89,648

$ 75,301

$ 55,103

$ 66,351

$ 121,304

$ 6,487

$ 509,724

Special mention

2,613

1,417

1,702

235

879

11,202

100

18,148

Substandard

1,071

1,046

997

1,279

13,702

18,161

Doubtful

Total other income producing property

$ 99,214

$ 92,111

$ 78,000

$ 55,357

$ 68,509

$ 146,214

$ 6,634

$ 546,039

Consumer owner occupied

Risk rating:

Pass

$ 7,590

$ 3,527

$ 356

$ 339

$ 1,076

$ 1,290

$ 15,502

$ 29,680

Special mention

130

3,581

249

124

338

4,484

Substandard

113

387

142

326

973

Doubtful

Total Consumer owner occupied

$ 7,833

$ 7,495

$ 747

$ 401

$ 1,081

$ 1,740

$ 15,840

$ 35,137

Other loans

Risk rating:

Pass

$ 17,993

$ -

$ 17,993

Special mention

Substandard

Doubtful

Total other loans

$ 17,993

$ -

$ 17,993

Total Commercial Loans

Risk rating:

Pass

$ 4,906,233

$ 3,138,214

$ 2,226,410

$ 1,708,578

$ 1,466,937

$ 2,834,164

$ 384,920

$ 16,665,456

Special mention

74,706

106,813

130,176

68,544

57,424

224,136

9,827

671,626

Substandard

9,000

59,150

20,291

57,170

58,003

114,943

2,323

320,880

Doubtful

Total Commercial Loans

$ 4,989,940

$ 3,304,179

$ 2,376,878

$ 1,834,295

$ 1,582,367

$ 3,173,267

$ 397,070

$ 17,657,996

Commercial & Industrial

Other Income Producing Property

Commercial Total

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,


2019

2019

2019

2019

2019

2019

Pass

$
1,256,465

$
1,103,532

$
213,291

$
215,624

$
5,971,069

$
5,682,855

Special mention

16,055

18,148

3,966

3,922

69,268

52,081

Substandard

8,339

9,167

1,360

1,411

22,654

27,208

Doubtful

—

—

—

—

—

—

$
1,280,859

$
1,130,847

$
218,617

$
220,957

$
6,062,991

$
5,762,144

The following table presents the credit risk profile by risk grade of consumer loans for non-acquired loans, for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:

Consumer Owner Occupied

Home Equity

Consumer

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

(Dollars in thousands)

2019

2019

2019

2019

2019

2019

Pass

$
2,094,080

$
2,091,129

$
508,054

$
510,508

$
536,002

$
522,674

Special mention

9,585

9,054

4,490

5,373

487

421

Substandard

15,174

17,944

6,084

5,863

1,992

1,945

Doubtful

—

—

—

—

—

—

$
2,118,839

$
2,118,127

$
518,628

$
521,744

$
538,481

$
525,040

Other

Consumer Total


December 31, 2019

September 30, 2019

December 31, 2019

September 30, 2019

Pass

$
13,892

$
1,457

$
3,152,028

$
3,125,768

Special mention

—

—

14,562

14,848

Substandard

—

—

23,250

25,752

Doubtful

—

—

—

—

$
13,892

$
1,457

$
3,189,840

$
3,166,368

~~The following table presents the credit risk profile by risk grade of total non-acquired loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:~~

Total Non-acquired Loans

December 31,

September 30,

(Dollars in thousands)

2019

2019

Pass

$
9,123,097

$
8,808,623

Special mention

83,830

66,929

Substandard

45,904

52,960

Doubtful

—

—

$
9,252,831

$
8,928,512

The following table presents the credit risk profile by risk grade of commercial loans for acquired non-credit impaired loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:

Commercial Non-owner

Construction & Development

Occupied

Commercial Owner Occupied

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

(Dollars in thousands)

2019

2019

2019

2019

2019

2019

Pass

$
31,690

$
51,340

$
432,710

$
492,258

$
300,678

$
330,005

Special mention

966

736

14,162

5,035

3,092

3,427

Substandard

913

1,226

569

6,150

3,423

11,608

Doubtful

—

—

—

—

—

—

$
33,569

$
53,302

$
447,441

$
503,443

$
307,193

$
345,040

2622

Table of Contents

Other Income Producing

Commercial & Industrial

Property

Commercial Total

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,


2019

2019

2019

2019

2019

2019

Pass

$
97,092

$
120,926

$
87,892

$
95,611

$
950,062

$
1,090,140

Special mention

2,948

4,051

5,837

5,937

27,005

19,186

Substandard

1,840

1,115

1,968

1,545

8,713

21,644

Doubtful

—

—

—

—

—

—

$
101,880

$
126,092

$
95,697

$
103,093

$
985,780

$
1,130,970

For the consumer segment, delinquency of a loan is determined by past due status. Consumer loans are automatically placed on nonaccrual status once the loan is 90 days past due. Construction and land development loans are on 1-4 properties and lots. The following ~~table presents~~tables present the credit risk profile by ~~risk grade~~past due status of consumer loans ~~for acquired non-credit impaired loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:~~by origination year:


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of March 31, 2021	2021	2020	2019	2018	2017	Prior	Revolving	Total
Consumer owner occupied
Days past due:
Current	$ 199,054	$ 837,846	$ 654,899	$ 490,479	$ 438,647	$ 1,336,430	$ -	$ 3,957,355
30 days past due	-	3,308	3,266	2,328	1,965	11,994	-	22,861
60 days past due	-	124	58	-	119	1,235	-	1,536
90 days past due	-	-	353	170	1,034	9,262	-	10,819
Total Consumer owner occupied	$ 199,054	$ 841,278	$ 658,576	$ 492,977	$ 441,765	$ 1,358,921	$ -	$ 3,992,571

Home equity loans
Days past due:
Current	$ 2,532	$ 7,269	$ 6,546	$ 5,360	$ 557	$ 27,574	$ 1,226,868	$ 1,276,706
30 days past due	-	52	156	2	-	554	3,953	4,717
60 days past due	-	65	-	65	-	212	1,163	1,505
90 days past due	-	3	221	79	66	2,476	1,315	4,160
Total Home equity loans	$ 2,532	$ 7,389	$ 6,923	$ 5,506	$ 623	$ 30,816	$ 1,233,299	$ 1,287,088

Consumer
Days past due:
Current	$ 84,682	$ 233,869	$ 180,014	$ 101,267	$ 54,976	$ 190,457	$ 29,548	$ 874,813
30 days past due	15	334	181	255	469	1,129	119	2,502
60 days past due	-	130	78	186	18	199	2	613
90 days past due	-	102	225	283	48	1,476	72	2,206
Total consumer	$ 84,697	$ 234,435	$ 180,498	$ 101,991	$ 55,511	$ 193,261	$ 29,741	$ 880,134

Construction and land development
Days past due:
Current	$ 66,685	$ 374,186	$ 83,748	$ 28,822	$ 11,488	$ 29,277	$ -	$ 594,206
30 days past due	-	3,368	1,488	-	-	-	-	4,856
60 days past due	-	-	-	-	-	-	-	-
90 days past due	-	-	-	-	-	82	-	82
Total Construction and land development	$ 66,685	$ 377,554	$ 85,236	$ 28,822	$ 11,488	$ 29,359	$ -	$ 599,144

Other income producing property
Days past due:
Current	$ 2,911	$ 1,913	$ 1,343	$ 1,205	$ 2,345	$ 30,896	$ -	$ 40,613
30 days past due	-	-	-		-	9	-	9
60 days past due	-	-	-	-	-	-	-	-
90 days past due	-	-	-	-	-	5	-	5
Total other income producing property	$ 2,911	$ 1,913	$ 1,343	$ 1,205	$ 2,345	$ 30,910	$ -	$ 40,627

Total Consumer Loans
Days past due:
Current	$ 355,864	$ 1,455,083	$ 926,550	$ 627,133	$ 508,013	$ 1,614,634	$ 1,256,416	$ 6,743,693
30 days past due	15	7,062	5,091	2,585	2,434	13,686	4,072	34,945
60 days past due	-	319	136	251	137	1,646	1,165	3,654
90 days past due	-	105	799	532	1,148	13,301	1,387	17,272
Total Consumer Loans	$ 355,879	$ 1,462,569	$ 932,576	$ 630,501	$ 511,732	$ 1,643,267	$ 1,263,040	$ 6,799,564


	Consumer Owner Occupied				Home Equity				Consumer
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,		Term Loans
(Dollars in thousands)	2019		2019		2019		2019		2019		2019		Amortized Cost Basis by Origination Year
Pass	$	486,433	$	532,760	$	174,912	$	184,946	$	86,535	$	90,076
Special mention		6,434		6,805		5,679		5,405		654		574
Substandard		3,564		3,867		8,141		7,761		2,295		2,439
Doubtful		—		—		—		—		—		—
	$	496,431	$	543,432	$	188,732	$	198,112	$	89,484	$	93,089
As of March 31, 2021													2021	2020	2019	2018	2017	Prior	Revolving	Total
Total Loans													$ 2,500,311	$ 4,994,305	$ 4,141,479	$ 2,856,775	$ 2,241,695	$ 6,091,909	$ 1,664,991	$ 24,491,465

Consumer Total

December 31,

September 30,

2019

2019
Pass

$
747,880

$
807,782
Special mention

12,767

12,784
Substandard

14,000

14,067
Doubtful

—

—

$
774,647

$
834,633

The following table presents the credit risk profile by risk grade of total acquired non-credit impaired loans for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:

Total Acquired

Non-credit Impaired Loans

December 31,

September 30,

(Dollars in thousands)

2019

2019

Pass

$
1,697,942

$
1,897,922

Special mention

39,772

31,970

Substandard

22,713

35,711

Doubtful

—

—

$
1,760,427

$
1,965,603

The following table presents the credit risk profile by risk grade of acquired credit impaired loans (identified as credit-impaired at the time of acquisition), net of the related discount for comparative periods, prior to the adoption of ASU 2016-13, under the incurred loss model:

Commercial Real Estate—

Construction and

Commercial Real Estate

Development


December 31,

September 30,

December 31,

September 30,

(Dollars in thousands)

2019

2019

2019

2019

Pass

$
108,762

$
121,264

$
17,756

$
18,978

Special mention

6,465

9,064

2,904

3,018

Substandard

15,711

18,806

4,372

4,934

Doubtful

—

—

—

—

$
130,938

$
149,134

$
25,032

$
26,930

Residential Real Estate

Consumer

Commercial & Industrial

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,


2019

2019

2019

2019

2019

2019

Pass

$
82,203

$
88,131

$
4,483

$
4,696

$
5,160

$
5,703

Special mention

35,968

36,901

12,658

12,723

286

471

Substandard

45,188

50,012

18,347

19,393

1,583

1,938

Doubtful

—

—

—

—

—

—

$
163,359

$
175,044

$
35,488

$
36,812

$
7,029

$
8,112

~~Table of Contents~~

Total Acquired

Credit Impaired Loans

December 31,

September 30,

2019

2019

Pass

$
218,364

$
238,772

Special mention

58,281

62,177

Substandard

85,201

95,083

Doubtful

—

—

$
361,846

$
396,032

The risk grading of acquired credit impaired loans is determined utilizing a loan’s contractual balance, while the amount recorded in the financial statements and reflected above is the carrying value.

~~The following table presents an aging analysis of past due accruing loans, segregated by class:~~

30 - 59 Days

60 - 89 Days

90+ Days

Total




Total
(Dollars in thousands)
Past Due

Past Due

Past Due

Past Due

Current

Non-Accruing

Loans
September 30, 2020

Construction and land development
$
2,028

$
245

$
—

$
2,273

$
1,836,193

$
1,645

$
1,840,111
Commercial non-owner occupied

604

21

—

625

5,928,700

7,047

5,936,372
Commercial owner occupied

1,150

859

526

2,535

4,812,672

30,813

4,846,020
Consumer owner occupied

2,184

4,494

1

6,679

4,271,410

33,097

4,311,186
Home equity loans

1,997

476

379

2,852

1,333,516

11,430

1,347,798
Commercial and industrial

10,728

1,507

632

12,867

5,393,529

12,724

5,419,120
Other income producing property

1,261

—

—

1,261

620,112

8,124

629,497
Consumer

1,653

969

4

2,626

891,531

6,014

900,171
Other loans

—

—

—

—

7,540

—

7,540

$
21,605

$
8,571

$
1,542

$
31,718

$
25,095,203

$
110,894

$
25,237,815

~~Table of Contents~~

~~The following table presents an aging analysis of past due accruing loans, segregated by class for non-acquired loans, for comparative periods, prior to the adoption of ASU 2016-13:~~

30 - 59 Days

60 - 89 Days

90+ Days

Total




Total
(Dollars in thousands)

Past Due

Past Due

Past Due

Past Due

Current

Non-Accruing

Loans
December 31, 2019

Commercial real estate:

Construction and land development

$
321

$
34

$
—

$
355

$
967,511

$
494

$
968,360
Commercial non-owner occupied

114

—

—

114

1,810,264

760

1,811,138
Commercial owner occupied

3,218

553

—

3,771

1,776,764

3,482

1,784,017
Consumer real estate:

Consumer owner occupied

752

—

—

752

2,110,719

7,368

2,118,839
Home equity loans

1,343

39

—

1,382

515,673

1,573

518,628
Commercial and industrial

2,097

100

110

2,307

1,272,360

6,192

1,280,859
Other income producing property

208

—

404

612

217,159

846

218,617
Consumer

690

201

—

891

536,003

1,587

538,481
Other loans

25

3

—

28

13,864

13,892

$
8,768

$
930

$
514

$
10,212

$
9,220,317

$
22,302

$
9,252,831
September 30, 2019

Commercial real estate:

Construction and land development

$
194

$
17

$
—

$
211

$
954,558

$
549

$
955,318
Commercial non-owner occupied

173

—

299

472

1,776,366

489

1,777,327
Commercial owner occupied

2,818

1,588

—

4,406

1,669,227

4,062

1,677,695
Consumer real estate:

Consumer owner occupied

1,390

79

—

1,469

2,109,103

7,555

2,118,127
Home equity loans

425

237

—

662

519,701

1,381

521,744
Commercial and industrial

1,209

327

30

1,566

1,126,682

2,599

1,130,847
Other income producing property

115

181

—

296

219,981

680

220,957
Consumer

558

114

—

672

522,829

1,539

525,040
Other loans

—

—

—

—

1,457

—

1,457

$
6,882

$
2,543

$
329

$
9,754

$
8,899,904

$
18,854

$
8,928,512

2923

Table of Contents

~~The following table presents an aging analysis of past due accruing loans, segregated by class for acquired non-credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:~~


	30 - 59 Days		60 - 89 Days		90+ Days		Total						Total		Term Loans
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Non-Accruing		Loans		Amortized Cost Basis by Origination Year
December 31, 2019
Commercial real estate:
As of December 31, 2020															2020	2019	2018	2017	2016	Prior	Revolving	Total
Consumer owner occupied
Days past due:
Current															$ 810,215	$ 675,928	$ 543,711	$ 508,160	$ 392,754	$ 1,097,008	$ -	$ 4,027,776
30 days past due															4,933	7,744	2,816	2,382	3,510	10,522	-	31,907
60 days past due															-	350	1,222	621	103	3,068	-	5,364
90 days past due															-	176	264	994	875	5,549	-	7,858
Total Consumer owner occupied															$ 815,148	$ 684,198	$ 548,013	$ 512,157	$ 397,242	$ 1,116,147	$ -	$ 4,072,905

Home equity loans
Days past due:
Current															$ 7,654	$ 6,694	$ 7,670	$ 658	$ 398	$ 30,039	$ 1,276,058	$ 1,329,171
30 days past due															134	52	-	79	-	272	2,324	2,861
60 days past due															-	-	-	-	-	116	418	534
90 days past due															155	93	-	157	330	1,886	1,502	4,123
Total Home equity loans															$ 7,943	$ 6,839	$ 7,670	$ 894	$ 728	$ 32,313	$ 1,280,302	$ 1,336,689

Consumer
Days past due:
Current															$ 291,305	$ 201,330	$ 115,203	$ 62,485	$ 38,272	$ 147,101	$ 32,874	$ 888,570
30 days past due															105	473	454	224	29	1,043	23	2,351
60 days past due															68	143	93	61	37	376	47	825
90 days past due															73	195	272	185	100	1,663	100	2,588
Total consumer															$ 291,551	$ 202,141	$ 116,022	$ 62,955	$ 38,438	$ 150,183	$ 33,044	$ 894,334

Construction and land development	$	20	$	—	$	92	$	112	$	32,758	$	699	$	33,569
Commercial non-owner occupied		144		1,146		76		1,366		445,682		393		447,441
Commercial owner occupied		890		702		—		1,592		304,698		903		307,193
Consumer real estate:
Consumer owner occupied		637		24		59		720		493,361		2,350		496,431
Home equity loans		232		55		—		287		185,378		3,067		188,732
Commercial and industrial		93		204		—		297		100,861		722		101,880
Days past due:
Current															$ 370,975	$ 164,260	$ 63,936	$ 18,530	$ 4,497	$ 25,399	$ -	$ 647,597
30 days past due															6,172	3,660	161	-	2,255	184	-	12,432
60 days past due															282	-	438	-	-	-	-	720
90 days past due															-	-	-	-	-	52	-	52
Total Construction and land development															$ 377,429	$ 167,920	$ 64,535	$ 18,530	$ 6,752	$ 25,635	$ -	$ 660,801

Other income producing property		378		4,309		48		4,735		89,861		1,101		95,697
Consumer		364		191		—		555		87,325		1,604		89,484
Days past due:
Current															$ 1,412	$ 1,351	$ 1,310	$ 3,658	$ 2,045	$ 31,592	$ -	$ 41,368
30 days past due															-	-	-	-	-	27	-	27
60 days past due															-	-	-	-	-	13	-	13
90 days past due															-	-	-	-	-	1	-	1
Total other income producing property															$ 1,412	$ 1,351	$ 1,310	$ 3,658	$ 2,045	$ 31,633	$ -	$ 41,409
	$	2,758	$	6,631	$	275	$	9,664	$	1,739,924	$	10,839	$	1,760,427
September 30, 2019
Commercial real estate:
Construction and land development	$	323	$	—	$	—	$	323	$	51,948	$	1,031	$	53,302
Commercial non-owner occupied		697		—		—		697		502,480		266		503,443
Commercial owner occupied		2,400		168		—		2,568		341,539		933		345,040
Consumer real estate:
Consumer owner occupied		807		—		—		807		540,886		1,739		543,432
Home equity loans		438		107		—		545		194,533		3,034		198,112
Commercial and industrial		857		32		—		889		124,511		692		126,092
Other income producing property		1,008		292		—		1,300		101,523		270		103,093
Consumer		446		33		—		479		90,979		1,631		93,089
	$	6,976	$	632	$	—	$	7,608	$	1,948,399	$	9,596	$	1,965,603
Total Consumer Loans
Days past due:
Current															$ 1,481,561	$ 1,049,563	$ 731,830	$ 593,491	$ 437,966	$ 1,331,139	$ 1,308,932	$ 6,934,482
30 days past due															11,344	11,929	3,431	2,685	5,794	12,048	2,347	49,578
60 days past due															350	493	1,753	682	140	3,573	465	7,456
90 days past due															228	464	536	1,336	1,305	9,151	1,602	14,622
Total Consumer Loans															$ 1,493,483	$ 1,062,449	$ 737,550	$ 598,194	$ 445,205	$ 1,355,911	$ 1,313,346	$ 7,006,138

~~The following table presents an aging analysis of past due accruing loans, segregated by class for acquired credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:~~

30 - 59 Days

60 - 89 Days

90+ Days

Total



Total
(Dollars in thousands)

Past Due

Past Due

Past Due

Past Due

Current

Loans
December 31, 2019

Commercial real estate

$
2,283

$
—

$
2,659

$
4,942

$
125,996

$
130,938
Commercial real estate—construction and development

—

—

393

393

24,639

25,032
Residential real estate

2,838

976

5,571

9,385

153,974

163,359
Consumer

820

283

534

1,637

33,851

35,488
Commercial and industrial

118

910

75

1,103

5,926

7,029

$
6,059

$
2,169

$
9,232

$
17,460

$
344,386

$
361,846
September 30, 2019

Commercial real estate

$
444

$
252

$
2,671

$
3,367

$
145,767

$
149,134
Commercial real estate—construction and development

88

—

261

349

26,581

26,930
Residential real estate

2,317

1,143

5,016

8,476

166,568

175,044
Consumer

948

185

499

1,632

35,180

36,812
Commercial and industrial

282

—

77

359

7,753

8,112

$
4,079

$
1,580

$
8,524

$
14,183

$
381,849

$
396,032


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of December 31, 2020	2020	2019	2018	2017	2016	Prior	Revolving	Total
Total Loans	$ 6,483,423	$ 4,366,628	$ 3,114,428	$ 2,432,489	$ 2,027,572	$ 4,529,178	$ 1,710,416	$ 24,664,134

~~Table of Contents~~

~~The following is a summary of information pertaining to nonaccrual loans by class, including restructured loans:~~

December 31,

September 30,

Greater than

Non-accrual

(Dollars in thousands)

2019

2020

90 Days Accruing⁽¹⁾

with no allowance⁽¹⁾

Construction and land development

$
1,193

$
1,645

$
—

$
537

Commercial non-owner occupied

1,154

7,047

—

2,683

Commercial owner occupied real estate

4,385

30,813

526

12,165

Consumer owner occupied

9,718

33,097

1

467

Home equity loans

4,640

11,430

379

1,281

Commercial and industrial

6,913

12,724

632

1,131

Other income producing property

1,947

8,124

—

1,180

Consumer

3,191

6,014

4

—

Total loans on nonaccrual status

$
33,141

$
110,894

$
1,542

$
19,444

~~(1)~~

~~– Greater than 90 days accruing and non-accrual with no allowance loans at September 30, 2020.~~

There is no interest income recognized during the period on nonaccrual loans. The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Loans on nonaccrual status in which there is no allowance assigned are individually evaluated loans that do not carry a specific reserve. See Note 2 – Summary of Significant Accounting Policies for further detailed on individually evaluated loans. The increase in the nonaccrual balance in the above schedule, compared to December 31, 2019, is mainly due to the addition of nonaccrual loans of $69.3 million through the merger with CSFL in the second quarter. The increase was also partially due to the addition of $21.0 ~~million of PCD loans, formerly accounted for as credit impaired loans, prior to the adoption of ASU 2016-13. These loans were previously excluded from nonaccrual loans.~~ ~~The adoption of ASU 2016-13 resulted in the discontinuation of the pool-level accounting for acquired credit impaired loans and replaced it with loan-level evaluation for nonaccrual status.~~

~~The following is a summary of information pertaining to non-acquired nonaccrual loans by class, including restructured loans, for comparative periods, prior to the adoption of ASU 2016-13:~~

December 31,

September 30,

(Dollars in thousands)

2019

2019

Commercial non-owner occupied real estate:





Construction and land development

$
363

$
412

Commercial non-owner occupied

732

457

Total commercial non-owner occupied real estate

1,095

869

Consumer real estate:

Consumer owner occupied

7,202

7,374

Home equity loans

1,468

1,273

Total consumer real estate

8,670

8,647

Commercial owner occupied real estate

3,482

4,062

Commercial and industrial

4,092

2,565

Other income producing property

798

628

Consumer

1,587

1,539

Restructured loans

2,578

544

Total loans on nonaccrual status

$
22,302

$
18,854

3124

Table of Contents

The following table presents an aging analysis of past due accruing loans, segregated by class:


	30 - 59 Days		60 - 89 Days		90+ Days		Total				Non-		Total
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Accruing		Loans
March 31, 2021
Construction and land development	$	572	$	406	$	31	$	1,009	$	1,886,194	$	1,698	$	1,888,901
Commercial non-owner occupied		2,588		—		—		2,588		5,917,537		6,328		5,926,453
Commercial owner occupied		561		839		32		1,432		4,791,417		33,802		4,826,651
Consumer owner occupied		2,592		993		74		3,659		3,994,684		28,166		4,026,509
Home equity loans		3,520		620		—		4,140		1,272,461		10,487		1,287,088
Commercial and industrial		13,018		3,224		636		16,878		5,061,576		8,962		5,087,416
Other income producing property		373		5		184		562		557,516		5,049		563,127
Consumer		2,139		418		—		2,557		871,969		5,608		880,134
Other loans		3		—		—		3		5,183		—		5,186
	$	25,366	$	6,505	$	957	$	32,828	$	24,358,537	$	100,100	$	24,491,465
December 31, 2020
Construction and land development	$	520	$	1,142	$	—	$	1,662	$	1,894,983	$	2,421	$	1,899,066
Commercial non-owner occupied		188		372		471		1,031		5,925,696		4,596		5,931,323
Commercial owner occupied		2,900		840		—		3,740		4,812,293		26,059		4,842,092
Consumer owner occupied		1,375		3632		34		5,041		4,072,255		30,746		4,108,042
Home equity loans		1,805		481		—		2,286		1,324,459		9,944		1,336,689
Commercial and industrial		10,979		22,089		10,864		43,932		4,993,997		9,218		5,047,147
Other income producing property		687		—		278		965		580,353		6,130		587,448
Consumer		1,718		818		4		2,540		885,720		6,074		894,334
Other loans		13		6		—		19		17,974		—		17,993
	$	20,185	$	29,380	$	11,651	$	61,216	$	24,507,730	$	95,188	$	24,664,134

The following is a summary of information pertaining to ~~acquired non-credit impaired~~ nonaccrual loans by class, including restructured ~~loans, for comparative periods, prior to the adoption of ASU 2016-13:~~loans:


	December 31,		September 30,		December 31,		March 31,		Greater than		Non-accrual
(Dollars in thousands)	2019		2019		2020		2021		90 Days Accruing⁽¹⁾		with no allowance⁽¹⁾
Commercial non-owner occupied real estate:
Construction and land development	$	699	$	1,031	$	2,421	$	1,698	$	31	$	23
Commercial non-owner occupied		393		266		4,596		6,328		—		1,112
Total commercial non-owner occupied real estate		1,092		1,297
Consumer real estate:
Commercial owner occupied real estate						26,059		33,802		32		12,870
Consumer owner occupied		2,350		1,739		30,746		28,166		74		314
Home equity loans		3,067		3,034		9,944		10,487		—		51
Total consumer real estate		5,417		4,773
Commercial owner occupied real estate		903		933
Commercial and industrial		722		692		9,218		8,962		636		222
Other income producing property		1,101		270		6,130		5,049		184		322
Consumer		1,604		1,631		6,074		5,608		—		—
Total loans on nonaccrual status	$	10,839	$	9,596	$	95,188	$	100,100	$	957	$	14,914

(1)

– Greater than 90 days accruing and non-accrual with no allowance loans at March 31, 2021.

Table of Contents

that do not carry a specific reserve. See Note 2 – Summary of Significant Accounting Policies for further detailed on individually evaluated loans.

The following is a summary of collateral dependent loans, by type of collateral, and the extent to which they are collateralized during the period:


	December 31,		Collateral			September 30,		Collateral			December 31,		Collateral			March 31,		Collateral
(Dollars in thousands)	2019		Coverage		%	2020		Coverage		%	2020		Coverage		%	2021		Coverage		%
Commercial non-owner occupied
Church	$	245	$	846	345%	$	—	$	—
Office		1,045		1,800	172%		2,683		3,654	136%
Other		398		648	163%		—		—
Retail		299		1,269	424%		—		—		$	—	$	—		$	1,112	$	1,440	129%
Commercial owner occupied real estate
Church		—		—			1,943		1,984	102%
Industrial		738		1,103	149%		—		—
Office		1,076		1,485	138%		2,389		3,510	147%		1,076		1,485	138%		3,833		2,214	58%
Retail		—		—			4,327		5,490	127%		4,849		5,490	113%		9,413		11,250	120%
Other		3,303		7,285	221%		1,050		1,075	102%		1,010		1,075	106%		—		—
Consumer owner occupied
Other		5,413		9,286	172%		—		—
Home equity loans
Other		1,768		2,679	152%		1,178		1,578	134%
Commercial and industrial
Industrial		291		702	241%		—		—
Other		3,696		8,442	228%		—		—
Other income producing property
Other		3,212		10,186	317%		1,180		4,622	392%
Consumer
Other		363		525	145%		—		—
Total collateral dependent loans	$	21,847	$	46,256		$	14,750	$	21,913		$	6,935	$	8,050		$	14,358	$	14,904

The Bank designates individually evaluated loans (excluding TDRs) on non-accrual with a net book balance exceeding the designated threshold as collateral dependent loans. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining ACL. Under ASC 326-20-35-6, the Bank has adopted the collateral maintenance practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for selling costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. During the second quarter of 2020, the Bank increased the threshold limit for loans individually evaluated from $500,000 to $1.0 million. The significant changes above in collateral percentage are due to appraisal value updates or changes in the number of loans within the asset class and collateral type. Overall collateral dependent loans ~~decreased by $7.1~~increased $7.4 million ~~from December~~during the three months ended March 31, ~~2019 compared to the balance at September 30, 2020.~~2021.

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. Any loans that are modified are reviewed by the Bank to determine if a TDR, sometimes referred to herein as a restructured loan, has occurred. The Bank designates loan modifications as TDRs when it grants a concession to a borrower that it would not otherwise consider due to the borrower experiencing financial difficulty (FASB ASC

~~Table of Contents~~

Topic 310-40). The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. See Note 2 – Summary of Significant Accounting Policies for how such modifications are factored into the determination of the ACL.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six ~~months)~~months). ~~In prior periods, our TDR levels were deemed to be immaterial, therefore no comparative data is shown.~~

The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession meets the criteria stipulated in the CARES Act. Details in regards to the Company’s implemented loan modification programs in response to the COVID-19 pandemic under the CARES Act is disclosed under the Note 2 – Summary of Significant Accounting Policies.

~~The following table presents loans designated as TDRs segregated by class and type of concession that were restructured during the three and nine months ended September 30, 2020.~~

Three Months Ended September 30, 2020

Pre-Modification

Post-Modification

Number

Amortized

Amortized

(Dollars in thousands)
of loans

Cost

Cost

Interest rate modification

Construction and land development
--

$--

$--

Commercial non-owner occupied
--

--

--

Commercial owner occupied
1

4,637

4,637

Consumer owner occupied
--

--

--

Home equity loans
--

--

--

Commercial and industrial
2

336

336

Other income producing property
1

61

61

Consumer
--

--

--

Other loans
--

--

--

Total interest rate modifications
4

$5,034

$5,034

Term modification

Construction and land development
--

$--

$--

Commercial non-owner occupied
--

--

--

Commercial owner occupied
1

185

185

Consumer owner occupied
1

72

72

Home equity loans
--

--

--

Commercial and industrial
2

295

295

Other income producing property
--

--

--

Consumer
3

120

120

Other loans
--

--

--

Total term modifications
7

$672

$672

11

$ 5,706

$ 5,706

3326

Table of Contents

Nine Months Ended September 30, 2020

Pre-Modification

Post-Modification

Number

Amortized

Amortized

(Dollars in thousands)
of loans

Cost

Cost

Interest rate modification

Construction and land development
2

$99

$99

Commercial non-owner occupied

Commercial owner occupied
2

5,842

5,842

Consumer owner occupied
1

29

29

Home equity loans

Commercial and industrial
8

859

859

Other income producing property
1

61

61

Consumer

Other loans

Total interest rate modifications
14

$6,890

$6,890

Term modification

Construction and land development
--

$--

$--

Commercial non-owner occupied
--

--

--

Commercial owner occupied
1

185

185

Consumer owner occupied
5

591

591

Home equity loans
1

51

51

Commercial and industrial
3

563

563

Other income producing property

Consumer
3

120

120

Other loans
--

--

--

Total term modifications
13

$1,510

$1,510

27

$ 8,400

$ 8,400

The following table presents loans designated as TDRs segregated by class and type of concession that were restructured during the three month period ending March 31, 2021 and 2020.


	Three Months Ended March 31,
	2021						2020
			Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number		Amortized		Amortized		Number	Amortized		Amortized
(Dollars in thousands)	of loans		Cost		Cost		of loans	Cost		Cost
Interest rate modification		��
Construction and land development	—		$	—	$	—	2	$	106	$	106
Consumer owner occupied	—			—		—	1		30		30
Commercial and industrial	—			—		—	6		782		782
Other income producing property	1			298		298	1		345		345
Total interest rate modifications	1		$	298	$	298	10	$	1,263	$	1,263
Term modification
Consumer owner occupied	—		$	—	$	—	1	$	52	$	52
Home equity loans	—			—		—	1		52		52
Commercial and industrial	1			40		40	1		284		284
Total term modifications	1		$	40	$	40	3	$	388	$	388
	2		$	338	$	338	13	$	1,651	$	1,651

At ~~September 30,~~March 31, 2021 and 2020, the balance of accruing TDRs was ~~$16.2 million.~~$14.5 million and $10.9 million, respectively. The Company had ~~$1.6~~$791,000 and $1.1 million remaining availability under commitments to lend additional funds on restructured loans at ~~September 30,~~March 31, 2021 and 2020. The amount of specific reserve associated with restructured loans was ~~$1.2~~$2.4 million and $1.1 million at ~~September 30, 2020.~~March 31, 2021 and 2020, respectively.

The following table presents the changes in status of loans restructured within the previous 12 months as of ~~September 30, 2020~~March 31, 2021 by type of concession. ~~The~~There were no loans with subsequent ~~default in this case had no impact on the expected credit losses.~~default.

Paying Under

Restructured Terms

Converted to Nonaccrual

Foreclosures and Defaults

Number

Amortized

Number

Amortized

Number

Amortized
(Dollars in thousands)

of Loans

Cost

of Loans

Cost

of Loans

Cost
Interest rate modification

15

$ 6,923

--

$--

--

$--
Term modification

14

1,482

--

--

1

268

29

$ 8,405

--

$--

1

$268


	Paying Under
	Restructured Terms		Converted to Nonaccrual		Foreclosures and Defaults
	Number	Amortized	Number	Amortized	Number	Amortized
(Dollars in thousands)	of Loans	Cost	of Loans	Cost	of Loans	Cost
Interest rate modification	10	$ 7,620	—	$—	—	$—
Term modification	8	1,209	—	—	—	—
	18	$ 8,829	—	$—	—	$—

Note 7 — Allowance for Credit Losses (ACL)

See Note 2 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance for credit losses.

3427

Table of Contents

The following table presents a disaggregated analysis of activity in the allowance for credit losses as follows:

Residential

Residential

Residential

Other

CRE Owner

Non Owner

(Dollars in thousands)

Mortgage Sr.

Mortgage Jr.

HELOC

Construction

C&D

Consumer

Multifamily

Municipal

Occupied

Occupied CRE

C & I

Total
Three Months Ended September 30, 2020

Allowance for credit losses:

Balance at beginning of period June 30, 2020

$
67,342

$
1,081

$
26,623

$
9,439

$
33,912

$
20,170

$
7,792

$
4,075

$
90,206

$
129,958

$
44,010

$
434,608
FMV Adjustment to Initial PCD Allowance

29

—

—

—

—

—

(1,255)

3

(319)

(1,542)
Adjusted CECL balance

$
67,371

$
1,081

$
26,623

$
9,439

$
33,912

$
20,170

$
7,792

$
4,075

$
88,951

$
129,961

$
43,691

$
433,066
Charge-offs

(90)

—

(297)

—

(38)

(1,393)

—

—

(458)

(578)

(1,788)

(4,642)
Recoveries

289

100

365

79

221

602

8

—

457

234

1,693

4,048
Net charge offs

199

100

68

79

183

(791)

8

—

(1)

(344)

(95)

(594)
Provision (benefit) (1)

(5,351)

253

(5,584)

(4,151)

29,756

4,577

767

(2,641)

4,830

(9,181)

(5,588)

7,687
Balance at end of period September 30, 2020

$
62,219

$
1,434

$
21,107

$
5,367

$
63,851

$
23,956

$
8,567

$
1,434

$
93,780

$
120,436

$
38,008

$
440,159

Allowance for credit losses:

Quantitative allowance

Collectively evaluated

$
60,377

$
1,477

$
18,868

$
5,132

$
66,087

$
19,276

$
8,567

$
603

$
95,399

$
121,403

$
29,745

$
426,934
Individually evaluated

115

—

73

—

8

2

—

—

961

5

7

1,171
Total quantitative allowance

60,492

1,477

18,941

5,132

66,095

19,278

8,567

603

96,360

121,408

29,752

428,105
Qualitative allowance

1,727

(43)

2,166

235

(2,244)

4,678

—

831

(2,580)

(972)

8,256

12,054
Balance at end of period September 30, 2020

$
62,219

$
1,434

$
21,107

$
5,367

$
63,851

$
23,956

$
8,567

$
1,434

$
93,780

$
120,436

$
38,008

$
440,159

		Residential			Residential						Residential			Other												CRE Owner			Non Owner
	~~(1)~~	~~– Additional provision for credit losses~~	The following table presents a disaggregated analysis of ~~$22.1 million was recorded during the third quarter of 2020 for~~activity in the allowance for credit losses ~~for unfunded commitments that is not considered~~as follows:
(Dollars in ~~the above table.~~thousands)		Mortgage Sr.			Mortgage Jr.			HELOC			Construction			C&D			Consumer			Multifamily			Municipal			Occupied			Occupied CRE			C & I			Total

Residential

Residential

Residential

Other

CRE Owner

Non Owner

(Dollars in thousands)

Mortgage Sr.

Mortgage Jr.

HELOC

Construction

C&D

Consumer

Multifamily

Municipal

Occupied

Occupied CRE

C & I

Total
Nine Months Ended September 30, 2020

Allowance for credit losses:

Balance at beginning of period January 1, 2020

$
6,128

$
15

$
4,327

$
815

$
6,211

$
4,350

$
1,557

$
956

$
10,879

$
15,219

$
6,470

$
56,927
Impact of Adoption

5,455

11

3,849

779

5,588

3,490

1,391

914

9,505

13,898

6,150

51,030
Initial PCD Allowance

406

3

289

—

351

669

97

—

898

656

39

3,408
Adjusted CECL balance, January 1, 2020

$
11,989

$
29

$
8,465

$
1,594

$
12,150

$
8,509

$
3,045

$
1,870

$
21,282

$
29,773

$
12,659

$
111,365
Impact of merger on provision for non-PCD loans

16,712

226

4,227

4,893

7,673

3,836

1,212

919

25,393

35,067

9,284

109,442
Initial PCD Allowance

29,935

804

5,119

1,302

6,035

6,120

902

1,003

34,077

45,787

18,320

149,404
Charge-offs

(473)

(24)

(978)

(31)

(212)

(4,301)

—

—

(1,081)

(601)

(2,595)

(10,296)
Recoveries

876

246

988

83

1,070

1,498

63

—

885

287

2,291

8,287
Net charge offs

403

222

10

52

858

(2,803)

63

—

(196)

(314)

(304)

(2,009)
Provision (benefit) (1)

3,180

153

3,286

(2,474)

37,135

8,294

3,345

(2,358)

13,224

10,123

(1,951)

71,957
Balance at end of period September 30, 2020

$
62,219

$
1,434

$
21,107

$
5,367

$
63,851

$
23,956

$
8,567

$
1,434

$
93,780

$
120,436

$
38,008

$
440,159

Allowance for credit ~~losses~~losses:
	~~(1)~~		Three Months Ended March 31, 2021	~~– Additional provision~~
Balance at end of ~~$36.4 million was recorded during the first nine months~~period December 31, 2020 ~~for the allowance~~		$	63,561		$	1,238	$	16,698	$	4,914	$	67,197	$	26,562	$	7,887	$	1,510	$	97,104	$	124,421	$	46,217	$	457,309
Charge-offs			(120)			—		(169)		—		(10)		(2,149)		—		—		(27)		(194)		(705)		(3,374)
Recoveries			428			33		417		1		201		510		—		—		333		321		1,151		3,395
Net (charge offs) recoveries			308			33		248		1		191		(1,639)		—		—		306		127		446		21
(Recovery) provision (1)			(827)			(81)		(943)		(1,023)		(12,051)		2,960		(2,003)		34		(6,750)		(16,989)		(13,197)		(50,870)
Balance at end of period March 31, 2021		$	63,042		$	1,190	$	16,003	$	3,892	$	55,337	$	27,883	$	5,884	$	1,544	$	90,660	$	107,559	$	33,466	$	406,460

Allowance for credit ~~losses~~losses:
Quantitative allowance
Collectively evaluated		$	55,336		$	1,190	$	14,210	$	3,830	$	55,234	$	21,334	$	5,884	$	817	$	83,115	$	100,267	$	26,673	$	367,890
Individually evaluated			378			—		165		—		103		—		—		—		3,315		35		399		4,395
Total quantitative allowance			55,714			1,190		14,375		3,830		55,337		21,334		5,884		817		86,430		100,302		27,072		372,285
Qualitative allowance			7,328			—		1,628		62		—		6,549		—		727		4,230		7,257		6,394		34,175
Balance at end of period March 31, 2021		$	63,042		$	1,190	$	16,003	$	3,892	$	55,337	$	27,883	$	5,884	$	1,544	$	90,660	$	107,559	$	33,466	$	406,460

Three Months Ended March 31, 2020
Allowance for ~~unfunded commitments that is not considered in the above table. Of this amount, $9.6 million was from the initial impact from the merger with CSFL. See Note 14.~~loan losses:
Balance at beginning of period January 1, 2020		$	6,128		$	15	$	4,327	$	815	$	6,211	$	4,350	$	1,557	$	956	$	10,879	$	15,219	$	6,470	$	56,927
Impact of Adoption			5,455			11		3,849		779		5,588		3,490		1,391		914		9,505		13,898		6,150		51,030
Initial PCD Allowance			406			3		289		—		351		669		97		—		898		656		39		3,408
Adjusted CECL balance		$	11,989		$	29	$	8,465	$	1,594	$	12,150	$	8,509	$	3,045	$	1,870	$	21,282	$	29,773	$	12,659	$	111,365
Charge-offs			(304)			—		(615)		—		(105)		(1,785)		—		—		(315)		—		(99)		(3,223)
Recoveries			276			91		413		—		280		467		52		—		88		44		198		1,909
Net (charge offs) recoveries			(28)			91		(202)		—		175		(1,318)		52		—		(227)		44		99		(1,314)
Provision (recovery) (1)			6,253			119		3,829		541		4,452		1,808		1,460		19		2,737		11,485		2,031		34,734
Balance at end of period March 31, 2020		$	18,214		$	239	$	12,092	$	2,135	$	16,777	$	8,999	$	4,557	$	1,889	$	23,792	$	41,302	$	14,789	$	144,785

Allowance for credit losses:
Quantitative allowance
Collectively evaluated		$	10,824		$	42	$	7,517	$	1,729	$	11,257	$	6,744	$	1,639	$	1,160	$	14,579	$	14,958	$	8,802	$	79,251
Individually evaluated			61			174		315		—		75		—		—		—		173		2		512		1,312
Total quantitative allowance			10,885			216		7,832		1,729		11,332		6,744		1,639		1,160		14,752		14,960		9,314		80,563
Qualitative allowance			7,329			23		4,260		406		5,445		2,255		2,918		729		9,040		26,342		5,475		64,222
Balance at end of period March 31, 2020		$	18,214		$	239	$	12,092	$	2,135	$	16,777	$	8,999	$	4,557	$	1,889	$	23,792	$	41,302	$	14,789	$	144,785

~~An aggregated analysis~~(1) A negative provision (recovery) for credit losses of $7.5 million was recorded during the ~~changes in~~first quarter of 2021, compared to an additional provision for credit losses of $1.8 million recorded during the first quarter of 2020 for the allowance for ~~loan~~credit losses for ~~comparative periods, prior to~~unfunded commitments that is not included in the ~~adoption of ASU 2016-13 is as follows:~~above table.

Non-acquired

Acquired Non-Credit

Acquired Credit


(Dollars in thousands)

Loans

Impaired Loans

Impaired Loans

Total

Three Months Ended September 30, 2019:

Balance at beginning of period

$
53,590

$
—

$
4,623

$
58,213

Loans charged-off

(1,969)

(810)

—

(2,779)

Recoveries of loans previously charged off (1)

834

50

—

884

Net charge-offs

(1,135)

(760)

—

(1,895)

Provision for loan losses charged to operations

2,482

760

786

4,028

Reduction due to loan removals

—

—

(91)

(91)

Balance at end of period

$
54,937

$
—

$
5,318

$
60,255

Note 8 — Other Real Estate Owned and Bank Premises Held for Sale

The following is a summary of information pertaining to OREO and Bank Premises Held for Sale:


	Three Months Ended March 31,
(Dollars in thousands)	2021
Balance, December 31, 2020	$	47,920
Additions		4,160
Writedowns		(468)
Sold		(8,948)
Balance, March 31, 2021	$	42,664
Other Real Estate Owned at March 31, 2021		11,471
Bank Premises Held for Sale at March 31, 2021	$	31,193

At March 31, 2021, there were a total of 41 properties included in OREOcompared to 42 properties at December 31, 2020. At March 31, 2021, there were a total of 29 properties included in bank premises held for sale which compares to 33 properties included in premises held for sale, at December 31, 2020. During the second quarter of 2020, a reclassification was made so that bank property held for sale is now separately disclosed on the balance sheet.At March 31, 2021, we had $1.1 million in residential real estate included in OREO and $4.7 million in residential real estate consumer mortgage loans in the process of foreclosure.

3528

Table of Contents

Non-acquired

Acquired Non-Credit

Acquired Credit


(Dollars in thousands)

Loans

Impaired Loans

Impaired Loans

Total

Nine Months Ended September 30, 2019:

Balance at beginning of period

$
51,194

$
—

$
4,604

$
55,798

Loans charged-off

(4,541)

(2,719)

—

(7,260)

Recoveries of loans previously charged off (1)

2,461

372

—

2,833

Net charge-offs

(2,080)

(2,347)

—

(4,427)

Provision for losses charged to operations

5,823

2,347

1,050

9,220

Reduction due to loan removals

—

—

(336)

(336)

Balance at end of period

$
54,937

$
—

$
5,318

$
60,255

~~(1)~~

~~Recoveries related to acquired credit impaired loans are recorded through other noninterest income on the Consolidated Statement of Net Income and do not run through the ALLL.~~

The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for non-acquired loans, for comparative periods, prior to the adoption of ASU 2016-13:

Construction

Commercial

Commercial

Consumer





Other Income






& Land

Non-owner

Owner

Owner

Home

Commercial

Producing

Other

(Dollars in thousands)

Development

Occupied

Occupied

Occupied

Equity

& Industrial

Property

Consumer

Loans

Total
Three Months Ended September 30, 2019

Allowance for loan losses:

Balance, June 30, 2019

$
5,718

$
10,311

$
9,526

$
12,432

$
3,177

$
7,495

$
1,359

$
3,572

$
—

$
53,590
Charge-offs

(69)

—

(31)

(10)

(100)

(32)

—

(1,727)

—

(1,969)
Recoveries

208

2

18

149

86

77

29

265

—

834
Provision (benefit)

159

238

456

(24)

28

21

(29)

1,633

—

2,482
Balance, September 30, 2019

$
6,016

$
10,551

$
9,969

$
12,547

$
3,191

$
7,561

$
1,359

$
3,743

$
—

$
54,937
Loans individually evaluated for impairment

$
587

$
—

$
33

$
33

$
121

$
387

$
58

$
2

$
—

$
1,221
Loans collectively evaluated for impairment

$
5,429

$
10,551

$
9,936

$
12,514

$
3,070

$
7,174

$
1,301

$
3,741

$
—

$
53,716
Loans:

Loans individually evaluated for impairment

$
32,673

$
87

$
7,135

$
5,127

$
2,345

$
5,313

$
2,096

$
91

$
—

$
54,867
Loans collectively evaluated for impairment

922,645

1,777,240

1,670,560

2,113,000

519,399

1,125,534

218,861

524,949

1,457

8,873,645
Total non-acquired loans

$
955,318

$
1,777,327

$
1,677,695

$
2,118,127

$
521,744

$
1,130,847

$
220,957

$
525,040

$
1,457

$
8,928,512

~~Table of Contents~~

The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired non-credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:

Construction

Commercial

Commercial

Consumer





Other Income




& Land

Non-owner

Owner

Owner

Home

Commercial

Producing

(Dollars in thousands)

Development

Occupied

Occupied

Occupied

Equity

& Industrial

Property

Consumer

Total

Three Months Ended September 30, 2019

Allowance for loan losses:

Balance at beginning of period

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Charge-offs

(39)

—

—

—

(23)

(648)

—

(100)

(810)

Recoveries

1

—

—

21

9

10

—

9

50

Provision (benefit)

38

—

—

(21)

14

638

—

91

760

Balance, September 30, 2019

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Loans individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Loans collectively evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Loans:

Loans individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Loans collectively evaluated for impairment

53,302

503,443

345,040

543,432

198,112

126,092

103,093

93,089

1,965,603

Total acquired non-credit impaired loans

$
53,302

$
503,443

$
345,040

$
543,432

$
198,112

$
126,092

$
103,093

$
93,089

$
1,965,603

Construction

Commercial

Commercial

Consumer







Other Income






& Land

Non-owner

Owner

Owner

Home

Commercial

Producing

(Dollars in thousands)

Development

Occupied

Occupied

Occupied

Equity

& Industrial

Property

Consumer

Total

Nine Months Ended September 30, 2019

Allowance for loan losses:

Balance, December 31, 2018

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Charge-offs

(45)

—

(786)

(6)

(263)

(1,288)

(26)

(305)

(2,719)

Recoveries

3

—

—

26

55

181

71

36

372

Provision (benefit)

42

—

786

(20)

208

1,107

(45)

269

2,347

Balance, September 30, 2019

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

The following tables present a disaggregated analysis of activity in the allowance for loan losses and loan balances for acquired credit impaired loans, for comparative periods, prior to the adoption of ASU 2016-13:

Commercial








Real Estate-

Commercial

Construction and

Residential

Commercial

(Dollars in thousands)

Real Estate

Development

Real Estate

Consumer

and Industrial

Total
Three Months Ended September 30, 2019

Allowance for loan losses:

Balance, June 30, 2019

$
1,009

$
798

$
2,346

$
470

$
—

$
4,623
Provision (benefit) for loan losses

386

(38)

447

(9)

—

786
Reduction due to loan removals

—

—

(91)

—

—

(91)
Balance, September 30, 2019

$
1,395

$
760

$
2,702

$
461

$
—

$
5,318

Loans individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—
Loans collectively evaluated for impairment

$
1,395

$
760

$
2,702

$
461

$
—

$
5,318

Loans:*

Loans individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—
Loans collectively evaluated for impairment

149,134

26,930

175,044

36,812

8,112

396,032
Total acquired credit impaired loans

$
149,134

$
26,930

$
175,044

$
36,812

$
8,112

$
396,032

*— The carrying value of acquired credit impaired loans includes a non-accretable difference which is primarily associated with the assessment of credit quality of acquired loans.

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~~Note 8—Other Real Estate Owned~~

~~The following is a summary of information pertaining to OREO:~~

Nine Months Ended September 30,

(Dollars in thousands)

2020

2019

OREO

OREO

Beginning balance

$
11,964

$
11,410

Acquired in the CSFL acquisition

9,931

—

Additions

4,262

9,610

Writedowns

(512)

(727)

Sold

(7,424)

(6,878)

Reclass of bank property held for sale

(4,741)

(4,991)

Ending Balance

$
13,480

$
8,424

~~At September 30, 2020, there were a total of 55 properties included in OREO compared to 72 properties at September~~ 30, 2019. During the second quarter of 2020, a reclassification was made for bank property held for sale, which reduced the balance by $4.7 million, representing 11 properties. The reclassification reduced September 30, 2019 balance by $5.0 million, representing 10 properties. Bank property held for sale is now separately disclosed on the balance sheet. At September 30, 2020, we had $2.0 million in residential real estate included in OREO and $4.1 million in residential real estate consumer mortgage loans in the process of foreclosure.

Note 9 — Leases

As of ~~September 30, 2020,~~March 31, 2021, we had operating right-of-use (“ROU”) assets of ~~$121.6~~$111.9 million and operating lease liabilities of ~~$126.1~~$117.1 million. We maintain operating leases on land and buildings for our operating centers, branch facilities and ATM locations. Most leases include one or more options to renew, with renewal terms extending up to 2423 years. The exercise of renewal options is based on the sole judgment of Management and what they consider to be reasonably certain given the environment today. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to us if the option is not exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

The Company also holds a small number of finance leases assumed in connection to the CSFL merger. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above. Lease classifications from the acquired institutions were retained.

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	Three Months Ended				Nine Months Ended				Three Months Ended
(Dollars in thousands)	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Lease Cost Components:
Amortization of ROU assets - finance leases	$	125	$	—	$	172	$	—	$	117	$	—
Interest on lease liabilities - finance leases		19		—		24		—		15		—
Operating lease cost (cost resulting from lease payments)		4,557		2,241		9,873		6,560		4,343		2,258
Short-term lease cost		253		120		450		396		135		98
Variable lease cost (cost excluded from lease payments)		370		151		739		337		648		166
Total lease cost	$	5,324	$	2,512	$	11,258	$	7,293	$	5,258	$	2,522
Supplemental Cash Flow and Other Information Related to Leases:
Finance lease - operating cash flows	$	19	$	—	$	27	$	—	$	15	$	—
Finance lease - financing cash flows		109		—		150		—		106		—
Operating lease - operating cash flows (fixed payments)		4,307		1,996		8,763		5,804		4,140		1,672
Operating lease - operating cash flows (net change asset/liability)		(3,290)		248		(5,968)		504		(3,220)		268
New ROU assets - operating leases		1,475		5,289		41,211		10,239		1,298		458
New ROU assets - finance leases		—		—		5,374		—		—		—
Weighted - average remaining lease term (years) - finance leases						7.66		—		7.16		—
Weighted - average remaining lease term (years) - operating leases						11.6		14.30		11.30		13.92
Weighted - average discount rate - finance leases						1.7%		—		1.7%		—
Weighted - average discount rate - operating leases						3.3%		3.9%		3.3%		3.9%

Operating lease payments due:
2020 (excluding the nine months ended September 30, 2020)					$	4,257
2021						16,381
2021 (excluding the three months ended March 31, 2021)									$	15,931
2022						15,054				14,438
2023						14,041				13,705
2024						12,789				12,120
2025										10,703
Thereafter						92,814				76,428
Total undiscounted cash flows						155,336				143,325
Discount on cash flows						(29,278)				(26,258)
Total operating lease liabilities					$	126,058			$	117,067

As of ~~September 30, 2020,~~March 31, 2021, we determined that the number and dollar amount of our equipment leases was immaterial. As of ~~September 30, 2020,~~March 31, 2021, we ~~did not~~ have an additional operating ~~leases~~lease that ~~have~~has not yet commenced ~~from an amendment to~~of $3.5 million. This operating lease will commence in June 2021 with a ~~current lease.~~lease term of 10 years.

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Note 10 — Deposits

Our total deposits are comprised of the following:

September 30,

December 31,

September 30,

(Dollars in thousands)

2020

2019

2019

Certificates of deposit

$
3,841,404

$
1,651,399

$
1,709,175

Interest-bearing demand deposits

13,819,204

5,966,496

5,682,129

Non-interest bearing demand deposits

9,681,095

3,245,306

3,307,532

Savings deposits

2,618,877

1,309,896

1,317,705

Other time deposits

9,374

3,999

7,246

Total deposits

$
29,969,954

$
12,177,096

$
12,023,787


	March 31,		December 31,
(Dollars in thousands)	2021		2020
Non-interest bearing checking	$	10,801,812	$	9,711,338
Interest-bearing checking		7,369,066		6,955,575
Savings		2,906,673		2,694,011
Money market		7,884,132		7,584,353
Time deposits		3,479,727		3,748,605
Total deposits	$	32,441,410	$	30,693,882

At ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019, and September 30, 2019,~~2020, we had ~~$832.4 million, $303.2~~$764.7 million and ~~$316.4~~$814.2 million in certificates of deposits of $250,000 and greater, respectively. At ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019,~~2020, the Company held ~~$600.0~~$475.0 million $0 and ~~$1.3 million~~$600.0 in traditional, out-of-market brokered deposits, respectively. ~~The increase in certificates of deposits of $250,000 and greater and~~

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~~traditional, out-of-market brokered deposits from December 31, 2019 and September 30, 2019 was the result of deposits acquired through the merger with CSB during the second quarter of 2020.~~

Note 11 — Retirement Plans

The Company and the Bank provide certain retirement benefits to their employees in the form of an employees’ savings plan. The Company and the Bank previously provided benefits through a non-contributory defined benefit pension plan that covered all employees hired on or before December 31, 2005, who had attained age 21, and who had completed a year of eligible service, but this plan was terminated in the second quarter of 2019. Employees hired on or after January 1, 2006 were not eligible to participate in the non-contributory defined benefit pension plan, but are eligible to participate in the employees’ savings plan. On this date, a new benefit formula applies only to participants who have not attained age 45 ~~or who do not have five years of service.~~

During 2018, we made the decision to terminate the non-contributory defined benefit pension plan. We received approval from the IRS through a determination letter in the fourth quarter of 2018 to proceed with the termination. The termination of the pension plan was recorded during the second quarter of 2019 and distributions of assets from the plan were fully paid out by the fourth quarter of 2019. During the second quarter of 2019, the Company recorded a charge of $9.5 million related to the termination of the pension plan in the Consolidated Statement of Net Income. This cost was the result of the recognition of the pre-tax losses from the pension plan that were recorded and held in accumulated other comprehensive income of $7.7 million and the write-off of the pension plan asset of $1.8 million. Participants had the option to be fully paid out in a lump sum or be paid through an annuity over time. If the participant chose the annuity, the funds were placed in an annuity product with a third party.

The Company sponsors an employees’ savings plan under the provisions of the Internal Revenue Code Section 401(k). Electing employees are eligible to participate in the employees’ savings plan after attaining age 21. Plan participants elect to contribute portions of their annual base compensation as a before tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 50% of annual base compensation as a before tax contribution. Employees participating in the plan received a 100% match of their 401(k) plan contribution from the Company, up to 4% of their salary. The employees were also eligible for an additional 2% discretionary matching contribution contingent upon certain of our annual financial goals which would be paid in the first quarter of the following year. Based on our financial performance in ~~2019,~~2020, we ~~paid~~did not pay a ~~0.375%~~ discretionary matching contribution in the first quarter of ~~2020.~~2021. Currently, we expect the same terms in the employees’ savings plan for ~~2020.~~2021. As a result of the recent CSFL merger, all former CSFL employees became eligible to participate in the Company’s 401(k) plan as of legal ~~close.~~close in June 2020. CSFL’s existing 401(k) plan balances ~~will merge~~merged into the Company’s 401(k) plan at the end of the ~~year.~~ year 2020. We expensed ~~$3.5~~$4.3 million during the three months ended March 31, 2021 and ~~$7.8~~$1.9 million ~~respectively, for the 401(k) plan~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 ~~and~~ ~~$1.7 million and $4.7 million, respectively, for~~related to the ~~three and nine months ended September 30, 2019.~~Company’s savings plan.

Employees can enter the savings plan on or after the first day of each month. The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan. If the employee does not elect an investment allocation, the plan administrator will select a retirement-based portfolio according to the employee’s number of years until normal retirement age. The plan’s investment valuations are generally provided on a daily basis.

Note 12 — Earnings Per Share

Basic earnings per shares are calculated by dividing net income by the weighted-average shares of common stock outstanding during each period, excluding non-vested restricted shares. Our diluted earnings per share are based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options or vesting of restricted shares. Stock options and unvested restricted stock units are considered to common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive. The weighted-average number of shares and equivalents are determined after giving retroactive effect to stock dividends and stock splits.

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The following table sets forth the computation of basic and diluted earnings per common share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended
(Dollars and shares in thousands, except for per share amounts)	2020		2019		2020		2019		2021		2020
Basic earnings per common share:
Net income	$	95,221	$	51,565	$	34,396	$	137,392	$	146,949	$	24,110
Weighted-average basic common shares		70,905		34,057		49,330		34,859		71,009		33,566
Basic earnings per common share	$	1.34	$	1.51	$	0.70	$	3.94	$	2.07	$	0.72
Diluted earnings per common share:
Net income	$	95,221	$	51,565	$	34,396	$	137,392	$	146,949	$	24,110
Weighted-average basic common shares		70,905		34,057		49,330		34,859		71,009		33,566
Effect of dilutive securities		171		243		306		210		475		239
Weighted-average dilutive shares		71,076		34,300		49,636		35,069		71,484		33,805
Diluted earnings per common share	$	1.34	$	1.50	$	0.69	$	3.92	$	2.06	$	0.71

The calculation of diluted earnings per common share excludes outstanding stock options for which the results would have been anti-dilutive under the treasury stock method as follows:


	Three Months Ended September 30,										Nine Months Ended September 30,										Three Months Ended March 31,
(Dollars in thousands)	2020					2019					2020					2019					2021					2020
Number of shares					141,116					62,235					136,844					63,313					62,235					62,235
Range of exercise prices	$	52.28	to	$	91.35	$	87.30	to	$	91.35	$	61.42	to	$	91.35	$	69.48	to	$	91.35	$	87.30	to	$	91.35	$	87.30	to	$	91.35

Note 13 — Share-Based Compensation

Our 2004, 2012, 2019 and ~~2019~~2020 share-based compensation plans are long-term retention plans intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options, restricted stock, and restricted stock units (“RSUs”). Our ~~2019~~2020 plan was adopted by our shareholders at our annual meeting on ~~April 25, 2019.~~October 29, 2020. The Company assumed the obligations of CSFL under various equity incentive plans pursuant to the ~~closing~~merger of CSFL on June 7, ~~2020 by South State of the merger of CSFL with and into South State.~~2020.

Stock Options

With the exception of non-qualified stock options granted to directors under the 2004 and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under our 2004, 2012, 2019 and ~~2019~~2020 plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. NaN options were granted under the 2004 plan after January 26, 2012, and the 2004 plan is closed other than for any options still unexercised and outstanding. NaN options were granted under the 2012 plan after February 1, 2019, and the 2012 plan is closed other than for any options still unexercised and outstanding. NaN options were granted under the 2019 plan after October 29, 2020, and the 2019 plan is closed other than for any options still unexercised and outstanding. The ~~2019~~2020 plan is the only plan from which new share-based compensation grants may be issued. It is ~~our~~the Company’s policy to grant options out of the ~~1,000,000~~2,072,245 shares registered under the ~~2019~~2020 plan.

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Activity in our stock option plans for 2004, 2012, 2019 and ~~2019~~2020 as well as stock options and warrants assumed from the CSFL merger is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


										Weighted
								Weighted		Average	Aggregate
				Weighted				Average		Remaining	Intrinsic
		Weighted		Average	Aggregate		Shares	Price		(Yrs.)	(000's)
		Average		Remaining	Intrinsic
	Shares	Price		(Yrs.)	(000's)
Outstanding at January 1, 2020	176,888	$	67.14
Assumed stock options and warrants from CSFL merger	136,831		37.85
Outstanding at January 1, 2021							256,425	$	59.01
Exercised	(23,012)		32.14				(37,854)		46.81
Outstanding at September 30, 2020	290,707		56.13	4.57	$	1,529
Exercisable at September 30, 2020	290,707		56.13	4.57	$	1,529
Weighted-average fair value of options granted during the year	$0.00
Outstanding at March 31, 2021							218,571		61.13	4.52	$	4,584
Exercisable at March 31, 2021							218,571		61.13	4.52	$	4,584

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. There have been 0 stock options issued during the ~~nine~~first three months of ~~2020 or 2019. Stock~~March 2021. Because all outstanding stock options had vested as of ~~23,923 vested and became exercisable with the merger with CSFL on June 7, 2020.~~

~~September 30,~~December 31, 2020, there was 0 unrecognized compensation cost related to nonvested stock option grants under the ~~plans. The total~~plans or fair value of shares vested for the ~~nine~~three months ended ~~September 30, 2020 was $1.4 million.~~March 31, 2021.

Restricted Stock

We from time-to-time also grant shares of restricted stock to key employees and non-employee directors. These awards help align the interests of these employees and directors with the interests of our shareholders by providing economic value directly related to increases in the value of our stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees typically “cliff vest” after four years. Grants to non-employee directors typically vest within a 12-month period.

All restricted stock agreements are conditioned upon continued employment, or service in the case of directors. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. Prior to vesting of the shares, as long as employed by the Company, the key employees and non-employee directors will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient. ~~Due to the merger between the Company and CSFL effective June 7, 2020, a total of 29,303 restricted stock awards became fully vested.~~

Nonvested restricted stock for ~~2020~~2021 is summarized in the following table. All information has been retroactively adjusted for stock dividends and stock splits.


		Weighted-			Weighted-
		Average			Average
		Grant-Date			Grant-Date
Restricted Stock	Shares	Fair Value		Shares	Fair Value
Nonvested at January 1, 2020	69,450	$	58.96
Assumed restricted stock shares from CSFL merger	9,755		60.27
Granted	9,145		55.96
Nonvested at January 1, 2021				11,004	$	59.42
Vested	(71,193)		58.76	(2,082)		52.95
Forfeited	(317)		65.86
Nonvested at September 30, 2020	16,840		58.81
Nonvested at March 31, 2021				8,922	$	60.94

As of ~~September 30, 2020,~~March 31, 2021, there was ~~$736,000~~$366,000 of total unrecognized compensation cost related to nonvested restricted stock granted under the plans. This cost is expected to be recognized over a weighted-average period of ~~1.61~~1.72 years as of ~~September~~ ~~30, 2020.~~March 31, 2021. The total fair value of shares vested during the ~~nine~~three months ended ~~2020~~March 31, 2021 was $~~4.3 million.~~110,000.

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Restricted Stock Units (“RSUs”)

We, from ~~time-to-time,~~time-to-time, also grant performance RSUs and time-vested RSUs to ~~key~~ employees. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly related to our performance. Some performance RSU grants contain a three-year performance period while others contain a ~~one-year~~one to two-year performance period and a time-vested requirement (generally two to four years from the grant date). We communicate threshold, target, and maximum performance RSU awards and performance targets to the applicable ~~key~~ employees at the beginning of a performance period. Due to the merger with CSFL, all legacy and assumed

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performance based restricted stock units converted to a time-vesting requirement. ~~Dividends are not paid in~~With respect to some long-term incentive awards, dividend equivalents are accrued at the ~~awards~~same rate as cash dividends paid for each share of the Company’s common stock during the performance or time-vested ~~period.~~period, and subsequently paid when the shares are issued on the vesting date. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses on a straight-line basis typically over the performance and vesting/or time-vesting periods based upon the probable performance target, as applicable, that will be met. For the nine months ended September 30, 2020, we accrued for 100.0% of the RSUs granted. Due to the merger between the Company and CSFL effective June 7, 2020, a total of 242,018 restricted stock units became fully vested.

~~Nonvested~~Outstanding RSUs for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 is summarized in the following table.


		Weighted-			Weighted-
		Average			Average
		Grant-Date			Grant-Date
Restricted Stock Units	Shares	Fair Value		Shares	Fair Value
Nonvested at January 1, 2020	324,601	$	76.44
Assumed restricted stock units from CSFL merger	388,381		60.27
Outstanding at January 1, 2021				750,821	$	60.88
Granted	376,026		60.74	281,116		81.04
Vested	(274,847)		75.68	(59,518)		61.19
Forfeited	(66,992)		74.44	(2,496)		56.34
Nonvested at September 30, 2020	747,169		60.59
Outstanding at March 31, 2021				969,923	$	66.82

As of ~~September 30, 2020~~March 31, 2021, there was ~~$33.6~~$44.4 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of ~~2.60~~2.4 years as of ~~September~~ ~~30, 2020.~~March 31, 2021. The total fair value of RSUs vested and released during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was $~~23.5~~3.6 million. ~~During the nine months ended September 30, 2020,~~ ~~31,435 restricted stock units that vested in 2019 were issued to the participants from the 2017 Long-Term Incentive Plan.~~

Note 14 — Commitments and Contingent Liabilities

In the normal course of business, we make various commitments and incur certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At ~~September 30, 2020,~~March 31, 2021, commitments to extend credit and standby letters of credit totaled $~~5.9~~6.0 billion. As of ~~September 30, 2020,~~March 31, 2021, the liability recorded for expected credit losses on unfunded commitments, excluding unconditionally cancellable exposures and letters of credit, was ~~$43.2~~$35.8 million and recorded ~~in Other Liabilities~~ on the Balance Sheet. See Note 2 – Summary of Significant Accounting Policies for discussion of liability recorded for expected credit losses on unfunded commitments.

We have been named as defendant in various legal actions, arising from its normal business activities, in which damages in various amounts are claimed. We are also exposed to litigation risk related to the prior business activities of banks acquired through whole bank ~~acquisitions as well as banks from which assets were acquired and liabilities assumed in FDIC-assisted transactions.~~acquisitions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of Management, as of ~~September 30, 2020,~~March 31, 2021, any such liability is not expected to have a material effect on our consolidated financial statements.

Note 15 — Fair Value

FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. FASB ASC Topic 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

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We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale and trading securities, derivative contracts, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1

Observable inputs such as quoted prices in active markets;

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Level 2	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following is a description of valuation methodologies used for assets recorded at fair value.

Trading Securities

The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the sales price is used as the fair value; and, (2) for those securities which have not traded as of the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.

Investment Securities

Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and The NASDAQ Stock Market. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities, or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB and FRB stock approximates fair value based on the redemption provisions.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at fair value with changes in fair value recognized in current period earnings. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for sale are recurring Level 2.

Loans

We do not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an ACL may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, Management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At ~~September 30, 2020,~~March 31, 2021, approximately half of the impaired loans were evaluated based on the fair value of the collateral because such loans were considered collateral dependent. Impaired loans, where an allowance is established based on the fair value of collateral; require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we consider the impaired loan as nonrecurring Level 2. When an appraised value is not available or Management determines the fair value of the

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collateral is further impaired below the appraised value and there is no observable market price, we consider the impaired loan as nonrecurring Level 3.

Other Real Estate Owned (“OREO”)

OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is typically reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, OREO is considered Level 3 in the fair value hierarchy because Management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have

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resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO expense.

Derivative Financial Instruments

Fair value is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back; and accordingly, these derivatives are classified within Level 2 of the fair value hierarchy. (See Note 17—Derivative Financial Instruments for additional information).

Mortgage ~~servicing rights~~Servicing Rights (“MSRs”)

The estimated fair value of MSRs is obtained through an independent derivatives dealer analysis of future cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs are classified as Level 3.

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis.


			Quoted Prices								Quoted Prices
			In Active		Significant						In Active		Significant
			Markets		Other		Significant				Markets		Other		Significant
			for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
			Assets		Inputs		Inputs				Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020:
March 31, 2021:
Assets
Derivative financial instruments	$	953,036	$	—	$	953,036	$	—	$	416,329	$	—	$	416,329	$	—
Loans held for sale		456,141		—		456,141		—		352,997		—		352,997		—
Trading securities		—		—		—		—		83,947		—		83,947		—
Securities available for sale:
Government-sponsored entities debt		29,927		—		29,927		—
U.S. Treasuries		—		—		—		—
U.S. Government agencies										23,553		—		23,553		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										1,544,600		—		1,544,600		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises										694,632		—		694,632		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										580,379		—		580,379		—
State and municipal obligations		459,195		—		459,195		—		596,103		—		596,103		—
Mortgage-backed securities		3,059,155		—		3,059,155		—
Small Business Administration loan-backed securities										438,537		—		438,537		—
Corporate securities		13,652		—		13,652		—		13,686		—		13,686		—
Total securities available for sale		3,561,929		—		3,561,929		—		3,891,490		—		3,891,490		—
Mortgage servicing rights		34,578		—		—		34,578		54,285		—		—		54,285
	$	5,005,684	$	—	$	4,971,106	$	34,578	$	4,799,048	$	—	$	4,744,763	$	54,285
Liabilities
Derivative financial instruments	$	979,155	$	—	$	979,155	$	—	$	402,256	$	—	$	402,256	$	—

December 31, 2019:
December 31, 2020:
Assets
Derivative financial instruments	$	16,252	$	—	$	16,252	$	—	$	813,899	$	—	$	813,899	$	—
Loans held for sale		59,363		—		59,363		—		290,467		—		290,467		—
Trading securities										10,674		—		10,674		—
Securities available for sale:
Government-sponsored entities debt		25,941		—		25,941		—
U.S. Government agencies										29,256		—		29,256		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										1,379,978		—		1,379,978		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises										650,646		—		650,646		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises										334,834		—		334,834		—
State and municipal obligations		208,415		—		208,415		—		520,039		—		520,039		—
Mortgage-backed securities		1,721,691		—		1,721,691		—
Small Business Administration loan-backed securities										402,217		—		402,217		—
Corporate securities										13,702		—		13,702		—
Total securities available for sale		1,956,047		—		1,956,047		—		3,330,672		—		3,330,672		—
Mortgage servicing rights		30,525		—		—		30,525		43,820		—		—		43,820
	$	2,062,187	$	—	$	2,031,662	$	30,525	$	4,489,532	$	—	$	4,445,712	$	43,820
Liabilities
Derivative financial instruments	$	31,273	$	—	$	31,273	$	—	$	804,832	$	—	$	804,832	$	—

September 30, 2019:
Assets
Derivative financial instruments	$	24,402	$	—	$	24,402	$	—
Loans held for sale		87,393		—		87,393		—
Securities available for sale:
Government-sponsored entities debt		40,967		—		40,967		—
State and municipal obligations		188,682		—		188,682		—
Mortgage-backed securities		1,583,485		—		1,583,485		—
Total securities available for sale		1,813,134		—		1,813,134		—
Mortgage servicing rights		28,674		—		—		28,674
	$	1,953,603	$	—	$	1,924,929	$	28,674
Liabilities
Derivative financial instruments	$	43,373	$	—	$	43,373	$	—

~~Table of Contents~~

Changes in Level 1, 2 and 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

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There were 0 changes in hierarchy classifications of Level 3 assets or liabilities for the ~~nine~~three months ended ~~September~~ ~~30, 2020.~~March 31, 2021. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the ~~nine~~three months ended ~~September 30, 2020 and 2019~~March 31, 2021 is as follows:

(Dollars in thousands)

Assets

Liabilities

Fair value, January 1, 2020

$
30,525

$
—

Servicing assets that resulted from transfers of financial assets (1)

17,668

—

Changes in fair value due to valuation inputs or assumptions

(7,540)

—

Changes in fair value due to decay

(6,075)

—

Fair value , September 30, 2020

$
34,578

$
—

Fair value, January 1, 2019

$
34,727

$
—

Servicing assets that resulted from transfers of financial assets

4,506

—

Changes in fair value due to valuation inputs or assumptions

(7,218)

—

Changes in fair value due to decay

(3,341)

—

Fair value, September 30, 2019

$
28,674

$
—

~~(1)~~

~~– Includes $3.2 million in mortgage servicing rights assumed in the merger with CSFL.~~


(Dollars in thousands)	Assets		Liabilities
Fair value, January 1, 2021	$	43,820	$	—
Servicing assets that resulted from transfers of financial assets		6,950		—
Changes in fair value due to valuation inputs or assumptions		6,575		—
Changes in fair value due to decay		(3,060)		—
Fair value , March 31, 2021	$	54,285	$	—

There were 0 unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at ~~September 30, 2020 or 2019.~~March 31, 2021.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:


			Quoted Prices
			In Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2021:
OREO	$	11,471	$	—	$	—	$	11,471
Bank property held for sale		31,193		—		—		31,193
Impaired loans		8,764		—		—		8,764
December 31, 2020:
OREO	$	11,914	$	—	$	—	$	11,914
Bank property held for sale		36,006		—		—		36,006
Impaired loans		17,609		—		—		17,609

Quoted Prices




In Active

Significant

Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

(Dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

September 30, 2020:

OREO

$
13,480

$
—

$
—

$
13,480

Bank property held for sale

24,504

—

—

24,504

Impaired loans

15,024

—

—

15,024

December 31, 2019:

OREO

$
6,539

$
—

$
—

$
6,539

Bank property held for sale

5,425

—

—

5,425

Non-acquired impaired loans

15,444

—

—

15,444

September 30, 2019:

OREO

$
8,424

$
—

$
—

$
8,424

Bank property held for sale

4,991

—

—

4,991

Non-acquired impaired loans

10,620

—

—

10,620

~~Table of Contents~~

Quantitative Information about Level 3 Fair Value Measurement


			Weighted Average								Weighted Average
			September 30,		December 31,		September 30,				March 31,		December 31,
	Valuation Technique	Unobservable Input	2020		2019		2019		Valuation Technique	Unobservable Input	2021		2020
Nonrecurring measurements:
Impaired loans	Discounted appraisals and discounted cash flows	Collateral discounts	3	%	2	%	2	%	Discounted appraisals and discounted cash flows	Collateral discounts	13	%	5	%
OREO and premises held for sale	Discounted appraisals	Collateral discounts and estimated costs to sell	21	%	31	%	25	%	Discounted appraisals	Collateral discounts and estimated costs to sell	13	%	14	%

Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to Management as of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019.~~2020. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value.

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Trading Securities — The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the sales price is used as the fair value; and, (2) for those securities which have not traded as of the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.

Investment Securities — Securities available for sale are valued at quoted market prices or dealer quotes. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB and FRB stock approximates fair value based on the redemption provisions. The carrying value of our investment in unconsolidated subsidiaries approximates fair value. See Note 5—Investment Securities for additional information, as well as page 4434 regarding fair value.

Loans held for sale — The fair values disclosed for loans held for sale are based on commitments from investors for loans with similar characteristics.

Loans — ASU 2016-01 - Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities became effective for us on January 1, 2018. This accounting standard requires us to calculate the fair value of our loans for disclosure purposes based on an estimated exit price. With ASU 2016-01, to estimate an exit price, all loans (fixed and variable) are being valued with a discounted cash flow analyses for loans that includes our estimate of future credit losses expected to be incurred over the life of the loans. Fair values for certain mortgage loans (e.g., one-to-four family residential) and other consumer loans are estimated using discounted cash flow analyses based on our current rates offered for new loans of the same type, structure and credit quality. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses-using interest rates we currently offer for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using a discounted cash flow analysis.

Deposit Liabilities — The fair values disclosed for demand deposits (e.g., interest and noninterest bearing checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate

~~Table of Contents~~

certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — The carrying amount of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values.

Other Borrowings — The fair value of other borrowings is estimated using discounted cash flow analysis on our current incremental borrowing rates for similar types of instruments.

Accrued Interest — The carrying amounts of accrued interest approximate fair value.

Derivative Financial Instruments — The fair value of derivative financial instruments (including interest rate swaps) is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back.

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees — The fair values of commitments to extend credit are estimated taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

4938

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The estimated fair value, and related carrying amount, of our financial instruments are as follows:


	Carrying		Fair								Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
September 30, 2020
March 31, 2021
Financial assets:
Cash and cash equivalents	$	4,471,639	$	4,471,639	$	4,471,639	$	—	$	—	$	5,974,137	$	5,974,137	$	5,974,137	$	—	$	—
Trading securities												83,947		83,947		—		83,947		—
Investment securities		3,747,128		3,747,128		185,199		3,561,929		—		5,267,271		5,233,723		161,468		5,072,255		—
Loans held for sale		456,141		456,141		—		456,141		—		352,997		352,997		—		352,997		—
Loans, net of allowance for loan losses		24,797,656		25,140,453		—		—		25,140,453		24,085,005		24,421,405		—		—		24,421,405
Accrued interest receivable		109,954		109,954		—		11,086		98,868		105,865		105,865		—		13,758		92,107
Mortgage servicing rights		34,578		34,578		—		—		34,578		54,285		54,285		—		—		54,285
Interest rate swap - non-designated hedge		931,386		931,386		—		931,386		—		398,221		398,221		—		398,221		—
Other derivative financial instruments (mortgage banking related)		21,650		21,650		—		21,650		—		18,108		18,108		—		18,108		—
Financial liabilities:
Deposits		29,969,954		29,989,297		—		29,989,297		—		32,441,410		32,458,336		—		32,458,336		—
Federal funds purchased and securities sold under agreements to repurchase		706,723		706,723		—		706,723		—		878,581		878,581		—		878,581		—
Other borrowings		1,089,637		1,087,636		—		1,087,636		—		390,323		388,127		—		388,127		—
Accrued interest payable		11,464		11,464		—		11,464		—		8,498		8,498		—		8,498		—
Interest rate swap - non-designated hedge		933,357		933,357		—		933,357		—		399,625		399,625		—		399,625		—
Interest rate swap - cash flow hedge		41,798		41,798		—		41,798		—
Other derivative financial instruments (mortgage banking related)												2,631		2,631		—		2,631		—
Off balance sheet financial instruments:
Commitments to extend credit		—		82,940		—		82,940		—		—		84,280		—		84,280		—
December 31, 2019
December 31, 2020
Financial assets:
Cash and cash equivalents	$	688,704	$	688,704	$	688,704	$	—	$	—	$	4,609,255	$	4,609,255	$	4,609,255	$	—	$	—
Trading securities												10,674		10,674		—		10,674		—
Investment securities		2,005,171		2,005,171		49,124		1,956,047		—		4,446,657		4,448,300		160,443		4,287,857		—
Loans held for sale		59,363		59,363		—		59,363		—		290,467		290,467		—		290,467		—
Loans, net of allowance for loan losses		11,313,113		11,452,003		—		—		11,452,003		24,206,825		24,757,859		—		—		24,757,859
Accrued interest receivable		36,774		36,774		—		8,500		28,274		107,601		107,601		—		12,952		94,649
Mortgage servicing rights		30,525		30,525		—		—		30,525		43,820		43,820		—		—		43,820
Interest rate swap - non-designated hedge		15,350		15,350		—		15,350		—		802,763		802,763		—		802,763		—
Other derivative financial instruments (mortgage banking related)		902		902		—		902		—		11,136		11,136		—		11,136		—
Financial liabilities:
Deposits		12,177,096		11,406,477		—		11,406,477		—		30,693,882		30,719,416		—		30,719,416		—
Federal funds purchased and securities sold under agreements to repurchase		298,741		298,741		—		298,741		—		779,666		779,666		—		779,666		—
Other borrowings		815,936		818,210		—		818,210		—		390,179		386,126		—		386,126		—
Accrued interest payable		4,916		4,916		—		4,916		—		7,103		7,103		—		7,103		—
Interest rate swap - non-designated hedge		16,693		16,693		—		16,693		—		804,832		804,832		—		804,832		—
Interest rate swap - cash flow hedge		13,791		13,791		—		13,791		—
Other derivative financial instruments (mortgage banking related)		789		789		—		789		—
Off balance sheet financial instruments:
Commitments to extend credit		—		36,031		—		36,031		—		—		136,726		—		136,726		—
September 30, 2019
Financial assets:
Cash and cash equivalents	$	719,194	$	719,194	$	719,194	$	—	$	—
Investment securities		1,862,258		1,862,258		49,124		1,813,134		—
Loans held for sale		87,393		87,393		—		87,393		—
Loans, net of allowance for loan losses		11,229,892		11,259,351		—		—		11,259,351
Accrued interest receivable		36,131		36,131		—		7,528		28,603
Mortgage servicing rights		28,674		28,674		—		—		28,674
Interest rate swap - non-designated hedge		21,700		21,700		—		21,700		—
Other derivative financial instruments (mortgage banking related)		2,702		2,702		—		2,702		—
Financial liabilities:
Deposits		12,023,787		11,302,479		—		11,302,479		—
Federal funds purchased and securities sold under agreements to repurchase		269,072		269,072		—		269,072		—
Other borrowings		815,771		818,294		—		818,294		—
Accrued interest payable		5,036		5,036		—		5,036		—
Interest rate swap - cash flow hedge		19,564		19,564		—		19,564		—
Interest rate swap - non-designated hedge		23,723		23,723		—		23,723		—
Other derivative financial instruments (mortgage banking related)		86		86		—		86		—
Off balance sheet financial instruments:
Commitments to extend credit		—		7,622		—		7,622		—

5039

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Note 16 — Accumulated Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive income (loss), net of tax, were as follows:



			Unrealized Gains								Unrealized Gains
			and Losses		Gains and						and Losses		Gains and
			on Securities		Losses on						on Securities		Losses on
	Benefit		Available		Cash Flow				Benefit		Available		Cash Flow
(Dollars in thousands)	Plans		for Sale		Hedges		Total		Plans		for Sale		Hedges		Total
Three Months Ended September 30, 2020
Balance at June 30, 2020	$	(149)	$	48,315	$	(35,427)	$	12,739
Other comprehensive income before reclassifications		—		1,494		128		1,622
Amounts reclassified from accumulated other comprehensive income		—		(12)		2,697		2,685
Net comprehensive income		—		1,482		2,825		4,307
Balance at September 30, 2020	$	(149)	$	49,797	$	(32,602)	$	17,046
Three Months Ended March 31, 2021
Balance at December 31, 2020									$	(151)	$	47,740	$	—	$	47,589
Other comprehensive loss before reclassifications										—		(48,620)		—		(48,620)
Amounts reclassified from accumulated other comprehensive loss										—		—		—		—
Net comprehensive loss										—		(48,620)		—		(48,620)
Balance at March 31, 2021									$	(151)	$	(880)	$	—	$	(1,031)

Three Months Ended September 30, 2019
Balance at June 30, 2019	$	(297)	$	12,944	$	(11,181)	$	1,466
Other comprehensive income (loss) before reclassifications		—		5,824		(3,891)		1,933
Amounts reclassified from accumulated other comprehensive income		—		(341)		(188)		(529)
Net comprehensive income (loss)		—		5,483		(4,079)		1,404
Balance at September 30, 2019	$	(297)	$	18,427	$	(15,260)	$	2,870

Nine Months Ended September 30, 2020
Three Months Ended March 31, 2020
Balance at December 31, 2019	$	(149)	$	11,922	$	(10,756)	$	1,017	$	(149)	$	11,922	$	(10,756)	$	1,017
Other comprehensive income (loss) before reclassifications		—		37,887		(26,638)		11,249		—		31,551		(22,240)		9,311
Amounts reclassified from accumulated other comprehensive income		—		(12)		4,792		4,780		—		—		(563)		(563)
Net comprehensive income (loss)		—		37,875		(21,846)		16,029		—		31,551		(22,803)		8,748
Balance at September 30, 2020	$	(149)	$	49,797	$	(32,602)	$	17,046
Balance at March 31, 2020									$	(149)	$	43,473	$	(33,559)	$	9,765

Nine Months Ended September 30, 2019
Balance at December 31, 2018	$	(6,450)	$	(18,394)	$	(37)	$	(24,881)
Other comprehensive income (loss) before reclassifications		—		34,732		(14,766)		19,966
Amounts reclassified from accumulated other comprehensive income		6,153		2,089		(457)		7,785
Net comprehensive income (loss)		6,153		36,821		(15,223)		27,751
Balance at September 30, 2019	$	(297)	$	18,427	$	(15,260)	$	2,870

~~Table of Contents~~

The table below presents the reclassifications out of accumulated other comprehensive income (loss), net of tax:


	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)									Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
Accumulated Other Comprehensive Income (Loss) Component	2020		2019		2020		2019		Income Statement Line Item Affected	2021		2020		Income Statement Line Item Affected
(Gains) losses on cash flow hedges:
Gains on cash flow hedges:
Interest rate contracts	$	3,457	$	(241)	$	6,143	$	(585)	Interest expense	$	—	$	(722)	Interest expense
		(760)		53		(1,351)		128	Provision for income taxes		—		159	Provision for income taxes
		2,697		(188)		4,792		(457)	Net income		—		(563)	Net income
(Gains) losses on sales of available for sale securities:
	$	(15)	$	(437)	$	(15)	$	2,679	Securities gains (losses), net
		3		96		3		(590)	Provision for income taxes
		(12)		(341)		(12)		2,089	Net income
Losses and amortization of defined benefit pension:
Actuarial losses	$	—	$	—	$	—	$	7,888	Salaries and employee benefits
		—		—		—		(1,735)	Provision for income taxes
		—		—		—		6,153	Net income
Total reclassifications for the period	$	2,685	$	(529)	$	4,780	$	7,785		$	—	$	(563)

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Note 17 — Derivative Financial Instruments

We use certain derivative instruments to meet the needs of customers as well as to manage the interest rate risk associated with certain transactions. The following table summarizes the derivative financial instruments utilized by the Company:


				September 30, 2020						September 30, 2019							March 31, 2021						December 31, 2020
	Balance Sheet	Notional		Estimated Fair Value				Notional		Estimated Fair Value				Balance Sheet	Notional		Estimated Fair Value				Notional		Estimated Fair Value
(Dollars in thousands)	Location	Amount		Gain		Loss		Amount		Gain		Loss		Location	Amount		Gain		Loss		Amount		Gain		Loss

Cash flow hedges of interest rate risk on FHLB Advances:
Pay fixed rate swap with counterparty	Other Liabilities	$	700,000	$	—	$	41,798	$	700,000	$	—	$	19,564


Fair value hedge of interest rate risk:
Pay fixed rate swap with counterparty	Other Liabilities	$	20,850	$	—	$	2,379	$	2,769	$	—	$	260	Other Liabilities	$	16,307	$	—	$	1,390	$	16,439	$	—	$	2,086


Not designated hedges of interest rate risk:
Customer related interest rate contracts:
Matched interest rate swaps with borrowers	Other Assets and Other Liabilities	$	8,639,838	$	931,355	$	32	$	509,395	$	21,700	$	63	Other Assets and Other Liabilities		9,697,873		393,424		120,458		9,324,359		802,717		46
Matched interest rate swaps with counterparty	Other Assets and Other Liabilities	$	8,639,838	$	31	$	934,946	$	509,395	$	—	$	23,400	Other Assets and Other Liabilities		9,697,873		4,797		277,777		9,324,359		46		802,700


Not designated hedges of interest rate risk - mortgage banking activities:
Contracts used to hedge mortgage servicing rights	Other Assets and Other Liabilities	$	175,500	$	388	$	—	$	134,000	$	—	$	86	Other Assets and Other Liabilities		152,000		—		2,631		149,000		119		—
Contracts used to hedge mortgage pipeline	Other Assets	$	821,733	$	21,262	$	—	$	145,625	$	2,702	$	—	Other Assets		593,500		18,108		—		528,500		11,017		—

Total derivatives		$	18,997,759	$	953,036	$	979,155	$	2,001,184	$	24,402	$	43,373		$	20,157,553	$	416,329	$	402,256	$	19,342,657	$	813,899	$	804,832

Cash Flow Hedge of Interest Rate Risk

The Company is exposed to interest rate risk in the course of its business operations and manages a portion of this risk through the use of derivative financial instruments, in the form of interest rate swaps. We account for interest rate swaps that are classified as cash flow hedges in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivatives be recognized as assets or liabilities on the balance sheet at fair value. We ~~have three~~had no cash flow hedges as of ~~September 30,~~March 31, 2021 and December 31, 2020. For more information regarding the fair value of our derivative financial instruments, see Note 1517 to these financial statements.

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For the three cash flow hedges, we utilize interest rate swap agreements to manage interest rate risk related to funding through short term FHLB advances. In March 2019, we entered into three-month FHLB advances for $350 million and $150 million for which at this time we plan to continuously renew. At the same time, we entered into interest rate swap agreements with a notional amount of $350 million and $150 million to manage the interest rate risk related to these FHLB advances. In June 2019, we entered into a three-month FHLB advance for $200 million for which at this time we plan to continuously renew. At the same time, we entered into an interest rate swap agreement with a notional amount of $200 million to manage the interest rate risk related to this FHLB advance. With our plan to continually renew and reprice the FHLB advances every three months, we are treating this funding as variable rate funding. We are hedging the cash flows from these FHLB advances against future interest rate increases by using an interest rate swap that effectively fixed the rate on the debt. The notional amount on which the interest payments are based will not be exchanged related to these interest rate swaps. The derivative contract on the $350 million notional amount calls for us to pay a fixed rate of 2.44% and receive a variable rate of three-month LIBOR (0.23% at September 30, 2020). The derivative contract on the $150 million notional amount calls for us to pay a fixed rate of 2.21% and receive a variable rate of three-month LIBOR (0.23% at September 30, 2020). The derivative contract on the $200 million notational amount calls for us to pay a fixed rate of 1.89% and receive a variable rate of three-month LIBOR (0.25% at September 30, 2020). The hedge for $350 million expires on March 23, 2023, the hedge for $150 million expires on March 29, 2024, and the hedge for the $200 million expires on June 3, 2024.

For derivatives designated as hedging exposure to variable cash flows of a forecasted transaction (cash flow hedge), the derivative’s entire gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. For derivatives that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

For designated hedging relationships, we have a third party perform retrospective and prospective effectiveness testing on a quarterly basis using quantitative methods to determine if the hedge is still highly effective. Hedge accounting ceases on transactions that are no longer deemed highly effective, or for which the derivative has been terminated or de-designated.

~~We recognized gains (losses) on our cash flow hedges in other comprehensive income of $2.8 million and ($21.8) million for the three and nine months ended September~~ ~~30, 2020, respectively. This compares to an unrealized loss of~~ ~~$4.1~~ million and $15.2 million for the three and nine months ended September 30, 2019. We recognized a $41.8 million cash flow hedge liability in other liabilities on the balance sheet at September 30, 2020, compared to a $19.6 million liability in other liabilities on the balance sheet at September 30, 2019. There was 0 ineffectiveness in the cash flow hedge during the three and nine month periods ending September 30, 2020 and 2019. (See Note 16 – Accumulated Other Comprehensive (Loss) Income for activity in accumulated other comprehensive income and the amounts reclassified into earnings related the cash flow hedges.)

Credit risk related to the derivative arises when amounts receivable from the counterparty (derivatives dealer) exceed those payable. We control the risk of loss by only transacting with derivatives dealers that are national market makers whose credit ratings are strong. Each party to the interest rate swap is required to provide collateral in the form of cash or securities to the counterparty when the counterparty’s exposure to a mark-to-market replacement value exceeds certain negotiated limits. These limits are typically based on current credit ratings and vary with ratings changes. As of September 30, 2020, we provided ~~$50.9~~ million of collateral on the cash flow hedges on the FHLB advances which is also included in cash and cash equivalents on the balance sheet as deposits in other financial institutions (restricted cash). Also, we have a netting agreement with the counterparties.

Balance Sheet Fair Value Hedge

~~We maintain~~As of March 31, 2021 and December 31, 2020, the Company maintained loan swaps, with an aggregate notional amount of ~~$20.8~~$16.3 million ~~at September 30, 2020,~~and $16.4 million, respectively, accounted for as fair value hedges in accordance with ASC 815, Derivatives and Hedging. This derivative protects us from interest rate risk caused by changes in the LIBOR curve in relation to a certain designated fixed rate loan. The derivative converts the fixed rate loan to a floating rate. Settlement occurs in any given period where there is a difference in the stated fixed rate and variable rate and the difference is recorded in net interest income. The fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge with the offset recorded in loans. There was 0 gain or loss recorded on these derivatives the three ~~and nine~~ months ended ~~September 30, 2020 or 2019.~~March 31, 2021 and 2020.

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Non-designated Hedges of Interest Rate Risk

Customer Swap

We maintain interest rate swap contracts with customers that are classified as non-designated hedges and are not speculative in nature. These agreements are designed to convert customer’s variable rate loans with the Company to fixed rate. These interest rate swaps are executed with loan customers to facilitate a respective risk Management

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strategy and allow the customer to pay a fixed rate of interest to the Company. These interest rate swaps are simultaneously hedged by executing offsetting interest rate swaps with unrelated market counterparties to minimize the net risk exposure to the Company resulting from the transactions and allow the Company to receive a variable rate of interest. The interest rate swaps pay and receive interest based on a floating rate based on one month LIBOR plus credit spread, with payments being calculated on the notional amount. The interest rate swaps are settled monthly with varying maturities.

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of ~~September 30,~~March 31, 2021 and December 31, 2020, the interest rate swaps had an aggregate notional amount of approximately $~~17.3~~19.4 billion and $18.6 billion, respectively. At March 31, 2021 the fair value of the interest rate swap derivatives are recorded in other assets at ~~$931.4~~$398.2 million and in other liabilities at ~~$935.0~~$398.2 million for a net liability position of ~~$3.6~~$14,000 ~~million.~~. At December 31, 2020, the fair value of the interest rate swap derivatives was recorded in other assets at $802.8 million and other liabilities at $802.7 million for a net asset position of $17,000. Changes in the fair market value of these interest rate swaps is recorded through earnings.As of ~~September 30, 2019, the interest rate swaps had an aggregate notional amount of approximately~~ ~~$1.0 billion and the fair value of the interest rate swap derivatives are recorded in other assets at $21.7 million and in other liabilities at $23.5 million for a net liability position of $1.8~~ ~~million. The increase between the periods presented is mainly due to the merger with CSFL. As of September 30, 2020,~~March 31, 2021, we provided ~~$877.2~~$366.8 million of cash collateral on the customer swaps which is included in cash and cash equivalents on the balance sheet as deposits in other financial institutions (restricted cash). We also provided ~~$496.5~~$558.0 million in investment securities at market value as collateral on the customer swaps which is included in investment securities – available for sale.

Foreign Exchange

We also enter into foreign exchange contracts with customers to accommodate their need to convert certain foreign currencies into to U.S. Dollars. To offset the foreign exchange risk, we have entered into substantially identical agreements with an unrelated market counterparty to hedge these foreign exchange contracts. At ~~September 30,~~March 31, 2021 and December 31, 2020, ~~and 2019,~~ there were no outstanding contracts or agreements related to foreign currency. If there were foreign currency contracts outstanding at ~~September 30, 2020,~~March 31, 2021, the fair value of these contracts would be included in other assets and other liabilities in the accompanying balance sheet. All changes in fair value are recorded as other noninterest income. There was 0 gain or loss recorded related to the foreign exchange derivative for the three months ended ~~September 30, 2020 or 2019.~~March 31, 2021 and 2020.

Mortgage Banking

We also have derivatives contracts that are classified as non-designated hedges. These derivatives contracts are a part of our risk Management strategy for our mortgage banking activities. These instruments may include financial forwards, futures contracts, and options written and purchased, which are used to hedge MSRs; while forward sales commitments are typically used to hedge the mortgage pipeline. Such instruments derive their cash flows, and therefore their values, by reference to an underlying instrument, index or referenced interest rate. We do not elect hedge accounting treatment for any of these derivative instruments and as a result, changes in fair value of the instruments (both gains and losses) are recorded in our Consolidated Statements of Income in mortgage banking income.

Mortgage Servicing Rights

Derivatives contracts related to MSRs are used to help offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts provide a basis for calculating payments between counterparties but do not represent amounts to be exchanged between the parties, and are not a measure of financial risk. On ~~September 30, 2020,~~March 31, 2021, we had derivative financial instruments outstanding with notional amounts totaling ~~$175.5~~$152.0 million related to MSRs, compared to ~~$134.0~~ $149.0 million on ~~September~~ ~~30, 2019.~~December 31, 2020. The estimated net fair value of the open contracts related to the MSRs was recorded as a loss of $2.6 million at March 31, 2021,compared to a gain of $119,000 at December 31, 2020 and a gain of $1.1 million at March 31, 2020.

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~~related to the MSRs was recorded as a gain of $389,000 at September 30, 2020, compared to a loss of $86,000 at September 30, 2019.~~

Mortgage Pipeline

The following table presents our notional value of forward sale commitments and the fair value of those obligations along with the fair value of the mortgage ~~pipeline.~~pipeline related to the held for sale portfolio.



(Dollars in thousands)	September 30, 2020		December 31, 2019		September 30, 2019		March 31, 2021		December 31, 2020
Mortgage loan pipeline	$	752,251	$	80,785	$	148,749	$	634,976	$	510,730
Expected closures		616,274		60,588		111,561		562,805		411,273
Fair value of mortgage loan pipeline commitments		23,004		1,160		2,071		10,524		15,328
Forward sales commitments		821,733		87,773		145,625		593,500		528,500
Fair value of forward commitments		(1,741)		(258)		631		7,584		(4,311)

Note 18 — Capital Ratios

We are subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted based on the rules to reflect categorical credit risk. In addition to the risk-based capital ratios, the regulatory agencies have also established a leverage ratio for assessing capital adequacy. The leverage ratio is equal to Tier 1 capital divided by total consolidated on-balance sheet assets (minus amounts deducted from Tier 1 capital). The leverage ratio does not involve assigning risk weights to assets.

Under current regulations, the Company and the Bank are subject to a minimum ratio of common equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5%. and a minimum required ratio of Tier 1 capital to risk-weighted assets of 6%. The minimum required leverage ratio is 4%. The minimum required total capital to risk-weighted assets ratio is 8%.

In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of CET1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer became fully phased-in on January 1, 2019 and consists of an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets.

The Bank is also subject to the regulatory framework for prompt corrective action, which identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and is based on specified thresholds for each of the three risk-based regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.

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The following table presents actual and required capital ratios as of ~~September 30,~~March 31, 2021 and December 31, 2020 ~~December 31, 2019 and September 30, 2019~~ for the Company and the Bank under the current capital rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations.


									Required to be												Required to be
					Minimum Capital				Considered Well								Minimum Capital				Considered Well
	Actual				Required - Basel III				Capitalized				Actual				Required - Basel III				Capitalized
(Dollars in thousands)	Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio		Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
September 30, 2020
March 31, 2021:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	2,940,041	11.48	%	$	1,792,999	7.00	%	$	1,664,927	6.50	%	$	3,096,859	12.13	%	$	1,781,504	7.00	%	$	1,654,253	6.50	%
SouthState Bank (the Bank)		3,052,492	11.95	%		1,788,172	7.00	%		1,660,445	6.50	%
South State Bank (the Bank)														3,275,890	12.87	%		1,776,040	7.00	%		1,649,180	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		2,940,041	11.48	%		2,177,213	8.50	%		2,049,141	8.00	%		3,096,859	12.13	%		2,163,254	8.50	%		2,036,004	8.00	%
SouthState Bank (the Bank)		3,052,492	11.95	%		2,171,352	8.50	%		2,043,625	8.00	%
South State Bank (the Bank)														3,275,890	12.87	%		2,156,620	8.50	%		2,029,760	8.00	%
Total capital to risk-weighted assets:
Consolidated		3,550,019	13.86	%		2,689,498	10.50	%		2,561,427	10.00	%		3,699,651	14.49	%		2,672,255	10.50	%		2,545,005	10.00	%
SouthState Bank (the Bank)		3,270,970	12.80	%		2,682,258	10.50	%		2,554,531	10.00	%
South State Bank (the Bank)														3,487,182	13.70	%		2,664,060	10.50	%		2,537,200	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		2,940,041	8.12	%		1,447,730	4.00	%		1,809,663	5.00	%		3,096,859	8.47	%		1,463,005	4.00	%		1,828,756	5.00	%
SouthState Bank (the Bank)		3,052,492	8.46	%		1,442,936	4.00	%		1,803,670	5.00	%
December 31, 2019:
South State Bank (the Bank)														3,275,890	8.99	%		1,458,191	4.00	%		1,822,739	5.00	%
December 31, 2020:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	1,326,725	11.30	%	$	822,225	7.00	%	$	763,495	6.50	%	$	3,010,174	11.77	%	$	1,789,984	7.00	%	$	1,662,128	6.50	%
SouthState Bank (the Bank)		1,417,616	12.07	%		822,218	7.00	%		763,488	6.50	%
South State Bank (the Bank)														3,157,098	12.39	%		1,784,120	7.00	%		1,656,683	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		1,438,995	12.25	%		998,416	8.50	%		939,686	8.00	%		3,010,174	11.77	%		2,173,552	8.50	%		2,045,696	8.00	%
SouthState Bank (the Bank)		1,417,616	12.07	%		998,407	8.50	%		939,677	8.00	%
South State Bank (the Bank)														3,157,098	12.39	%		2,166,432	8.50	%		2,038,994	8.00	%
Total capital to risk-weighted assets:
Consolidated		1,501,321	12.78	%		1,233,338	10.50	%		1,174,607	10.00	%		3,642,039	14.24	%		2,684,976	10.50	%		2,557,120	10.00	%
SouthState Bank (the Bank)		1,479,942	12.60	%		1,233,327	10.50	%		1,174,597	10.00	%
South State Bank (the Bank)														3,397,463	13.33	%		2,676,180	10.50	%		2,548,743	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		1,438,995	9.73	%		591,731	4.00	%		739,664	5.00	%		3,010,174	8.27	%		1,455,135	4.00	%		1,818,919	5.00	%
SouthState Bank (the Bank)		1,417,616	9.59	%		591,592	4.00	%		739,490	5.00	%
September 30, 2019:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	1,302,034	11.22	%	$	812,276	7.00	%	$	754,257	6.50	%
SouthState Bank (the Bank)		1,392,599	12.00	%		812,284	7.00	%		754,263	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		1,414,138	12.19	%		986,336	8.50	%		928,316	8.00	%
SouthState Bank (the Bank)		1,392,599	12.00	%		986,345	8.50	%		928,324	8.00	%
Total capital to risk-weighted assets:
Consolidated		1,474,728	12.71	%		1,218,415	10.50	%		1,160,395	10.00	%
SouthState Bank (the Bank)		1,453,189	12.52	%		1,218,426	10.50	%		1,160,405	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		1,414,138	9.72	%		581,786	4.00	%		727,232	5.00	%
SouthState Bank (the Bank)		1,392,599	9.58	%		581,648	4.00	%		727,060	5.00	%
South State Bank (the Bank)														3,157,098	8.71	%		1,450,600	4.00	%		1,813,250	5.00	%

As of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019, and September 30, 2019,~~2020, the capital ratios of the Company and the Bank were well in excess of the minimum regulatory requirements and exceeded the thresholds for the “well capitalized” regulatory classification.

In June 2016, the FASB issued ASU No. 2016-13 which required an entity to utilize a new impairment model known as the CECL model to estimate its lifetime “expected credit loss.” This standard was adopted and became effective on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects from ASU 2016-13 at adoption, the standard included a transitional method option for recognizing the Day 1 effects on the Company’s regulatory capital calculations over a three year phase-in. In March 2020, in response to the COVID-19 pandemic, the regulatory agencies provided an additional transitional method option of a two-year deferral for the start of the three year phase-in of the recognition of the Day 1 effects of ASU 2016-13 along with an option to defer the current impact on regulatory capital calculations of ASU 2016-13 during the first two years (“5 year method”). Under this 5-year method, the Company would recognize an estimate of the previous incurred loss method for determining the allowance for credit losses in regulatory capital calculations and the difference from the CECL method would be deferred for two years. After two years, the effects from Day 1 and the deferral difference from the first two years of applying CECL would be phased-in over three years using the straight-line method. The regulatory rules ~~provide~~provided a one-time opportunity at the end of the first quarter of 2020 for covered banking organizations to choose its transition option for CECL. The Company chose the 5-year method and is deferring the recognition of the effects from Day 1 and the CECL difference from the first two years of application.

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Note ~~19—~~19 — Goodwill and Other Intangible Assets

The carrying amount of goodwill was $1.6 billion at ~~September 30, 2020, compared to $1.0 billion at~~both March 31, 2021and December 31, ~~2019 and September~~ ~~30, 2019.~~2020. The Company added ~~$563.6~~$15.8 million in goodwill related to the ~~CSFL merger~~DWI acquisition in ~~2020. The Company’s other intangible assets, consisting~~the first quarter of ~~core deposit intangibles, noncompete intangibles, and client list intangibles are included on the face of the balance sheet. The Company added~~ 2021.~~$125.9 million in core deposit intangible and $10.0 million in client list intangibles related to the CSFL merger in 2020.~~

The Company completed its annual valuation of the carrying value of its goodwill as of April 30, 2020. We also updated our analysis at November 30, 2020. We determined that no impairment charge was necessary ~~at this time.~~for each

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period end. We will continue to monitor the impact of the COVID-19 pandemic on the Company’ business, operating results, cash flows and/or financial condition.

Our other intangible assets, consisting of core deposit intangibles, noncompete intangibles, and client list intangibles are included on the face of the balance sheet. The following is a summary of gross carrying amounts and accumulated amortization of other intangible assets:


	September 30,		December 31,		September 30,		March 31,		December 31,
(Dollars in thousands)	2020		2019		2019		2021		2020
Gross carrying amount	$	258,162	$	119,501	$	119,501	$	258,654	$	258,554
Accumulated amortization		(86,525)		(69,685)		(66,418)		(104,793)		(95,962)
	$	171,637	$	49,816	$	53,083	$	153,861	$	162,592

Amortization expense totaled ~~$9.6 million and $17.2~~$9.2 million, for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021, compared to ~~$3.3 million and $9.8~~$3.0 million for the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020. The increase compared to the three months ended March 31, 2020 was due to the intangibles added from the CSFL merger in the second quarter of 2020. Other intangibles are amortized using either the straight-line method or an accelerated basis over their estimated useful lives, with lives generally between two and 15 years. Estimated amortization expense for other intangibles for each of the next five quarters is as follows:



(Dollars in thousands)
Quarter ending:
December 31,2020	$	9,437
March 31,2021		8,831
June 30,2021		8,613	$	8,613
September 30,2021		8,201		8,201
December 31,2021		8,200		8,200
March 31,2022				7,931
June 30,2022				7,666
Thereafter		128,355		113,250
	$	171,637	$	153,861

Note 20 — Loan Servicing, Mortgage Origination, and Loans Held for Sale

As of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019, and September 30, 2019,~~2020, the portfolio of residential mortgages serviced for others, which is not included in the accompanying balance sheets, was ~~$4.5 billion, $3.3~~$5.4 billion and ~~$3.1~~$5.1 billion, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amount of contractually specified servicing fees we earned during both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~ was ~~$2.5~~$3.2 million and ~~$6.8 million, and $1.9 million and $5.8~~$2.1 million, respectively. Servicing fees are recorded in mortgage banking income in our Condensed Consolidated Statements of Income.

At ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019, and September 30, 2019,~~2020, MSRs were ~~$34.6 million, $30.5~~$54.3 million and ~~$28.7~~$43.8 million on our consolidated balance sheets, respectively. MSRs are recorded at fair value with changes in fair value recorded as a component of mortgage banking income in the Condensed Consolidated Statements of Income. The market value adjustments related to MSRs recorded in mortgage banking income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020 ~~and September 30, 2019~~ were ~~a gain~~gains of ~~$1.0 million and a loss of $9.1~~$8.1 million, compared with losses of ~~$2.3 million and $7.2~~$4.9 million, respectively. We used various free-standing derivative instruments to mitigate the income statement effect of changes in fair value due to changes in market value adjustments and to changes in valuation inputs and assumptions related to MSRs.

See Note 15 — Fair Value for the changes in fair value of MSRs. The following table presents the changes in the fair value of the MSR and offsetting hedge.


	Three Months Ended
(Dollars in thousands)	March 31, 2021		March 31, 2020
Increase (decrease) in fair value of MSRs	$	8,076	$	(4,919)
Decay of MSRs		(4,561)		(1,204)
Loss related to derivatives		(6,404)		9,607
Net effect on statements of income	$	(2,889)	$	3,484

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~~the income statement effect of changes in fair value due to changes in market value adjustments and to changes in valuation inputs and assumptions related to MSRs.~~

~~See Note 15 — Fair Value for the changes in fair value of MSRs. The following table presents the changes in the fair value of the MSR and offsetting hedge.~~

Three Months Ended

Nine Months Ended

(Dollars in thousands)

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Increase (decrease) in fair value of MSRs

$
1,020

$
(2,294)

$
(9,078)

$
(7,218)

Decay of MSRs

(2,391)

(1,312)

(5,590)

(3,341)

Gain related to derivatives

619

1,476

10,915

5,415

Net effect on statements of income

$
(752)

$
(2,130)

$
(3,753)

$
(5,144)

The fair value of MSRs is highly sensitive to changes in assumptions and fair value is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates increase, mortgage loan prepayments decelerate due to decreased refinance activity, which results in an increase in the fair value of the MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time. See Note 15 — Fair Value for additional information regarding fair value.

The characteristics and sensitivity analysis of the MSRs are included in the following table.


	September 30,			December 31,			September 30,			March 31,			December 31,
(Dollars in thousands)	2020			2019			2019			2021			2020
Composition of residential loans serviced for others
Fixed-rate mortgage loans		99.9	%		99.8	%		99.8	%		99.9	%		99.9	%
Adjustable-rate mortgage loans		0.1	%		0.2	%		0.2	%		0.1	%		0.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Weighted average life		5.52	years		6.55	years		6.10	years		7.11	years		6.10	years
Constant Prepayment rate (CPR)		14.3	%		10.3	%		11.4	%		9.5	%		12.3	%
Weighted average discount rate		9.0	%		9.4	%		9.4	%		9.0	%		9.0	%
Effect on fair value due to change in interest rates
25 basis point increase	$	2,533		$	2,477		$	2,398		$	2,603		$	2,744
50 basis point increase		5,178			4,452			4,390			4,970			5,520
25 basis point decrease		(2,400)			(2,938)			(2,862)			(2,782)			(2,497)
50 basis point decrease		(3,665)			(6,228)			(5,999)			(4,288)			(4,114)

The sensitivity calculations in the previous table are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, the effects of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.

Custodial escrow balances maintained in connection with the loan servicing were ~~$48.1~~$41.4 million and ~~$33.7~~$26.6 million at ~~September 30,~~March 31, 2021 and December 31, 2020, ~~and September 30, 2019,~~ respectively.

Whole loan sales were ~~$1.3 billion and $2.0 billion for the three and nine months ended September 30, 2020, respectively, compared to $216.1 million and $517.9~~$774.4 million for the three ~~and nine~~ months ended ~~September~~ ~~30, 2019, respectively.~~March 31, 2021, compared to $228.3 million for the three months ended March 31, 2020. For the three ~~and nine~~ months ended ~~September 30, 2020, $1.1 billion and $1.7 billion,~~March 31, 2021, $621.7 million or ~~87.2%~~ ~~and 86.3%,~~80.3% were sold with the servicing rights retained by the ~~company,~~Company, compared to ~~$175.9 million and $412.4~~$194.5 million or ~~81.4% and 79.6%~~85.2%, for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020.

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Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 15 to 45 days. Loans held for sale were ~~$456.1 million,~~ ~~$59.4~~$353.0 million and ~~$87.4~~$290.5 million at ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September~~ ~~30, 2019,~~2020, respectively.

Note 21 –— Repurchase Agreements

Securities sold under agreements to repurchase (“repurchase agreements”) represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company. Repurchase agreements are subject to terms and conditions of the master repurchase agreements between the Company and the client and are accounted for as secured borrowings. Repurchase agreements are included in federal funds purchased and securities sold under agreements to repurchase on the condensed consolidated balance sheets.

At ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019,~~2020, our repurchase agreements totaled ~~$355.0 million, $242.2~~$399.3 million and ~~$235.5~~$394.9 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September~~ ~~30, 2019.~~2020. These borrowings were collateralized with government, ~~government-sponsored~~government-

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sponsored enterprise, or state and political subdivision-issued securities with a carrying value of $~~412.3 million, $242.2~~495.3 million and ~~$235.5~~$515.9 million at ~~September 30,~~March 31, 2021 and December 31, 2020, ~~December 31, 2019 and September 30, 2019,~~ respectively. Declines in the value of the collateral would require us to increase the amounts of securities pledged.

Note 22 –— Subsequent Events

On ~~October 15, 2020,~~April 28, 2021, the Company announced ~~that~~it received approval from its ~~Correspondent Banking Division will be expanding through the acquisition~~Board of ~~Duncan-Williams, Inc.~~Directors to redeem $25.0 million of subordinated notes (“~~Duncan-Williams”~~Subordinated Note”)~~, a 52-year-old family-~~ and ~~employee-owned registered broker-dealer, headquartered in Memphis, Tennessee, serving primarily institutional clients across the U.S.~~$38.5 million of trust preferred securities (“Trust Preferred Securities”) as outlined in the ~~fixed income business.~~table below. The ~~transaction~~Company also received regulatory approval from the Federal Reserve Bank of Atlanta to redeem the Subordinated Note and Trust Preferred Securities. The Company has ~~been approved by~~delivered or will cause to deliver redemption notices to all trustees (“Trustees”) and will redeem the ~~Company’s board~~Subordinated Note and Trust Preferred Securities at a cash redemption price (“Redemption Price”) equal to the principal amount of ~~directors~~the outstanding debentures and ~~is expected~~common securities, if applicable, plus accrued and unpaid interest, if any, to ~~close~~the redemptions dates (“Redemption Dates”) noted in the ~~first quarter of 2021, subject to receipt of regulatory approvals and compliance with other customary closing conditions.~~table below. Upon completion of the ~~transaction, Duncan-Williams~~redemptions, 0 notes will ~~become an operating subsidiary~~be outstanding as it relates to the Subordinated Note and Trust Preferred Securities. The redemption of the ~~Bank.~~Subordinated Note and Trust Preferred Securities will result in a reduction of Tier 2 capital of $63.5 million during the second quarter 2021. The redemption will accelerate approximately $11.0 million of unamortized fair value discount related to the Trust Preferred Securities.

Payment of the Redemption Price will be made on the Redemption Dates only upon presentation and surrender of the Subordinated Note and Trust Preferred Securities to the Trustees. Interest on the Subordinated Note and Trust Preferred Securities called for redemption will cease to accrue on and after the Redemption Dates. Notice of redemption will be sent to the registered holders of the Subordinated Note and Trust Preferred Securities.


	Original	Common		Original Issuance	Redemption
Debt Instrument ($ in thousands)	Principal	Securities	Trustee	Date	Date
National Commerce Corp 6.0% Fixed-to-Floating Rate Subordinated Note	$ 25,000	N/A	The Bank of New York Mellon Trust Company, N.A.	5/19/2016	6/1/2021
Gulfstream Bancshares Capital Trust II	3,000	$ 93	Wilmington Trust Company	12/28/2006	6/6/2021
Valrico Capital Statutory Trust	2,500	77	Wells Fargo Bank, National Association	5/20/2004	6/8/2021
BSA Financial Statutory Trust I	5,000	155	U.S. Bank National Association	10/28/2005	6/15/2021
MRCB Statutory Trust II	3,000	93	U.S. Bank National Association	6/28/2006	6/15/2021
Federal Trust Statutory Trust I	5,000	155	U.S. Bank National Association	9/17/2003	6/17/2021
CenterState Banks of Florida Statutory Trust I	10,000	310	U.S. Bank National Association	9/22/2003	6/22/2021
Homestead Statutory Trust I	10,000	495	Wilmington Trust Company	7/17/2006	7/1/2021
Total	$ 63,500	$ 1,378

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results for the year ending December 31, ~~2020~~2021 or any future period.

Unless otherwise mentioned or unless the context requires otherwise, references ~~herein~~ to “South State,” the “Company” “we,” “us,” “our” or similar references mean South State Corporation and its consolidated ~~subsidiary.~~subsidiaries. References to the “Bank” means South State Corporation’s wholly owned subsidiary, ~~SouthState~~South State Bank, National Association, a national banking association.

Overview

South State Corporation is a financial holding company headquartered in Winter Haven, Florida, and was incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our ~~wholly owned bank subsidiary, SouthState Bank, National Association (the “Bank”), a national banking association.~~Bank. The Bank ~~also~~ operates South State Advisory, Inc. (formerly First Southeast 401K ~~Fiduciaries)~~Fiduciaries, Inc.), a wholly owned registered investment advisor. The Bank also operates Duncan-Williams, Inc. (“Duncan-Williams”), which it acquired on February 1, 2021. Duncan-Williams is a registered broker-dealer, headquartered in Memphis, Tennessee, that serves primarily institutional clients across the U.S. in the fixed income business. Through the merger with CenterState Bank Corporation (“CSFL”) in the second quarter of 2020, the Bank also owns CBI Holding Company, LLC (“CBI”), which in turn owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide. Also, through the merger with CSFL in the second quarter of 2020,, the holding company operates R4ALL, Inc., which manages troubled loans purchased from the Bank to their eventual disposition and SSB Insurance Corp., a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.

At ~~September 30, 2020,~~March 31, 2021, we had approximately ~~$37.8~~$39.7 billion in assets and ~~5,266~~5,210 full-time equivalent employees. Through ~~the~~our Bank branches, ATMs and online banking platforms, we provide our customers with a ~~full~~wide range of ~~consumer, commercial, mortgage, wealth management and SBA banking~~financial services, including deposit accounts such as checking accounts, NOW accounts, savings and time deposits of various types, safe deposit boxes, bank money orders, wire transfer and ACH services, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, loans of all types, including business loans, agriculture loans, real ~~estate~~estate-secured (mortgage) loans, personal use loans, home improvement loans, automobile loans, manufactured housing loans, ~~automobile~~boat loans, credit cards, letters of credit, home equity lines of credit, ~~safe deposit boxes, bank money orders,~~treasury management services, merchant services and, ~~wire transfer services, through branch, ATM and digital banking channels~~factoring through a six (6) state footprint in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. We also operate a correspondent banking and capital markets division within our national bank subsidiary, of which the majority of its bond salesmen, traders and operational personnel are housed in facilities located in Birmingham, Alabama and Atlanta, Georgia. This division’s primary revenue generating activities are related to its capital markets division, which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities; and its correspondent banking division, which includes spread income earned on correspondent bank deposits (i.e., federal funds purchased) and correspondent bank checking account deposits and fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services. The correspondent banking and capital markets division was further expanded with the addition of Duncan-Williams on February 1, 2021.

We have pursued, and continue to pursue, a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions, or branches in certain market areas.

The following discussion describes our results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and also analyzes our financial condition as of ~~September 30, 2020~~March 31, 2021 as compared to December 31, ~~2019 and September 30, 2019~~2020. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net

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interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits.

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Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, as such we maintain an allowance for credit losses, otherwise referred to herein as ACL, to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following discussion, we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other services we charge to our customers. We incur costs in addition to interest expense on deposits and other borrowings, the largest of which is salaries and employee benefits. We describe the various components of this noninterest income and noninterest expense in the following discussion.

The following sections also identify significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Recent Events

COVID-19

The COVID-19 pandemic has severely restricted the level of economic activity in our markets. ~~In response~~Specifically due to the COVID-19 pandemic, the federal and state governments ~~of all of the states~~ in which we have financial centers and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of some businesses that have been deemed to be non-essential.

While ourour business has been designated an essential business, which allows us to continue to serve our customers, we serve many customers that were deemed, or who were employed by businesses that were deemed, to be non-essential. Although states in our market area have allowed businesses to reopen in the second and third quarters of 2020 that were deemed non-essential, there are still many restrictions, and our customers are still being adversely effected by the COVID-19 pandemic. In many of the states in our market area, as the economies have been allowed to reopen, there has been an increase in cases of COVID-19 and some restrictions have been reinstated.

The impact of the COVID-19 pandemic is fluid and continues to evolve. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and increased volatility and disruption in financial markets, and has had an adverse effect on our business, financial condition and results of general operations, with a more limited impact to our mortgage and correspondent banking and capital markets business lines. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers, employees and vendors.

Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets where we operate and in the United States as a whole. The COVID-19 pandemic has had a significant impact on our business and operations. As part of our efforts to practice social distancing, in March 2020, we closed all of our banking lobbies and began conducting most of our business through drive-thru tellers and through electronic and online means. To support the health and well-being of our employees, we allowed a majority of our non-customer facing workforce to work from home. In October 2020, we ~~have begun to reopen~~reopened our banking lobbies in our branch locations, but a majority of our support staff is still working from home. To support our customers or to comply with law, we ~~have~~ deferred loan payments from 90 to ~~180~~360 days for consumer and commercial customers. For customers directly impacted by the COVID-19 pandemic, we suspended residential property foreclosure sales ~~evictions,~~ and involuntary automobile repossessions through October 1, 2020,

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which was the latest moratorium expiration for states in our footprint. Eviction actions remained suspended through December 31, 2020 per Centers for Disease Control and ~~are offering~~Prevention Agency Order 2020-19654. Additionally, we offered fee waivers, payment deferrals, and other expanded assistance for automobile, mortgage, small business and personal lending customers.

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Future governmental actions may require more of these and other types of customer-related responses. ~~For non-FHA insured loans that were not directly impacted by~~We are awaiting a final ruling from the ~~COVID-19, normal collection efforts and foreclosure filings resumed at the end~~CFPB as to its proposal of ~~the third quarter 2020. Eviction actions remain suspended through 12/31/20 per Centers~~a nationwide moratorium on foreclosures for ~~Disease Control and Prevention Agency Order 2020-19654.~~all residential mortgages, which if enacted will have an effective date of August 31, 2021.

As of ~~October 23, 2020,~~March 31, 2021, we have deferrals of ~~$452~~$186 million, or ~~1.98%~~0.83%, of our total loan portfolio, excluding loans held for sale and Paycheck Protection Program (“PPP”) loans. For commercial loans, the standard deferral was 90 days for both principal and interest, 120 days of principal only payments or 180 days of interest ~~only. For consumer and mortgage loans, the standard deferral was 120 days of both principal and interest or 180 days of interest only.~~only payments. We have actively reached out to our customers to provide guidance and direction on these deferrals. In terms of available lines of credit, the ~~company~~Company has not experienced an increase in borrowers drawing down on their lines. As of ~~September 30, 2020,~~March 31, 2021, below are the loan portfolios which we view are of the greatest risk:

●

Lodging (hotel / motel) loan portfolio - ~~12%~~13% is under deferral, and the weighted average loan to value (“LTV”) was ~~55%~~59%. The Company currently has ~~$973~~$978 million, or ~~4.2%~~4.3% of the total loan portfolio, excluding loans held for sale and PPP loans, in lodging loans.

●

Restaurant loan portfolio – 2% is under deferral, and the weighted average LTV of real estate secured was ~~55%~~56%. The Company currently has ~~$497~~$434 million, or ~~2.2%~~1.9% of the total loan portfolio, excluding loans held for sale and PPP loans, in restaurants.

●

Retail loan portfolio – 4%0.03% of retail CRE loan portfolio is under deferral and the weighted average LTV of ~~57%~~53%. The Company currently has $2.2 billion, or ~~9.5%~~9.8% of the total loan portfolio, excluding loans held for sale and PPP loans, in retail CRE loans.

Also, we have extended credit to both customers and non-customers related to the ~~Paycheck Protection Program (“PPP”).~~PPP. As of ~~September 30, 2020,~~March 31, 2021, we have produced approximately ~~20,000~~26,000 loans totaling approximately ~~$2.4~~$3.1 billion through the PPP. While deferrals have ~~decreased~~been decreasing materially ~~during~~since the third quarter of 2020, given the fluidity of the pandemic and the risk there may be new lockdowns or restrictions on business activities to slow the spread of the virus, there is no guarantee that some loan not currently on deferral might return to deferral status.

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to suspend TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession ~~meets~~met the criteria defined under the CARES Act.

We are continuously monitoring the impact of the COVID-19 pandemic on our results of operations and financial condition. We implemented ASU 2016-13 in the first quarter of 2020 related to the calculation for our ACL for loans, investments, unfunded commitments and other financial assets. Considering the COVID-19 pandemic in our CECL models and moving to one CECL model (with the merged bank), during the third quarter of 2020, we recorded aan additional provision for credit losses ~~of $29.8 million~~ in the third quarter of 2020 which was significantly higher than the third quarter of 2019 but significantly less than the second quarter of 2020 when the provision for credit losses was comprised of three major components: (1) $119.1 million for the day 1 provision for loans without significant credit deterioration (“Non-PCD”) acquired from CSFL, (2) $31.3 million from the legacy South State loan portfolio, and (3) $1.1 million from the acquired CSFL loan portfolio since the merger date.2020. We also adjust our investment securities portfolio to market each period end and review for any impairment that would require a provision for credit losses. At this time, we have determined there is no need for a provision for credit losses related to our investment securities portfolio. Because of changing economic and market conditions affecting issuers, we may be required to recognize impairments in the future on the securities we hold, as well as reductions in other comprehensive income. We cannot currently determine the ultimate impact of the pandemic on the long-term value of our portfolio.

We also are monitoring the impact of the COVID-19 pandemic on the valuation of goodwill. Additional detail in regards to the goodwill analysis is disclosed below under the Goodwill and Other Intangible Assets section of the Recent Events.

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~~CenterState Bank Corporation Merger~~

~~On June 7, 2020, the Company acquired all of the outstanding common stock of CSFL, the financial holding company for CenterState Bank National Association (“CSB”), in a stock transaction.~~ ~~Pursuant to the merger agreement, (i) CSFL merged with~~Mergers and into the Company, with the Company continuing as the surviving corporation (the “Merger”), and (ii) immediately following the Merger, SouthState Bank (“SSB”), a South Carolina banking corporation and wholly owned bank subsidiary of the Company, merged with and into CSB, a national banking association and wholly owned bank subsidiary of CSFL, with CSB continuing as the surviving bank (the “Bank Merger”). In connection with the Bank Merger, CSB changed its name to “SouthState Bank, National Association” (hereinafter referred to as the “Bank”). CSFL common shareholders received 0.3001 shares of the Company’s common stock in exchange for each share of CSFL stock resulting in the Company issuing 37,271,069 shares of its common stock. In total, the purchase price for CSFL was $2.3 billion including the value of the conversion of outstanding warrants, stock options and restricted stock units totaling $15.4 million.Acquisition

~~In the acquisition,~~On February 1, 2021, the Company ~~acquired $13.0 billion~~completed its previously announced acquisition of ~~loans (excluding loans held for sale) at fair value, net of $239.5 million, or~~ ~~1.82%, estimated discount to the outstanding principal balance. Of the total loans acquired, Management identified $3.1 billion with credit deficiencies that were identified~~Duncan-Williams, Inc. (“Duncan-Williams”). Duncan-Williams, which operates as ~~Purchased Credit Deteriorated (“PCD”) loans. The Company assumed $15.6 billion in deposits including~~ a ~~$20.2 million premium for fixed maturity time deposits.~~

~~As a result~~wholly owned subsidiary of the Bank, ~~Merger,~~is a registered broker-dealer, headquartered in Memphis, Tennessee, that serves primarily institutional clients across the ~~Bank is now a national banking association that is subject to primary~~

~~supervision and regulation by~~U.S. in the Office of the Comptroller of the Currency (the “OCC”) and subject to the National Bank Act and is no longer subject to supervision and regulation by the South Carolina Board of Financial Institutions. In addition, the Federal Deposit Insurance Corporation is no longer the Bank’s primary federal regulator, and the Bank is now a member of the Federal Reserve System.fixed income business.

Branch Consolidation

As a part of the ongoing evaluation of customer service delivery and efficiencies, the Company ~~announced the closing and consolidation of 20~~closed 4 branch locations ~~in November~~during the first quarter of ~~2020.~~2021. The expected cost associated with these closures and cost initiatives is estimated to be approximately ~~$5.0 million,~~$400,000, and primarily includes personnel, facilities and equipment cost. The annual savings in 2021 of these closures is expected to be ~~$7.0 million, and the impact on 2020 is anticipated to be approximately $825,000. Eleven~~$750,000. Two of the locations are in Florida ~~five in South Carolina,~~and two in ~~North Carolina, one in Georgia and one in Alabama.~~Georgia.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. Our financial position and results of operations are affected by Management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Differences in the application of these policies could result in material changes in our consolidated financial position and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 2 and Note 3 of our consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 1 of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

The following is a summary of our critical accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Credit Losses or ACL

The ACL reflects Management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Due to the Merger between the Company and CSFL, effective June 7, 2020, Management ~~collectively evaluated loans utilizing two different methodologies for the second quarter. Management~~ adopted one combined methodology during the third quarter of 2020. Management used the one systematic methodology to determine its ACL

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for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects Management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for Management’s current estimate of expected credit losses. See Note 2 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 7 — Allowance for Credit Losses in this Quarterly Report on Form 10-Q, “Provision for Credit Losses and Nonperforming Assets” in this MD&A.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in a business combination. As of ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019~~,2020, the balance of goodwill was $1.6 ~~billion, $1.0 billion and $1.0 billion, respectively.~~billion. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

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In January 2017, the FASB issued ASU No. 2017-04, which simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on Step 1 of the previous accounting guidance’s two-step impairment test under ASC Topic 350. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amountOur most recent evaluation of goodwill allocated to that reporting unit. The new standard eliminates the requirement to calculate a goodwill impairment charge using Step 2 which involved calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to the quantitative step of determining whether the reporting unit’s carrying amount exceeds it fair value. ~~This guidance~~ was ~~effective for the Company~~performed as of ~~January 1, 2020.~~

~~We evaluated the carrying value of goodwill as of April~~ November 30, 2020, ~~our annual test date,~~and after considering the effects of COVID-19 ~~and~~on the economy, we determined that no impairment charge was necessary. Our stock price has historically traded above its book value, ~~and tangible book value. However, during the first quarter of 2020,~~however, our stock price fell below book value and ~~has~~ remained below book value ~~during the second and third quarter~~through much of ~~2020. This drop in stock price was~~2020 in reaction to the COVID-19 pandemic, which ~~has~~ affected stock prices of companies in almost all industries. ~~The lowest trading price for~~In November 2020, our stock ~~during~~price rose back above book value as the ~~first nine months of 2020~~economy slowly began to recover and there was ~~$40.42, and the~~positive news on vaccines for COVID-19. Our stock price closed on ~~September 30,~~December 31, 2020 at ~~$48.15,~~$72.30. Our stock price has continued to trade above book value and tangible book value in the first quarter of 2021. Our stock price closed on March 31, 2021 at $78.51, which was ~~below~~above book value of ~~$64.34 but above~~$66.42 and tangible book value of $39.83. The Company completed its annual valuation of the carrying value of goodwill as of April 30, 2020, taking into account the Company’s drop in stock price in 2020, and taking into account the effect that the COVID-19 pandemic has had and continues to have on the U.S. economy and the economies of the markets in which we operate. Along with its internal analysis, the Company received a limited independent third party valuation of its goodwill, and based upon the valuation and our analysis, we determined that no impairment charge was necessary at this time.$42.02. We will continue to monitor the impact of COVID-19 on the Company’s business, operating results, cash flows and financial condition. If the COVID-19 pandemic continues, ~~and~~ the economy ~~continues to deteriorate~~deteriorates and our stock price ~~remains at~~falls below current levels, we will have to reevaluate the impact on our financial condition and potential impairment of goodwill.

Core deposit intangibles, client list intangibles, and noncompetition (“noncompete”) intangibles consist primarily of amortizing assets established during the acquisition of other banks. This includes whole bank acquisitions and the acquisition of certain assets and liabilities from other financial institutions. Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in these transactions. Client list intangibles represent the value of long-term client relationships for the correspondent banking and wealth and trust management business. Noncompete intangibles represent the value of key personnel relative to various competitive factors such as ability to compete, willingness or likelihood to compete, and feasibility based upon the competitive environment, and what the Bank could lose from competition. These costs are amortized over the estimated useful lives, such as deposit accounts in the case of core deposit intangible, on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness.

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Income Taxes and Deferred Tax Assets

Income taxes are provided for the tax effects of the transactions reported in our condensed consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available-for-sale securities, ACL, write downs of OREO properties, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, mortgage servicing rights, and post-retirement benefits. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. A valuation allowance is recorded in situations where it is “more likely than not” that a deferred tax asset is not realizable. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company and its subsidiaries file a consolidated federal income tax return. Additionally, income tax returns are filed by the Company or its subsidiaries in the states of Alabama, California, Colorado, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, New York, New York City and Virginia. We evaluate the need for income tax reserves related to uncertain income tax positions but had no material reserves at ~~September 30, 2020~~March 31, 2021 or ~~2019.~~2020.

Other Real Estate Owned and Bank Property Held For Sale

Other real estate owned (“OREO”) consists of properties obtained through foreclosure or through a deed in lieu of foreclosure in satisfaction of loans. Prior to the merger with CSFL, we classified former branch sites as held for sale OREO. During the second quarter of 2020 and with the merger with CSFL, the Company elected to reclassify these assets as bank property held for sale and report on a separate line within the balance sheet. Both OREO and bank property held for sale are recorded at the lower of cost or fair value and the fair value was determined on the basis of current valuations obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure or initial possession of collateral, for OREO, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. At the time a bank property is no longer in service and is moved to held for sale, any excess of the current book value over fair value is recorded as an expense in the Statement of Net Income. Subsequent adjustments to this value are described below in the following paragraph.

We report subsequent declines in the fair value of OREO and bank properties held for sale below the new cost basis through valuation adjustments. Significant judgments and complex estimates are required in estimating the fair value of these properties, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, Management

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may utilize liquidation sales as part of its problem asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from the current valuations used to determine the fair value of these properties. Management reviews the value of these properties periodically and adjusts the values as appropriate. Revenue and expenses from OREO operations as well as gains or losses on sales and any subsequent adjustments to the value are recorded as OREO expense and loan related expense, a component of non-interest expense.

Results of Operations

Overview

We reported consolidated net income of ~~$95.2~~$146.9 million, or diluted earnings per share (“EPS”) of ~~$1.34,~~$2.06, for the ~~third~~first quarter of ~~2020~~2021 as compared to consolidated net income of ~~$51.6~~$24.1 million, or diluted EPS of ~~$1.50,~~$0.71, in the comparable period of ~~2019,~~2020, a ~~84.7%~~509.5% increase in consolidated net income and a ~~10.7% decrease~~190.1% increase in diluted EPS. The ~~$43.6~~$146.9 million increase in consolidated net income was the net result of the following items:

●

•

A ~~$145.3~~$130.7 million increase in interest income, resulting from a ~~$129.4~~$99.0 million increase in interest income from acquired loans due to an increase in average acquired loans from the merger with CSFL, ~~and~~ a ~~$12.9~~$26.3 million increase in interest income on non-acquired ~~loans.~~loans and a $4.2 million increase in interest income from investment securities. Non-acquired loan interest income increased due to the ~~$2.5~~$3.3 billion increase in the average balance, although the interest rate declined by 4821 basis points. Investment interest income increased due to the $2.7 billion increase in the average balance partially offset by a decline in yield of 113 basis points. This increase in loan interest income was offset by a ~~$1.5 million~~$463,000 decline in interest income on federal funds sold and interest-earning deposits with banks due to a decline in yield of ~~205~~100 basis points ~~from~~attributable to the falling interest rate environment, even though the average balance increased by ~~$3.9~~$4.2 billion ~~from~~as a result of the merger with CSFL and the funds that flowed in from the ~~CARES Act~~government stimulus;

●

•

A ~~$2.3~~$3.3 million ~~increase~~decrease in interest expense, which resulted from a decline in the cost of interest-bearing liabilities of 48 basis points. The effects from the decline in cost were partially offset by an increase in the average balance of interest-bearing liabilities of ~~$12.3~~$12.2 billion ~~from the CARES Act stimulus and from~~as a result of the merger with CSFL ~~even though there was a~~

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~~47 basis point~~and government stimulus. The decrease in the ~~cost of interest-bearing liabilities. The decrease in~~ cost of interest-bearing liabilities was due to a falling interest rate environment as the Federal Reserve ~~dropped the federal funds target rate by 75 basis points from July 2019 to October 2019. The Federal Reserve then~~ dropped the federal funds target rate 150 basis points to a range of 0.00% to 0.25% in March 2020 in response to the COVID-19 pandemic. The ~~third~~first quarter of ~~2020~~2021 reflects the full impact of these actions and the Company’s move to reduce the interest rate paid on ~~deposits;~~deposits as opposed to a partial month in the first quarter of 2020 ;

●

•

A ~~$25.8~~$95.0 million ~~increase~~decrease in the provision for credit losses, ~~which resulted primarily from~~as the Company recorded a release of the allowance for credit losses of $58.4 million in the first quarter of 2021 while recording a provision for credit losses ~~on Non-PCD loans~~ of ~~$7.1~~$36.5 million ~~and from~~in the first quarter of 2020. The Company recorded higher provision for credit losses ~~on unfunded commitments of $22.1 million during the third quarter of 2020. These increases were primarily due to the adoption of a new model used~~ in the ~~third~~first quarter of 2020 ~~for the Bank. The new methodology for unfunded commitments utilizes a funding rate, as opposed to a utilization rate which was a method applied~~and throughout 2020 in response to the ~~SouthState legacy portfolio prior~~COVID-19 pandemic. In the first quarter of 2021, with the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to ~~the third quarter, to determine the reserve~~release some of this allowance for ~~each respective segment of unfunded commitments.~~credit losses based on improvements in forecasts.

●

•

A ~~$77.2~~$52.2 million increase in noninterest income, which resulted primarily from the ~~full quarter~~ impact of the CSFL ~~noninterest income included~~merger completed in the ~~third~~second quarter of 2020. The largest increases were a ~~$41.9~~$28.3 million increase in correspondent banking and capital market income, $12.2 million increase in mortgage banking income and a ~~$25.7~~$7.1 million increase in ~~correspondent banking and capital markets income. These increases were partially offset by a decline in recoveries~~fees on ~~acquired loans of $1.4 million (now part of ACL as a result of the CECL adoption) and from lower securities gains of $422,000.~~deposit accounts. (See Noninterest Income section on page 8458 for further discussion);

●

•

A ~~$140.5~~$121.5 million increase in noninterest expense, which resulted primarily from the ~~full quarter~~ impact of the CSFL ~~noninterest expense included~~merger completed in the ~~third~~second quarter of 2020. The largest increases were from salary and employee benefits which totaled ~~$75.4 million, merger-related expense of $21.7~~$79.4 million, occupancy expense of ~~$12.0~~$11.0 million, ~~and~~ information services expense of ~~$10.0~~$9.5 million, merger and branch consolidation related expense of $5.9 million and amortization of intangibles of $6.2 million. (See Noninterest Expense section on page 8559 for further discussion); and

●

•

A ~~$10.2~~$36.8 million increase in the provision for income ~~taxes~~.taxes. This increase was primarily due to an increase in pretax book income of ~~$53.9~~$159.6 million in the ~~third~~first quarter of 2021 compared to the first quarter of 2020 ~~compared to the third quarter of 2019. The~~which drove our effective tax rate higher. Our effective tax rate was ~~slightly lower in~~21.83% for the ~~third quarter of 2020~~three months ended March 31, 2021 compared to 15.00% for the ~~third quarter of 2019, due primarily to the additional federal tax credits available in the current quarter.~~three months ended March 31, 2020.

~~Total nonperforming assets (“NPAs”) decreased by $15.8 million from June 30,~~Our quarterly efficiency ratio increased to 61.1% in the first quarter of 2021 compared to 60.4% in the first quarter of 2020. The increase in the efficiency ratio compared to the first quarter of 2020 ~~to $126.2 million as of September 30, 2020~~ ~~due to lower acquired nonaccrual loans and lower acquired OREO. The year over year change totaled $88.7 million, and~~ was the result of the merger with CSFL on June 7, 2020, and the increase related to loans formerly accounted for as credit impaired loans (with ASU 2016-13 are now considered PCD loans), prior to the adoption of ASU 2016-13. Acquired credit impaired loans were considered to be performing in prior periods, due to the application of the accretion method under FASB ASC Topic 310-30. ~~NPAs as~~ a percentage of total loans and repossessed assets declined by 6 basis points for the period ended September 30, 2020 to 50 basis points compared to 56 basis points at June 30, 2020, respectively, and increased by 17 basis points as compared to September 30, 2019. This increase was related to the addition of the non-accrual acquired credit impaired loans into NPAs due to the adoption of ASU 2016-13. 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. ~~NPAs increased $85.4 million from $40.8 million at December~~ 31, 2019. This increase was primarily related to the merger with CSFL and the change due to ASU 2016-13 referenced above. Annualized net charge-offs for the third quarter of 2020 were 0.01% of total average loans, or $594,000.

Non-acquired NPAs increased $2.6 million from $20.7 million at September 30, 2019 to $23.3 million at September 30, 2020, which resulted from a $3.3 million increase in non-acquired nonperforming loans. Non-acquired NPAs as a percentage of non-acquired loans and repossessed assets declined to 0.20% at September 30, 2020 from 0.23% at September ~~30, 2019.~~ ~~Non-acquired NPAs decreased $539,000 from $23.8 million at December~~ 31, 2019. Acquired NPAs increased $86.1 million from $16.8 million at September 30, 2019 to $102.9 million at September 30, 2020, which was due primarily to the merger with CSFL and the adoption of ASU 2016-13 referenced above.

With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating its allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies and Note 7 – Allowance for Credit Losses for further details. At September 30, 2020, the ACL was $440.2 million, or 1.74% of period end loans. Additionally, with the adoption of ASU 2016-13, the Company recorded separately a reserve for unfunded commitments of $43.2 million, or 0.94% of unfunded commitments, excluding unconditionally cancellable exposures and letters of credit. For prior comparative periods, the ACL was $434.6 million, or 1.70%, of period-end loans at June 30, 2020 and the allowance for loan losses on loans was $54.9 million, or 0.49%, at September 30, 2019. The ACL provides 3.91 times coverage of nonperforming loans at September 30, 2020. At December 31, 2019 and110.6%

6653

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~~September 30, 2019,~~increase in noninterest expense (excluding amortization of intangibles) being greater than the ~~allowance for loan losses on non-acquired nonperforming loans provided coverage of 2.50 times and 2.86 times, respectively. We continued to show solid and stable asset quality numbers and ratios as of September~~ ~~30, 2020. The~~108.1% increase in the ~~ACL was the result of the following:~~

●

~~Provision for credit losses – PCD loans ($610,000) and Non-PCD loans ($7.1 million) of $7.7 million (ASU 2016-13 requirement) reflective of one model implemented during the third quarter of 2020~~

●

~~Provision for credit losses – unfunded commitments of $22.1 million reflective of one model implemented during the third quarter of 2020~~

●

~~Net charge-offs, $594,000, or 0.01% annualized~~

●

~~Allowance for credit losses on PCD loans of $153.7 million~~

During the third quarter of 2020, acquired loan interest income increased $102.2 million compared to the second quarter of 2020. The yield on acquired loans was down to 4.76% at September 30, 2020 from 5.08% at June 30, 2020. The decrease in the yield in the third quarter of 2020 was primarily the result of the continued low interest rate environment. Loan accretion income recognized in the third quarter of 2020 totaled $22.4 million and included the full third quarter of loan accretion income from the CSFL acquired loan portfolio. Accretion income increased from $10.1 million in the second quarter of 2020 to $22.4 million in the third quarter of 2020. Acquired period-end loan balances decreased by $1.2 billion and acquired loans average balance increased by $8.8 billion, from June 30, 2020, due to the merger with CSFL.

~~The table below provides an analysis of the yield on our~~ total ~~loan portfolio, excluding loans held for sale, including both non-acquired and~~ acquired loans. The acquired loan yield decreased from the third quarter of 2019 due to the PPP loans acquired in the CSFL merger and overall lower rate environment. Non-acquired loan yields also declined due to the low yielding PPP loans originated during the third quarter of 2020.

Three Months Ended

Nine Months Ended


September 30,

September 30,

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Average balances:

Acquired loans, net of allowance for loan losses only in comparative period

$
14,108,652

$
2,471,851

$
7,157,214

$
2,702,836

Non-acquired loans

11,203,980

8,753,742

10,361,318

8,433,419

Total loans, excluding held for sale

$
25,312,632

$
11,225,593

$
17,518,532

$
11,136,255

Interest income:

Accretion income on acquired loans

$
22,445

$
8,070

$
43,484

$
26,356

Acquired loan interest income

146,343

31,310

227,663

103,030

Total acquired loans

168,788

39,380

271,147

129,386

Non-acquired loans

107,886

95,032

304,440

271,697

Total loans, excluding held for sale

$
276,674

$
134,412

$
575,587

$
401,083

Non-taxable equivalent yield:

Acquired loans

4.76
%

6.32
%

5.06
%

6.40
%
Non-acquired loans

3.83
%

4.31
%

3.92
%

4.31
%
Total loans, excluding held for sale

4.35
%

4.75
%

4.39
%

4.82
%

~~(1)~~

~~The accretion income on acquired loans includes the accretion from the discount on all acquired loans for the three and nine months ended September~~ 30, 2020 and 2019. In our previously filed Quarterly Reports on Form 10-Q, the accretion income on acquired loans included the accretion from the discount on the acquired non-credit impaired loan only. For the prior period, we reclassified the discount recognized related to acquired credit impaired loans to make the table comparable. This change was due to the adoption of ASU 2016-13 on January 1, 2020, which changed the accounting related to the acquired loan portfolio.

Compared to the balance at June 30, 2020, our non-acquired loan portfolio increased $0.9 billion, or 35.2% annualized, to $11.5 billion, driven by growth in all categories except other loans. Commercial and industrial loans and commercial owner occupied loans led the way with $366.6 million and $214.8 million in quarterly loan growth, respectively, or 62.9% and 45.6% annualized growth, respectively. The acquired loan portfolio decreased by $1.2 billion, or 32% annualized, to $13.7 billion in the third quarter of 2020 compared to $14.9 billion at June 30, 2020, from paydowns and payoffs in both the PCD and NonPCD loan categories. Since September 30, 2019, the non-acquired loan

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portfolio has grown by $2.6 billion, or 29.2%, driven by increases in all loan categories. The largest increases were in the following three categories: Commercial and industrial loans with $1.6 billion in loan growth, commercial owner occupied loan growth with $411.5 million, and commercial non-owner occupied loans of $333.1 million. Since September 30, 2019, the acquired loan portfolio increased by $11.3 billion, or 480.2% due to the merger with CSFL.

Compared to the second quarter of 2020, non-taxable equivalent net interest income increased $107.8 million or 66.3% due to the first full quarter of results after the merger with CSFL. The increase in net interest income during the third quarter of 2020 was mainly due to the increase in interest income on loans of $110.5 million (non-acquired loans interest income increased $8.2 million and acquired loans interest income increased $102.2 million), an increase in interest income on loans held for sale of $2.7 million and higher interest income from investment securities of $0.8 million. Interest expense increased $6.9 million during the quarter with the increase in the average balances of interest-bearing liabilities of $8.3 billion from the merger with CSFL in June. Rates dropped on funding cost by eight basis points as the Bank continued to adjust deposit pricing during the third quarter of 2020 with the low interest rate environment. Interest expense from deposits increased by $2.5 million, from corporate and subordinated debt by $3.1 million, and from other borrowings by ~~$1.2 million.~~ The increase in interest income on non-acquired loans was due to an increase in the average balance of $757.5 million, which was the result of overall loan growth during the third quarter of 2020. The effects from the increase in the average balance on non-acquired loans was partially offset by the decline in yield of 1 basis point due to the continued low rate environment that arose from the COVID-19 pandemic and the CARES Act passed in early Spring of 2020. Acquired loan interest income improved by $102.2 million as the average balance increased by $8.8 billion (the result of a full quarter of loans outstanding) partially offset by the effects from a 32 basis points decrease on the yield for acquired loans, which was attributed to the lower rate environment and PPP loans. The increase in interest income from investment securities was due to a higher average balance of $920.5 million from the merger with CSFL during the second quarter of 2020 partially offset by a lower yield. Interest income on federal funds sold, reverse repurchase agreements and interest-earning deposits increased by $0.8 million. The increase in interest income from federal funds sold, reverse repurchase agreements and interest-earning deposits was due to an increase in yield of 2 basis points and the full effect for the quarter on a much higher average balance from the merger with CSFL, an increase of $2.4 billion compared to the prior quarter. The increase in interest income from loans held for sale was due to an increase in the average balance of $353.4 million, primarily from the merger with CSFL. The increase in interest expense on interest-bearing deposits and other borrowings was the result of the impact of the assumed balances from the CSFL merger being included for the full quarter compared to 23 days in the second quarter of 2020. The non-taxable equivalent net interest margin decreased during the third quarter of 2020 compared to the second quarter of 2020 by 2 basis points from 3.23% to 3.21%. The decrease in the net interest margin was due to the decrease in yield on interest-earning assets of 7 basis points offset by 8 basis point decline in the yield on interest-bearing liabilities. The decline in the overall cost of funds, including demand deposits of 6 basis points reflects the full quarter impact of the merger with CSFL on all categories of deposits resulting in a 9 basis point decline in the cost of total deposits. This decrease was partially offset by an increase in the cost of corporate and subordinated debentures and other borrowings, resulting from full quarter impact of balances assumed from the CSFL merger along with the increase in cost on the cash flow hedges on the Federal Home Loan Bank advances.

Compared to the third quarter of 2019, non-taxable equivalent net interest income increased $143.0 million, or 112.2%, and the non-taxable equivalent net interest margin decreased to 3.21% from 3.72%. For further discussion of the comparison of net interest income and ~~net interest margin for the periods ended September 30, 2020~~noninterest income. The significant increases in noninterest expense and ~~2019, see Net Interest Income and Margin section below on page 70.~~

Our quarterly efficiency ratio decreased to 61.4% in the third quarter of 2020 compared to 80.5% in the second quarter of 2020 and increased from 58.4% in the third quarter of 2019. The decrease in the efficiency ratio compared to the second quarter of 2020 was the result of a $168.2 million, or 77.6%, increase in net interest income and noninterest income ~~partially offset by a $61.8 million, or 35.3%, increase in noninterest expense. These increases~~ were due to the ~~result~~fact the first quarter of ~~including~~2021 includes the ~~income and expense for a full quarter from~~effects of the merger with CSFL inwhile the ~~third~~first quarter of 2020 compared to only 23 days in the second quarter of 2020. Within noninterest income, the mortgage banking business continues to benefit from low interest rate environment coupled with the correspondent banking business added from the merger with CSFL.does not.

Diluted and basic EPS were ~~$1.34~~$2.06 and ~~$1.34,~~$2.07, respectively, for the ~~third~~first quarter of 2021, compared to the first quarter of 2020 ~~compared to the third quarter~~ of ~~2019 which were $1.51~~$0.71 and ~~$1.50, respectively.~~$0.72. The increase of 509.5% in net income in the ~~third~~first quarter of 2021 was greater than the increase in average common shares of 111% compared to the same period in 2020. The first quarter in 2021 includes the effect of net income from CSFL while the first quarter of 2020 was attributable to the first full quarter of income and expense after the merger with CSFL, which occurred in early June 2020. In addition, the Company had $21.7 million in merger-related expense in the current quarter compared to no

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~~merger-related expense or branch conversion cost in the third quarter of 2019. In addition, the~~does not. The weighted average common shares increased to ~~71.1~~71.0 million shares, or ~~107.2%~~111%, due to the merger with CSFL compared to ~~34.3~~33.6 million weighted average shares outstanding at ~~September 30, 2019.~~March 31, 2020. The ~~total number of shares outstanding at September 30, 2020 totaled 70,928,304, which includes~~Company issued 37.3 million shares ~~issued in~~with the merger with CSFL in ~~June~~the second quarter of 2020. The increase in net income was due to the full quarter impact of the CSFL merger in the third quarter of 2020, which did not affect any of the third quarter of 2019. The increase in outstanding shares from September 30, 2019 was due to the merger with CSFL.

Selected Figures and Ratios


	Three Months Ended
	March 31,
(Dollars in thousands)	2021			2020
Return on average assets (annualized)		1.56	%		0.60	%
Return on average equity (annualized)		12.71	%		4.15	%
Return on average tangible equity (annualized)*		21.16	%		8.35	%
Dividend payout ratio		22.72	%		65.70	%
Equity to assets ratio		11.88	%		13.95	%
Average shareholders’ equity	$	4,687,149		$	2,336,348

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Return on average assets (annualized)

1.00
%

1.31
%

0.18
%

1.20
%
Return on average equity (annualized)

8.31
%

8.70
%

1.41
%

7.76
%
Return on average tangible equity (annualized)*

14.66
%

16.62
%

3.51
%

14.88
%
Dividend payout ratio

35.01
%

28.48
%

188.71
%

30.70
%
Equity to assets ratio

12.07
%

14.92
%

12.07
%

14.92
%
Average shareholders’ equity

$
4,556,061

$
2,351,154

$
3,268,998

$
2,366,017

* - Denotes a non-GAAP financial measure. The section titled “Reconciliation of GAAP to non-GAAP” below provides a table that reconciles GAAP measures to non-GAAP measures.

●

For the three months ended ~~September~~ ~~30, 2020,~~March 31, 2021, return on average tangible equity ~~decreased~~increased to ~~14.66%~~21.16% compared to ~~16.62%~~8.35% for the same period in ~~2019.~~ 2020. This ~~decrease~~increase was the result of an ~~increase in average tangible equity of $1.5 billion, or 115.9%, being greater than the~~ increase in net income, excluding amortization of intangibles, of ~~$48.7~~$127.4 million, or ~~90.0%~~478% being greater than the increase in average tangible equity of $1.7 billion, or 129.9%, during the ~~third~~first quarter of ~~2020~~2021 compared to the same quarter in ~~2019.~~2020. The increase in net income and increase in average tangible equity were both due to the merger with CSFL which ~~fully impacted~~occurred in the ~~third~~second quarter of 2020. The main reason for the more significant increase in net income was due to the provision for credit losses where we had a release of $58.4 million in the first quarter of 2021 compared to a provision of $36.5 million in the first quarter of 2020.

●

For the three months ended ~~September 30, 2020,~~March 31, 2021, return on average assets was ~~1.00 %, a decrease~~1.56%, an increase from ~~1.31 %~~0.60% for the three months ended ~~September~~ ~~30, 2019.~~March 31, 2020. This ~~decline~~increase was due to ~~the effect of~~ the increase in net income of ~~$43.7~~$122.8 million, or ~~84.7%~~509.5%, during the ~~third~~first quarter of ~~2020~~2021 being ~~less~~greater than the increase of ~~142.6%~~138.2% in average assets. The net income (merger expenses) and increase in average assets were both due to the merger with CSFL that occurred in early June 2020. The main reason for the more significant increase in net income was due to the provision for credit losses where we had a release of $58.4 million in the first quarter of 2021 compared to a provision of $36.5 million in the first quarter of 2020.

●

Equity to assets ratio was ~~12.07 %~~11.88% for the three months ended ~~September 30, 2020,~~March 31, 2021, a decrease from ~~14.92 %~~13.95% for the three months ended ~~September~~ ~~30, 2019.~~March 31, 2020. The decrease from the comparable period in ~~2019~~2020 was due to the increase in total assets of ~~140.1%~~138.7% being greater than the increase in equity of ~~94.1%~~103.3%. Both the increase in assets and equity were due to the merger with CSFL in the second quarter of 2020.

●

Dividend payout ratio was 22.72% for the three months ended March 31, 2021, and decrease from 65.70% for the three months ended March 31, 2020. The decrease from the comparable period in 2020 reflects the increase of 509.5% in net income being greater than the 110.7% increase in cash dividends paid per common share. The dividend payout ratio is calculated by dividing total dividends paid during the quarter by the total net income reported for the same period.

~~Reconciliation of GAAP to Non-GAAP~~

The return on average tangible equity is a non-GAAP financial measure that excludes the effect of the average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes these non-GAAP financial measures provide additional information that is useful to investors in evaluating our performance and capital and may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons. 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 South State’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of South State. Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies. Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of South State’s results or financial condition as reported under GAAP.

~~Table of Contents~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Return on average equity (GAAP)

8.31
%

8.70
%

1.41
%

7.76
%
Effect to adjust for intangible assets

6.35
%

7.92
%

2.10
%

7.12
%
Return on average tangible equity (non-GAAP)

14.66
%

16.62
%

3.51
%

14.88
%

Average shareholders’ equity (GAAP)

$
4,556,061

$
2,351,154

$
3,268,998

$
2,366,017

Average intangible assets

(1,763,255)

(1,057,818)

(1,353,300)

(1,061,109)

Adjusted average shareholders’ equity (non-GAAP)

$
2,792,806

$
1,293,336

$
1,915,698

$
1,304,908

Net income (loss) (GAAP)

$
95,221

$
51,565

$
34,396

$
137,392

Amortization of intangibles

9,560

3,268

17,232

9,817

Tax effect

(1,875)

(658)

(1,272)

(1,968)

Net income excluding the after-tax effect of amortization of intangibles (non-GAAP)

$
102,906

$
54,175

$
50,356

$
145,241

~~Net Interest Income and Margin~~

~~Summary~~

Our taxable equivalent (“TE”) net interest margin for the third quarter of 2020 decreased by 51 basis points from 3.73% in the third quarter of 2019 to 3.22%. This decrease was due to a decrease in the yield of interest-earning assets of 87 basis points; partially offset by a decline in the rate paid on interest-bearing liabilities of 47 basis points.

Non-TE net interest margin also decreased by 51 basis points from the third quarter of 2019, for the same reason as above. The decrease in the yield on interest-earning assets was due to a decrease in the yield on federal funds sold, reverse repurchase agreements and interest-earning deposits of 205 basis point, a decrease in the yield on investment securities of 106 basis point, a decrease in yield on non-acquired loans of 48 basis points and a decrease in yield on acquired loans of 156 basis points. The decrease in these yields was mostly due to the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020. The overall yield on interest-earning assets also decreased due to the significant increase in the average balance on federal funds sold, reverse repurchase agreements and interest earning deposit, the Company’s lowest yielding assets, which increased $3.9 billion or 796.3%. This increase was partially due to the merger with CSFL and due to the decision to hold more liquidity during the current COVID-19 pandemic and recessionary economic pressures. The effects from the decrease in yield on interest-earning assets were partially offset by a decline in the cost of interest-bearing liabilities. The cost of interest-bearing liabilities decreased 47 basis points from 0.92% in the third quarter of 2019 to 0.45% in the third quarter of 2020. This decrease in cost on interest-bearing liabilities was due to a decrease in the cost of all categories of interest-bearing deposits and a decrease in the cost of federal funds purchased and repurchase agreements. The decreases were the result of the falling interest rate environment in the last half of 2019 and first quarter of 2020. The cost of corporate and subordinated debentures and other borrowings increased from the third quarter of 2019 to the third quarter in 2020 by 78 basis points to 3.39%. This increase was due the higher cost in the subordinated debentures assumed in the merger with CSFL in the second quarter of 2020 along with the rising costs of the cash flow hedges on our $700 million of FHLB Advances.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Non-TE net interest income

$
270,348

$
127,373

$
560,918

$
377,819

Non-TE yield on interest-earning assets

3.51
%

4.38
%

3.68
%

4.47
%
Non-TE rate on interest-bearing liabilities

0.45
%

0.92
%

0.55
%

0.92
%
Non-TE net interest margin

3.21
%

3.72
%

3.31
%

3.81
%
TE net interest margin

3.22
%

3.73
%

3.33
%

3.82
%

7054

Table of Contents

Net Interest Income and Margin

Non-TE net interest income increased ~~$143.0~~$134.0 million or ~~112.2%,~~104.7% to $262.0 million in the ~~third~~first quarter of ~~2020~~2021 compared to $128.0 million in the same period in ~~2019.~~2020. Interest earning assets averaged $34.2 billion during the three months period ended March 31, 2021 compared to $14.0 billion for the same period in 2020, an increase of $20.2 billion or 143.8%. Interest bearing liabilities averaged $22.4 billion during the three months period ended March 31, 2021 compared to $10.2 billion for the same period in 2020, an increase of $12.2 billion or 120.2%. Some key highlights are outlined below:

Higher interest income by ~~$145.3~~$130.7 million with ~~acquired loan~~increased interest income ~~increasing~~from acquired loans, non-acquired loans and investment securities by ~~$129.4~~$99.0 million, ~~because of higher~~$26.3 million and $4.2 million, respectively, due to increases in average balances, which were $9.8 billion, $3.3 billion and by $2.7 billion, respectively. The average balance of acquired loans ~~of $11.6 billion resulting from the merger with CSFL, higher non-acquired loan interest income of $12.9 million~~increased primarily due to ~~higher average balance of $2.5 billion and higher investment securities interest income of $0.9 million because of higher average~~ balances of $1.4 billion resulting from the merger with CSFL. These increases in interest income were partially offset by a $1.5 million decline in federal funds sold and repurchase agreements interest income as the yield declined by 205 basis points, offsetting the effects of the average balance increasing by $3.9 billion. This increase in average balance was primarily from deposits from the CARES Act and PPP loans, along with securities sold by CSFL prior to the merger.

Higher interest expense of $2.3 million as the average balance of interest-bearing liabilities increased $12.3 billion in the third quarter of 2020 compared to the same period in 2019. This increase was due to the addition of interest-bearing liabilitiesassumed from the merger with CSFL in the second quarter of 2020. The ~~main reason for this~~average balance of our non-acquired loan portfolio increased primarily through organic growth including PPP loans which averaged $1.1 billion in the first quarter of 2021. The average balance of investment securities increased through both the $1.2 billion in investment securities acquired in the merger with CSFL along with the Company’s decision to increase ~~was~~the investment portfolio due to the excess liquidity held through growth in deposits since the first quarter of 2020.

Lower interest expense ~~on subordinated debentures and other borrowings increasing $3.9~~of $3.3 million due to the ~~higher cost~~lower rate environment in the ~~subordinated debentures assumed~~first quarter of 2021 compared to the same period in 2020 as the average cost of funds declined 48 basis points. This decline due to lower cost was partially offset by increase in the average balances for interest-bearing liabilities of $12.2 million which was driven by an increase in interest-bearing deposits of $12.2 billion in the first quarter of 2021 compared to the same period in 2020. The increase in average interest-bearing deposits was mainly due to the $10.3 billion in interest-bearing deposits acquired in the merger with CSFL in the second quarter of 2020 along with the rising costs of the cash flow hedges on our $700 million of FHLB Advances. The average balance on subordinated debentures and other borrowing also increased $273.2 million to $1.1 billion for the three months ended September 30,June 2020. This increase in interest expense was partially offset by the decrease in interest expense from interest-bearing deposits of $1.5 million due to falling rate environment in the last half of 2019 and first quarter of 2020 as the cost on interest-bearing deposits declined 47 basis points from the third quarter of 2019 to 0.45%.

Non-TE yield on interest-earning assets for the ~~third~~first quarter of ~~2020~~2021 decreased 8793 basis points to 3.30% from the comparable period in ~~2019.~~2020. The decline in yield on interest-earning assets was due to the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve ~~during 2019 and~~ in March 2020 as well as a change in asset ~~mix.~~mix as the lower yielding federal funds sold, reverse repos and other interest-bearing deposits increased $4.2 billion in the first quarter of 2021 compared to the same period in 2020.

The average cost of interest-bearing liabilities for the ~~third~~first quarter of ~~2020~~2021 decreased 4748 basis points from the same period in ~~2019.~~ 2020. This decrease occurred in all deposit categories of funding and was due to the falling interest rate environment in the ~~last half of 2019 and~~ first quarter of 2020.Our overall cost of funds, including noninterest-bearing deposits, was 0.21% for the three months ended March 31, 2021 compared to 0.59% for the three months ended March 31, 2020.

The Non-TE net interest margin decreased by 5157 basis points and the TE net interest margin decreased by 5156 basis points in the ~~third~~first quarter of ~~2020~~2021 compared to the ~~third~~same quarter of ~~2019~~2020 due to the decline in the yield on interest earning assets of 8793 basis points, which was only partially offset by the lower cost of interest-bearing liabilities of 4748 basis points.

7155

Table of Contents

The table below summarizes the analysis of changes in interest income and interest expense for the three months ended March 31, 2021 and 2020 and net interest margin on a tax equivalent basis.

~~Loans~~

Three Months Ended

March 31, 2021

March 31, 2020

Average

Interest

Average

Interest

Average

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Interest-Earning Assets:

Federal funds sold, reverse repo, and time deposits

$ 4,757,717

$ 989

0.08%

$ 538,310

$ 1,452

1.08%

Investment securities (taxable) ⁽¹⁾

4,215,560

15,425

1.47%

1,851,052

11,915

2.59%

Investment securities (tax-exempt)

467,592

2,095

1.82%

171,674

1,399

3.28%

Loans held for sale

298,970

1,991

2.70%

41,812

331

3.18%

Acquired loans, net

11,768,952

134,762

4.64%

2,015,492

35,798

7.14%

Non-acquired loans

12,723,137

123,214

3.93%

9,424,184

96,905

4.14%

Total interest-earning assets

34,231,928

278,476

3.30%

14,042,524

147,800

4.23%

Noninterest-Earning Assets:

Cash and due from banks

379,675

243,919

Other assets

4,090,738

1,873,673

Allowance for non-acquired loan losses

(456,931)

(107,183)

Total noninterest-earning assets

4,013,482

2,010,409

Total Assets

$ 38,245,410

$ 16,052,933

Interest-Bearing Liabilities:

Transaction and money market accounts

$ 14,678,248

$ 5,387

0.15%

$ 5,976,771

$ 7,682

0.52%

Savings deposits

2,780,361

434

0.06%

1,323,770

650

0.20%

Certificates and other time deposits

3,672,818

5,436

0.60%

1,642,749

6,105

1.49%

Federal funds purchased and repurchase agreements

852,277

351

0.17%

328,372

615

0.75%

Corporate and subordinated debentures

390,043

4,870

5.06%

115,900

1,192

4.14%

Other borrowings

—

771,531

3,543

1.85%

Total interest-bearing liabilities

22,373,747

16,478

0.30%

10,159,093

19,787

0.78%

Noninterest-Bearing Liabilities:

Demand deposits

10,044,102

3,271,368

Other liabilities

1,140,412

286,124

Total noninterest-bearing liabilities ("Non-IBL")

11,184,514

3,557,492

Shareholders' equity

4,687,149

2,336,348

Total Non-IBL and shareholders' equity

15,871,663

5,893,840

Total liabilities and shareholders' equity

$ 38,245,410

$ 16,052,933

Net interest income and margin (Non-Tax Equivalent)

$ 261,998

3.10%

$ 128,013

3.67%

Net interest margin (Tax Equivalent)

3.12%

3.68%

Total Deposit Cost (without debt and other borrowings)

0.15%

0.46%

Overall Cost of Funds (including demand deposits)

0.21%

0.59%

(1)

Investment securities (taxable) include trading securities.

~~The following table presents a summary of the loan portfolio by category (excludes loans held for sale):~~Investment Securities

LOAN PORTFOLIO (ENDING BALANCE)
September 30,

% of

December 31,

% of

September 30,

% of

(Dollars in thousands)
2020

Total

2019

Total

2019

Total

Acquired loans:

Acquired - non-purchased credit deteriorated loans:

Construction and land development
$
656,767

2.6
%
$
33,569

0.3
%
$
53,302

0.5
%
Commercial non-owner occupied

2,609,141

10.3
%

447,441

3.9
%

503,443

4.5
%
Commercial owner occupied real estate

1,938,306

7.7
%

307,193

2.7
%

345,040

3.1
%
Consumer owner occupied

1,598,723

6.3
%

496,431

4.4
%

543,432

4.8
%
Home equity loans

693,342

2.8
%

188,732

1.7
%

198,112

1.8
%
Commercial and industrial

2,537,953

10.1
%

101,880

0.9
%

126,092

1.1
%
Other income producing property

298,437

1.2
%

95,697

0.8
%

103,093

0.9
%
Consumer non real estate

224,804

0.9
%

89,484

0.8
%

93,089

0.8
%
Other

434

-
%

-

-
%

-

-
%
Total acquired - non-purchased credit deteriorated loans

10,557,907

41.9
%

1,760,427

15.5
%

1,965,603

17.5
%
Acquired - purchased credit deteriorated loans (PCD):

Construction and land development

137,114

0.5
%

15,332

0.1
%

16,767

0.1
%
Commercial non-owner occupied

1,216,813

4.8
%

65,388

0.6
%

76,960

0.7
%
Commercial owner occupied real estate

818,524

3.2
%

67,491

0.6
%

71,060

0.6
%
Consumer owner occupied

517,629

2.1
%

91,690

0.8
%

98,567

0.9
%
Home equity loans

91,580

0.4
%

50,660

0.4
%

53,507

0.5
%
Commercial and industrial

197,121

0.8
%

3,588

-
%

4,588

-
%
Other income producing property

77,631

0.3
%

32,240

0.3
%

37,829

0.3
%
Consumer non real estate

87,410

0.4
%

35,457

0.3
%

36,754

0.3
%
Other

-

-
%

-

-
%

-

-
%
Total acquired - purchased credit deteriorated loans (PCD)

3,143,822

12.5
%

361,846

3.1
%

396,032

3.4
%
Total acquired loans

13,701,729

54.4
%

2,122,273

18.6
%

2,361,635

20.9
%
Non-acquired loans:

Construction and land development

1,046,230

4.1
%

968,360

8.5
%

955,318

8.5
%
Commercial non-owner occupied

2,110,418

8.4
%

1,811,138

15.9
%

1,777,327

15.7
%
Commercial owner occupied real estate

2,089,190

8.3
%

1,784,017

15.7
%

1,677,695

14.9
%
Consumer owner occupied

2,194,834

8.7
%

2,118,839

18.6
%

2,118,127

18.8
%
Home equity loans

562,876

2.2
%

518,628

4.6
%

521,744

4.6
%
Commercial and industrial

2,684,046

10.6
%

1,280,859

11.3
%

1,130,847

10.0
%
Other income producing property

253,429

1.0
%

218,617

1.9
%

220,957

2.0
%
Consumer non real estate

587,957

2.3
%

538,481

4.7
%

525,040

4.6
%
Other

7,106

-
%

13,892

0.2
%

1,457

-
%
Total non-acquired loans

11,536,086

45.6
%

9,252,831

81.4
%

8,928,512

79.1
%
Total loans (net of unearned income)
$
25,237,815

100.0
%
$
11,375,104

100.0
%
$
11,290,147

100.0
%

~~Total loans, net~~Interest earned on investment securities was higher in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This is a result of ~~deferred loan costs and fees (excluding mortgage loans held for sale), increased by $13.9 billion, or 123.5%, to $25.2 billion at September~~ ~~30, 2020 as~~the Bank carrying a higher average balance in investment securities in 2021 compared to the same periods in 2020. The average balance of investment securities for the three months ended March 31, 2021 increased $2.7 billion from the comparable period in ~~2019. Non-acquired loans or legacy loans increased by $2.6~~2020. With the excess liquidity from the growth in deposits during 2020 and the first three months of 2021, the Bank used a portion of the excess funds to strategically increase the size of its investment securities. The increase in the average balance was also due to the acquisition of CSFL’s investment portfolio of $1.2 billion ~~or 29.2%, from September 30, 2019 to September 30, 2020 through organic loan growth and PPP loans. Acquired loans increased by $11.3 billion, or 480.2% as~~in June 2020. The yield on the investment securities declined 113 basis points during the three months ended March 31, 2021 compared to the same ~~period~~periods in ~~2019. The overall increase in acquired loans was the addition of $13.0 billion~~2020 due to the ~~merger with CSB, net of $1.8 billion of principal payments, charge-offs, foreclosures~~falling interest rate environment resulting from the drop in the federal funds rate made by the Federal Reserve in March 2020 and renewals of acquired loans. Acquired loans as a percentage of total loans increased to 54.4% at September 30, 2020 compared to 20.9% at September 30, 2019. As of September 30, 2020, non-acquired loans as a percentage of the ~~overall portfolio were 45.6% compared to 79.1% at September 30, 2019.~~impact this reduction has on the rate earned on security purchases.

Loans

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Average total loans

$
25,312,632

$
11,225,593

$
17,518,532

$
11,136,255

Interest income on total loans

276,674

134,412

575,587

401,083

Non-TE yield

4.35
%

4.75
%

4.39
%

4.82
%

Interest earned on loans increased ~~$142.3~~$125.3 million to $258.0 million in the ~~third~~first quarter of 2021 compared to the same quarter of 2020. Interest earned related to loans included loan accretion income recognized in the first quarter of

Table of Contents

2021 totaling $10.4 million compared to loan accretion income of $10.9 million in the first quarter of 2020, ~~compared to the third quarter~~a decrease of ~~2019.~~ $515,000. Some key highlights for the quarter ended ~~September 30, 2020~~March 31, 2021 are outlined below:

●

Our non-TE yield on total loans decreased 4039 basis points in the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019 and~~2020 while average total loans increased ~~$14.1~~$13.1 billion or ~~125.5%~~114.1%, in the ~~third~~first quarter of ~~2020,~~2021, as compared to the same period in ~~2019.~~2020. The increase in average total loans was the result of ~~470.8%~~483.9% growth in the average acquired loan portfolio and ~~28.0%~~35.0% growth in the average non-acquired loan ~~portfolio during the~~

~~Table of Contents~~

~~period.~~portfolio. The growth in the acquired loan portfolio was due to the addition of $13.0 billion in loans from the merger with ~~CSB, net of principal payments, charge-offs, and foreclosures.~~CSFL. The growth in the non-acquired loan portfolio was due to normal organic growth and PPP loans.

●

The yield on the acquired loan portfolio decreased from ~~6.32%~~7.14% in the ~~third~~first quarter of ~~2019~~2020 to ~~4.76%~~4.64% in the same period in ~~2020~~2021. For the acquired loans, average balance increased by $9.8 billion and interest income increased by $99.0 million due to the loans acquired in the merger with CSFL, while the yield decreased by 250 basis points due to overall lower rate environment and the lower yielding PPP loans assumed from the merger with CSFL.

●

The yield on the non-acquired loan portfolio decreased from ~~4.31%~~4.14% in the ~~third~~first quarter of ~~3.83%~~2020 to 3.93% in the same period in ~~2020. The decline in the~~2021. Non-acquired loan yield ~~on the non-acquired loan portfolio of 48~~declined by 21 basis points ~~and on the acquired loan portfolio of 156 basis points was mainly~~ due to the ~~falling~~low yielding PPP loans originated during the first quarter of 2021 and low interest rate ~~environment as~~environment. The most recent rate change by the Federal Reserve ~~dropped~~was the federal funds target rate drop by ~~50 basis points from September 2019 to October 2019 and then dropped the federal funds target rate~~ 150 basis points to a range of 0.00% to 0.25% in March 2020 in reaction to the COVID-19 pandemic. This effectively decreased the Prime Rate, the rate used in pricing a majority of our new originated loans.

Interest-Bearing Liabilities

The quarter-to-date average balance of interest-bearing liabilities increased $12.2 billion in the first quarter of 2021 compared to the same period in 2020 . Overall cost of funds, including demand deposits, decreased by 38 basis points to 0.21% in the first quarter of 2021, compared to the same period in 2020. Some key highlights for the quarter ended March 31, 2021 compared to the same period in 2020 include:

●

Increase in interest-bearing deposits of $12.2 billion and an increase in federal funds purchased, repurchase agreements and corporate and subordinated debt of $798.0 million. These increases were slightly offset by a decrease in other borrowings of $771.5 million.

●

Increase in average interest-bearing deposits is due to the acquisition of $10.3 billion in interest-bearing deposits from the CSFL merger during the second quarter of 2020. The increase in ~~interest income on loans~~average federal funds purchased and repurchase agreements and the increase in average corporate and subordinated debt and other borrowings was also due to borrowings acquired in the merger with CSFL. The Company assumed $401.5 million in federal funds purchased and repurchase agreements and $271.5 million in subordinated debt and trust preferred debt from the merger in the second quarter of 2020. The decline in average other borrowings, consisting mostly of FHLB advances, was due to the Company making the strategic decision to payoff these borrowings in the fourth quarter of 2020.

●

The decline in interest expense of $3.3 million in the first quarter of 2021 compared to the same period in 2020 was driven by lower cost on overall interest bearing liabilities, especially on interest bearing deposits. The cost on interest-bearing deposits was 0.22% for the first quarter of 2021 compared to 0.65% for the same period in 2020. The decline in cost related to deposits was due to the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve in March 2020. These changes resulted in a 48 basis point decrease in the average rate on all interest-bearing liabilities from 0.78% to 0.30% for the three months ended March 31, 2021.

We continue to monitor and adjust rates paid on deposit products as part of our strategy to manage our net interest margin. Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

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Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits increased $6.8 billion, or 207.0%, to $10.0 billion in the first quarter of 2021 compared to $3.3 billion during the same period in 2020. This increase in both period end and average assets was mainly due to the noninterest-bearing deposits of $5.3 billion assumed from the merger with CSFL in June 2020.

Noninterest Income

Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended March 31, 2021 and 2020, noninterest income comprised 26.9%, and 25.6%, respectively, of total net interest income and noninterest income.


	Three Months Ended
(Dollars in thousands)	2021		2020
Service charges on deposit accounts	$	16,094	$	12,304
Debit, prepaid, ATM and merchant card related income		9,188		5,837
Mortgage banking income		26,880		14,647
Trust and investment services income		8,578		7,389
Correspondent banking and capital market income		28,748		494
Bank owned life insurance income		3,300		2,530
Other		3,497		931
Total noninterest income	$	96,285	$	44,132

Noninterest income increased by $52.2 million, or 118.2%, during the first quarter of 2021 compared to the same period in 2020. This quarterly change in total noninterest income primarily resulted from the following:

●

Service charges on deposit accounts and debit, prepaid, ATM and merchant card related income were higher in the first quarter of 2021 by $3.8 million and $3.4 million, respectively, than the same quarter in 2020, due primarily to the increase in customers and activity through the merger with CSFL during the second quarter of 2020. The increase in service charges on deposit accounts was mainly driven by an increase in ~~average loan balances~~service charge maintenance fees on checking accounts and an increase in net NSF income. The increase in debit, prepaid, ATM and merchant card related income was mainly driven by higher debit card and merchant card income.

●

Mortgage banking income increased by $17.5 million, or 83.5%, which was comprised of ~~$14.1~~$17.5 million, ~~which~~or 194.2%, increase from mortgage income in the secondary market, partially offset by a $5.3 million, or 94.5%, decrease from mortgage servicing related income, net of the hedge. The increase in mortgage income in the secondary market was directly attributable to the increase in volume resulting from the low interest rate environment brought on by the pandemic and monetary policy of the US Government during 2020 along with the increase in volume due to the merger with ~~CSB,~~CSFL. The increase in mortgage income from the secondary market in 2021 comprised of a $22.1 million increase in the gain on sale of mortgage loans to $26.7 million in the first quarter of 2021, which is net of the increase in commission expense related to mortgage production of $6.5 million to $8.2 million in the first quarter of 2021. This increase was offset by a $4.6 million decline in the change in fair value of the pipeline, loans held for sale and ~~loan accretion~~MBS forward trades. The decrease in mortgage servicing related income, ~~on acquired loans totaling $22.4 million for~~net of the ~~current quarter. The higher accretion income~~hedge in 2021 was due to a $6.4 million decrease in the ~~addition~~change in fair value of ~~accretion~~the MSR including decay partially offset by a $1.1 million increase from servicing fee income.

●

The merger with CSFL resulted in a significant increase in correspondent banking and capital markets income, of which approximately $7.5 million was attributable to the Duncan-Williams merger completed on February 1, 2021. The income for 2021 increased by $28.3 million. The income from ~~the loans acquired in~~this business includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities.

●	Other income increased by $2.6 million mainly due to the merger with CSFL in the second quarter of 2020. This increase was mainly due to increases in SBA loan servicing fees and gains on sale of SBA loans of $2.5 million.

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Noninterest Expense

				��
	Three Months Ended
(Dollars in thousands)	2021		2020
Salaries and employee benefits	$	140,361	$	60,978
Occupancy expense		23,331		12,287
Information services expense		18,789		9,306
OREO expense and loan related		1,002		587
Amortization of intangibles		9,164		3,007
Business development and staff related expense		3,371		2,244
Supplies and printing		1,099		463
Postage expense		1,571		1,042
Professional fees		3,274		2,494
FDIC assessment and other regulatory charges		3,771		2,058
Advertising and marketing		1,740		814
Merger and branch consolidation related expense		10,009		4,129
Other		11,229		7,838
Total noninterest expense	$	228,711	$	107,247

Noninterest expense increased by $121.5 million, or 113.3%, in the first quarter of 2021 as compared to the same period in 2020. The quarterly increase in total noninterest expense primarily resulted from the following:

●

Salaries and employee benefits expense increased by $79.4 million, or 130.2%, in the first quarter of 2021 compared to the same period in 2020. This increase was mainly attributable to an increase in all categories of salaries and benefits due to the increase in employees through the merger with CSFL in June 2020. Full time equivalent employees increased 101.7% to 5,210 at March 31, 2021 through the merger with CSFL from 2,583 at March 31, 2020. In addition, we recorded a total of $11.3 million in commission expense during the current quarter, compared to $89,000 during the first quarter of 2020.

●

An increase in merger-related and branch consolidation related expense of $5.9 million compared to the first quarter of 2020. The costs in the first quarter of 2021 and 2020 ~~and~~were both primarily related to the ~~adoption~~merger with CSFL. The costs in the first quarter of ~~ASU 2016-13, which eliminated loan pools and changed~~2021 also consisted of branch consolidation costs along with costs related to the ~~accounting for acquired credit impaired loans.~~DWI acquisition.

●

Occupancy and information services expense increased $11.0 million or 89.9% and $9.5 million or 101.9%, respectively. This increase was related to the additional cost associated with facilities, employees and systems added through our merger with CSFL. Our number of branches increased by 129, or 81.3% from 155 at March 31, 2020 to 281 at March 31, 2021.

●

~~The balance~~Amortization of ~~mortgage loans held for sale decreased $147.2~~intangibles increased $6.2 million, ~~from June 30, 2020 to $456.1 million at September 30, 2020, and increased $368.7 million from a balance of $87.4 million at September~~ ~~30, 2019. The~~or 204.8%. This increase ~~from September 30, 2019~~ was due to the ~~production added through the~~ merger with CSFL which resulted in the Company recording a core deposit intangible asset of $125.9 million and a correspondent banking customer intangible asset of $10.0 million in the second quarter of 2020.

●	The increases in the other line items is mainly related to the increase in costs associated with the addition of CSFL operations with the merger in the second quarter of 2020.

Income Tax Expense

Our effective tax rate was 21.83% for the three months ended March 31, 2021 compared to 15.00% for the three months ended March 31, 2020. The increase in the effective tax rate for the quarter was driven by increased pre-tax book income in the current quarter compared to the same period of 2020. The increase in pre-tax book income was a result of the combined incomes of South State and CenterState subsequent to the merger that closed June 7, 2020. Pre-tax book income was also higher compared to the first quarter of 2020 due to a release in the allowance for credit losses of $59.6 million in the current quarter. An additional allowance for credit losses of $36.5 million was recorded in the first quarter of 2020 as a result of the COVID-19 pandemic. The increase in pre-tax book income for the quarter was partially offset by an increase in federal estimates associated with tax credits and tax-exempt interest income compared to the first quarter of 2020.

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Analysis of Financial Condition

Summary

Our total assets increased approximately $1.9 billion, or 5%, from December 31, 2020 to March 31, 2021, to approximately $39.7 billion. Within total assets, cash and cash equivalents increased $1.4 billion, or 29.6%, investment securities increased $820.6 million, or 18.4%, and loans decreased $173,000, or 0.7%, during the period. Within total liabilities, deposit growth was $1.7 billion, or 5.7%, and fed funds purchased and securities sold under agreements to repurchased growth was $98.9 million, or 12.7%. Total shareholder’s equity increased $71.9 million, or 1.5%. Our loan to deposit ratio was 75% and 80% at March 31, 2021 and December 31, 2020, respectively.

Investment Securities

We use investment securities, our second largest category of earning assets, to generate interest income through the deployment of excess funds, provide liquidity, fund loan demand or deposit liquidation, and pledge as collateral for public funds deposits, repurchase agreements and ~~repurchase agreements.~~as collateral for derivative exposure. At ~~September 30, 2020,~~March 31, 2021, investment securities totaled ~~$3.7~~$5.3 billion, compared to ~~$2.0 billion and $1.9~~$4.4 billion at December 31, ~~2019 and September 30, 2019, respectively. Our investment portfolio increased $1.7 billion from December 31, 2019 and increased $1.9 billion from September 30, 2019 mainly due to the acquisition~~2020, an increase of ~~$1.2 billion in investment securities in the merger with CSFL. Excluding investment securities acquired in the CSFL merger, the investment securities portfolio increased by $548.0~~$820.6 million, or 36.51% (annualized), from December 31, 2019 and by $691.0 million, or 37.10% from September 30, 2019. The increase in investment securities from December 31, 2019 was a result of investments acquired in the CSFL merger of $1.2 billion, purchases of $1.3 billion as well as improvements in the market value of the available for sale investment securities portfolio of $48.6 million. These increases were partially offset by maturities, paydowns, sales and calls of investment securities totaling $770.9 million. Net amortization of premiums were $13.3 million in the first nine months of 2020.18.5%. We continue to increase our investment securities strategically primarily with ~~the~~ excess funds ~~from~~due to continued deposit ~~growth.~~ growth and slow loan demand. During the three months ended March 31, 2021, we purchased $1.1 billion of securities, $276.7 million classified as held to maturity and $850.6 million classified as available for sale. These purchases were partially offset by maturities, paydowns, and calls of investment securities totaling $234.6 million. Net amortization of premiums were $9.5 million in the first three months of 2021. The ~~increase~~decrease in fair value in the available for sale investment portfolio in the first ~~nine~~three months of ~~2020~~2021 compared to December 31, ~~2019~~2020 was mainly due to ~~the decrease~~an increase in short and long term interest rates induring the three months ended March ~~2020 in reaction to the COVID-19 pandemic.~~31, 2021.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Average investment securities

$
3,227,988

$
1,819,895

$
2,521,981

$
1,653,126

Interest income on investment securities

13,254

12,372

38,992

33,634

Non-TE yield

1.63
%

2.70
%

2.07
%

2.72
%

~~Interest earned on investment securities was higher in both~~The following is the ~~three~~combined amortized cost and ~~nine months ended September 30, 2020 compared to the three and nine months ended September~~ ~~30, 2019. This is a result of the Bank carrying a higher average balance in investment securities in 2020 compared to the same periods in 2019. The average balance~~fair value of investment securities available for ~~the three~~sale and nine months ended September 30, 2020 increased $1.4 billion and $868.9 million, respectively from the comparable periods in 2019. With the excess liquidity from the growth in deposits during 2019 and the ~~first nine months of 2020~~, the Bank used the excess funds to strategically increase the size of its investment portfolio. The increase in the average balance was also due to the acquisition of CSFL’s investment portfolio of $1.2 billion in June 2020. The yield on the investment portfolio declined 107 basis points and 65 basis points, respectively, during the three and nine months ended September 30, 2020 compared to the same periods in 2019 due to the ~~falling interest rate environment resulting from the drop in the federal funds rate made~~held for maturity, aggregated by ~~the Federal Reserve during 2019 and in March 2020.~~credit quality indicator:

~~Table of Contents~~


					Unrealized														Unrealized
	Amortized		Fair		Net Gain						BB or				Amortized		Fair		Net Gain						BB or
(Dollars in thousands)	Cost		Value		(Loss)		AAA - A		BBB		Lower		Not Rated		Cost		Value		(Loss)		AAA - A		BBB		Lower		Not Rated
September 30, 2020
Government-sponsored entities debt	$	29,882	$	29,927	$	45	$	29,882	$	—	$	—	$	—
March 31, 2021
U.S. Government agencies															$	74,988	$	71,622	$	(3,366)	$	74,988	$	—	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises																2,310,035		2,278,633		(31,402)		—		—		—		2,310,035
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises																781,738		785,249		3,511		98		—		—		781,640
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises																832,484		825,253		(7,231)		13,814		—		—		818,670
State and municipal obligations		446,068		459,195		13,127		444,086		—		—		1,982		589,954		596,103		6,149		588,402		—		—		1,552
Mortgage-backed securities *		3,008,562		3,059,155		50,593		396,286		—		—		2,612,276
Small Business Administration loan-backed securities																504,210		501,706		(2,504)		504,210		—		—		—
Corporate securities		13,575		13,652		77		—		—		—		13,575		13,549		13,686		137		—		—		—		13,549
	$	3,498,087	$	3,561,929	$	63,842	$	870,254	$	—	$	—	$	2,627,833	$	5,106,958	$	5,072,252	$	(34,706)	$	1,181,512	$	—	$	—	$	3,925,446

* Agency mortgage-backed securities (“MBS”), agency collateralized mortgage-obligations (CMO) and agency commercial mortgage-backed securities (“CMBS”) are guaranteed by the issuing government-sponsored enterprise (“GSE”) as to the timely payments of principal and interest. Except for Government National Mortgage Association securities, which have the full faith and credit backing of the United States Government, the GSE alone is responsible for making payments on this guaranty. While the rating agencies have not rated any of the MBS, CMO and CMBS issued, senior debt securities issued by GSEs are rated consistently as “Triple-A.” Most market participants consider agency MBS, CMOs and CMBSs as carrying an implied Aaa rating (S&P rating of AA+) because of the guarantees of timely payments and selection criteria of mortgages backing the securities. We do not own any private label mortgage-backed securities. The balances presented under the ratings above reflect the amortized cost of the investment securities.

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At ~~September~~ March 31, 2021~~30, 2020,~~, we had ~~113~~217 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled ~~$4.2~~$79.2 million. At December 31, ~~2019,~~2020, we had ~~143~~86 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled ~~$4.5~~$5.3 million. ~~At September 30, 2019, we had 95 securities available for sale in an unrealized loss position, which totaled $2.5 million.~~

~~As of September 30, 2020 as compared to December 31, 2019 and September~~ ~~30, 2019, the~~The total number of ~~available for sale~~investment securities with an unrealized loss position ~~decreased by 30 and~~ increased by 18131 securities, ~~respectively,~~ while the total dollar amount of the unrealized loss ~~decreased by $352,000 and~~ increased by ~~$1.7 million, respectively.~~$73.9 million. The ~~decrease~~increase in both the number of investment securities in a loss position and the total unrealized loss from December 31, ~~2019 in the number of securities in an unrealized loss position~~2020 is due to ~~the drop~~an increase in ~~both~~ short and long term interest rates during the first ~~half~~three months of 2020 related to the COVID-19 pandemic. The decrease in the amount of the unrealized loss was mainly due to the drop in both short and long term interest rates during the last half of 2019 and the first half of 2020. In particular, the Federal Reserve 2021.~~dropped the federal funds target rate 150 basis points to a range of 0.00% to 0.25% in March 2020 in reaction to the COVID-19 pandemic.~~

All ~~debt~~investment securities ~~available for sale~~ in an unrealized loss position as of ~~September~~ ~~30, 2020~~March 31, 2021 continue to perform as scheduled. We have evaluated the cash flows and determined that all contractual cash flows should be received; therefore impairment is temporary because we have the ability to hold these securities within the portfolio until the maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for credit losses related to investment securities could impact cash flow, tangible capital or liquidity. See Note 2 – Summary of Significant Account Policies and Note 5 – Investment securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.

As securities held for investment are purchased, they are designated as held to maturity or available for sale based upon our intent, which incorporates liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements. Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is not our normal practice to trade this segment of the investment securities portfolio. While Management generally holds these assets on a long-term basis or until maturity, any short-term investments or securities available for sale could be converted at an earlier point, depending partly on changes in interest rates and alternative investment opportunities.

Other Investments

~~Table of Contents~~

March 31, 2021, we determined that there was no impairment on our other investment securities. As of ~~September 30, 2020,~~March 31, 2021, other investment securities represented approximately ~~$185.2~~$161.5 million, or ~~0.49%~~0.41% of total assets and primarily consists of FHLB and FRB stock which totals ~~$174.7~~$146.0 million, or ~~0.46%~~0.37% of total assets. There were no gains or losses on the sales of these securities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Trading Securities

~~CSFL had a correspondent banking department that was merged with~~Through its Correspondent Banking Department and its wholly-owned broker dealer Duncan-Williams Inc., the Company ~~on June 7, 2020. This department~~will occasionally ~~purchases~~purchase trading securities and subsequently ~~sells~~sell them to ~~correspondent bank~~their customers to take advantage of market opportunities, when presented, for short-term revenue gains. Securities purchased for this portfolio ~~have been~~are primarily ~~municipal~~municipals, treasuries and mortgage-backed agency securities and are held for short periods of time. This portfolio is carried at fair value and realized and unrealized gains and losses are included in trading securities revenue, a component of Correspondent Banking and Capital Market Income in our Consolidated Statements of Net Income. At ~~September 30, 2020,~~March 31, 2021, we had no$83.9 million of trading securities.

Loans Held for Sale

The balance of mortgage loans held for sale increased $62.5 million from December 31, 2020 to $353.0 million at March 31, 2021. This increase was due to pending loan sales, which generally settle within 15 to 45 days.

~~Interest-Bearing Liabilities~~

Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)
2020

2019


2020

2019

Average interest-bearing liabilities

$
22,049,240

$
9,724,089

$
15,355,805

$
9,492,455

Interest expense

24,946

22,628

62,740

65,554

Average rate

0.45
%

0.92
%

0.55
%

0.92
%

The quarter-to-date average balance of interest-bearing liabilities increased $12.3 billion in the third quarter of 2020 compared to the same period in 2019 due to increase in interest-bearing deposits of $11.6 billion, an increase in federal funds purchased and repurchase agreements of $437.4 million and increase in other borrowings of $273.2 million. The increase in average interest-bearing deposits is due to the acquisition of $10.3 billion in interest-bearing deposits from the CSFL merger during the second quarter of 2020. We continue to focus on increasing core deposits (excluding certificates of deposits and other time deposits), which increased $310.6 million in the third quarter of 2020 and $15.6 billion since December 31, 2019. The increase from December 31, 2019 consisted of $12.9 billion through the merger and $2.7 billion, organically. These funds are normally lower cost funds. The increase in average federal funds purchased and repurchase agreements was also due the merger with CSFL. Federal funds purchased related to the correspondent bank division and repurchase agreements acquired in the merger with CSFL averaged $422.4 million during the third quarter of 2020 which makes up most of the increase. The increase in average corporate and subordinated debt and other borrowings was also due to the merger with CSFL as the Company assumed $271.5 million in subordinated debt and trust preferred debt in the second quarter of 2020. The increase in interest expense of $2.3 million in the third quarter of 2020 compared to the same period in 2019 was driven by higher interest expense on corporate and subordinated debt and other borrowings of $3.9 million due to both the increase in average balance of $273.2 million and a higher average cost of 78 basis points. The higher cost on borrowings was due to the increase in cost on the cash flow hedges on the $700.0 million of FHLB borrowings and to the addition of the subordinated debt from the merger with CSFL which carried a higher average cost. Interest expense on interest-bearing deposits declined by $1.5 million in the third quarter of 2020 compared to the same period in 2019. The cost on interest-bearing deposits was 0.30% for the third quarter of 2020 compared to 0.77% for the same period in 2019. The decline in cost related to deposits was due to the falling interest rate environment resulting from the drops in the federal funds rate made by the Federal Reserve during 2019 and in March 2020. ~~These changes resulted in a 47 basis point decrease in the average rate on all interest-bearing liabilities from 0.92% to 0.45% for the three months ended September~~ ~~30, 2020. Some key highlights are outlined below:~~

●

~~Interest-bearing deposits increased $11.6 billion to $20.3 billion at September 30, 2020 from the period end balance at September~~ 30, 2019 of $8.7 billion. The increase from September 30, 2019 was driven by an increase in interest-bearing transactional accounts including money markets of $8.1 billion, savings of $1.3 billion and in certificate of deposits of $2.1 billion. Excluding deposits assumed in the CSFL merger, interest-bearing deposits increased $1.4 billion, which was comprised by an increase in transactional interest-bearing

7561

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accounts, including money markets, of $1.2 million and savings of $207.9 million. Certificate of deposits declined $65.2 million. We continue to monitor and adjust rates paid on deposit products as part of our strategy to manage our net interest margin.

●

Average transaction and money market account balances increased $8.1 billion, or 145.0% to $13.7 billion from the average balance in the third quarter of 2019. Interest expense on transaction and money market accounts decreased $1.1 million. The effects from the increase in average balance were partially offset by a 40 basis point decrease in the average cost of funds to 23 basis points for the three months ended September 30, 2020 as compared to the same period in 2019. The decrease in the cost of funds on the transaction and money market account is due to the falling interest rate environment.

●

Average savings account balances increased 93.6%, or $1.2 billion, to $2.6 billion from the average balance in the third quarter of 2019. Interest expense on savings accounts decreased $443,000. The effects from the increase in average balance were offset by a 22 basis point decrease in the average cost of funds to 9 basis points for the three months September 30, 2020 as compared to the same period in 2019. The decrease in the cost of funds on savings accounts is due to the falling interest rate environment.

●

Average balance on certificates of deposit and other time deposits increased 132.1%, or $2.3 billion to $4.0 billion from the average balance in the third quarter of 2019. Interest expense on certificates of deposit and other time deposit accounts increased $21,000 thousand as a result of the increase in average balance. The effects from the increase in average balance were mostly offset by a 87 basis point decrease in the average cost of funds to 67 basis points for the three months September 30, 2020 as compared to the same period in 2019. The decrease in the cost of funds on certificates of deposit and other time deposit accounts is due to the falling interest rate environment.

●

In the third quarter of 2020, as discussed above, average other borrowings increased $273.2 million compared to the third quarter of 2019. The average rate on other borrowings experienced a 78 basis point increase to 3.39% for the three months ended September 30, 2020 compared to 2.61% for the same period in 2019. The increase in the average cost of other borrowings is due to the increase in cost on the cash flow hedges on the $700.0 million of FHLB borrowings and the addition of the subordinated debt from the CSFL merger which had a higher cost. For the third quarter of 2020, the average rate for our long term trust preferred debt and subordinated debt was 5.14% while the cost of our FHLB advances and FRB borrowings was 2.41%. This compares to 4.80% and 2.24%, respectively, for the three months ended September 30, 2019.

Loans

The following table presents a summary of the loan portfolio by category (excludes loans held for sale):



LOAN PORTFOLIO (ENDING BALANCE)	March 31,		% of		December 31,		% of
(Dollars in thousands)	2021		Total		2020		Total
Acquired loans:
Acquired - non-purchased credit deteriorated loans:
Construction and land development	$	334,495	1.4	%	$	503,849	2.0	%
Commercial non-owner occupied		2,337,495	9.5	%		2,470,402	10.0	%
Commercial owner occupied real estate		1,762,063	7.2	%		1,823,209	7.4	%
Consumer owner occupied		1,326,185	5.4	%		1,424,655	5.8	%
Home equity loans		576,007	2.4	%		643,009	2.6	%
Commercial and industrial		1,657,827	6.8	%		2,112,514	8.6	%
Other income producing property		253,639	1.0	%		274,165	1.1	%
Consumer non real estate		185,949	0.8	%		206,812	0.8	%
Other		253	-	%		254	-	%
Total acquired - non-purchased credit deteriorated loans		8,433,913	34.5	%		9,458,869	38.3	%
Acquired - purchased credit deteriorated loans (PCD):
Construction and land development		81,890	0.3	%		115,146	0.5	%
Commercial non-owner occupied		1,074,398	4.4	%		1,159,518	4.7	%
Commercial owner occupied real estate		713,338	2.9	%		752,290	3.1	%
Consumer owner occupied		443,080	1.8	%		476,969	1.9	%
Home equity loans		77,546	0.3	%		84,514	0.3	%
Commercial and industrial		157,787	0.6	%		178,907	0.7	%
Other income producing property		58,649	0.2	%		68,177	0.3	%
Consumer non real estate		73,778	0.4	%		80,288	0.3	%
Other		-	-	%		-	-	%
Total acquired - purchased credit deteriorated loans (PCD)		2,680,466	10.9	%		2,915,809	11.8	%
Total acquired loans		11,114,379	45.4	%		12,374,678	50.1	%
Non-acquired loans:
Construction and land development		1,472,516	6.0	%		1,280,071	5.2	%
Commercial non-owner occupied		2,514,560	10.3	%		2,301,403	9.3	%
Commercial owner occupied real estate		2,351,250	9.6	%		2,266,593	9.2	%
Consumer owner occupied		2,257,244	9.2	%		2,206,418	8.9	%
Home equity loans		633,535	2.6	%		609,166	2.5	%
Commercial and industrial		3,271,802	13.4	%		2,755,726	11.2	%
Other income producing property		250,839	1.0	%		245,106	1.0	%
Consumer non real estate		620,407	2.5	%		607,234	2.5	%
Other		4,933	-	%		17,739	0.1	%
Total non-acquired loans		13,377,086	54.6	%		12,289,456	49.9	%
Total loans (net of unearned income)	$	24,491,465	100.0	%	$	24,664,134	100.0	%

~~Noninterest-Bearing Deposits~~Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), decreased by $172.7 million, or 0.7%, to $24.5 billion at March 31, 2021. Our non-acquired loan portfolio increased by $1.1 billion, or 35.9% annualized, driven by growth in all categories except other loans. Commercial and industrial loans and commercial non-owner occupied loans led the way with $516.1 million and $212.2 million in quarterly loan growth, respectively, or 75.9% and 37.6% annualized growth, respectively. The acquired loan portfolio decreased by $1.3 billion, or 41.3% annualized, from paydowns and payoffs in both the PCD and NonPCD loan categories. Acquired loans as a percentage of total loans decreased to 45.4% and non-acquired loans as a percentage of the overall portfolio increased to 54.6% at March 31, 2021.

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits increased $6.5 billion, or 201.05%, to $9.8 billion in the third quarter of 2020 compared to $3.3 billion during the same period in 2019. At September 30, 2020, the period end balance of noninterest-bearing deposits was $9.7 billion, exceeding the September 30, 2019 balance by $6.4 billion. This increase in both period end and average assets was due to the noninterest-bearing deposits of $5.3 billion acquired in the merger with CSFL in June 2020. We continue to focus on increasing the noninterest-bearing deposits to try and limit our funding costs. Our overall cost of funds including noninterest-bearing deposits was 0.31% for the three months ended September 30, 2020 compared to 0.69% for the three months ended September 30, 2019.

~~Provision~~Allowance for Credit Losses (“ACL”)

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amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

~~Table of Contents~~

The Company merged with CenterState Bank Corporation (“CSFL” or “CenterState”) on June 7, 2020. For the second quarter ended June 30, 2020, given the proximity of the merger date to the quarter end, Management collectively evaluated loans from each legacy loan portfolio utilizing pre-existing methodologies implemented prior to the merger and aggregated the result. During the third quarter, Management consolidated the two methodologies into one to arrive at the ACL recorded at September 30, 2020 for both the ACL related to the loan portfolio and the reserve related to the unfunded commitments (off-balance-sheet credit exposures). The new methodology for unfunded commitments utilizes a funding rate, as opposed to a utilization rate which was a method applied to the SouthState legacy portfolio prior to the third quarter, to determine the reserve for each respective segment of unfunded commitments. This new method, along with the change in mix of unfunded commitments, resulted in an increase in the reserve for legacy SouthState Bank unfunded commitments during the third quarter of 2020.

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. ~~The baseline forecast incorporates a 50% probability of the United States economy performing better than this projection and the same as the probability that it will perform worse.~~ Management has evaluated the appropriateness of the reasonable and supportable forecast scenarios and has made adjustments as needed. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally utilizes a ~~four quarter~~four-quarter forecast and a ~~four~~four-quarter reversion period.

As stated above, Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data (such as COVID-19 epidemiological data and federal stimulus), as well as the volatility and magnitude of changes within those scenarios quarter ~~reversion period.~~over quarter. The current environment has brought increased volatility in economic forecasts. During the fourth quarter, Management used a blended forecast scenario (two-thirds baseline and one-third more severe scenario) to determine the allowance for credit losses as of December 31, 2020. Rapidly changing macroeconomic variables challenges the ability of the forecasts to assimilate and reflect most recent data, and uncertainties persist around the future path of those variables, given the speed and magnitude of the monthly and quarterly shifts. While the recent forecasts were significantly revised upward, given the uncertain path of economic recovery and efforts to contain the spread of COVID-19, it is possible that future forecasts are overly optimistic, and therefore forecast volatility should be considered. As such, Management adjusted the blended forecast scenario to an equal weight between baseline and the more adverse scenario during the current quarter to determine the allowance for credit losses as of March 31, 2021 resulting in a release of approximately $58 million. If the economic forecast weighting had not been adjusted, this would have resulted in an additional release of approximately $35 million, which Management did not deem appropriate given the uncertainty around COVID-19 and the speed of economic recovery.

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the credit environment and make adjustments to this threshold in the future if warranted. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of

~~Table of Contents~~

estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a ~~trouble~~troubled debt restructuring (“TDR”) with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e., the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions on substandard loans. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions on substandard loans. The Company uses a discounted cash flow methodology for a TDR to calculate the effect of the concession provided to the borrower within the ACL.

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to ~~suspend~~not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession ~~meets~~met the criteria as defined under the CARES Act.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records ~~acquired~~ PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As part of the new combined ACL methodology implemented during the current ~~quarter,~~year, Management completed a funding study based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applied this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. Prior to the ~~current~~third quarter, the Company applied a utilization rate instead of a funding rate to the South State legacy portfolio to determine the reserve for unfunded

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commitments. As of ~~September 30, 2020,~~March 31, 2021, the liability recorded for expected credit losses on unfunded commitments ~~in Other Liabilities~~ was ~~$43.2~~$35.8 million. The current adjustment to the ACL for unfunded commitments is recognized through the provision for credit losses in the Condensed Consolidated Statements of Income.

~~Table of Contents~~

With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating itit’s allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies and Note 7 – Allowance for Credit Losses for further details. As of ~~September 30, 2020,~~March 31, 2021, the balance of the ACL was ~~$440.2~~$406.5 million or ~~1.74%~~1.66% of total loans. The ACL ~~increased $5.6~~decreased $50.8 million from the balance of ~~$434.6~~$457.3 million recorded at ~~June 30,~~December 31, 2020. This ~~increase~~decrease during the ~~third~~first quarter of ~~2020~~2021 included a ~~$7.7~~$50.9 million release or decline in the provision for credit losses partially offset by ~~$0.6 million~~$21,000 in net ~~charge-offs~~recoveries. In the first quarter of 2021, with the improvement in the economy and ~~a $1.5 million adjustment~~the increased availability of the COVID-19 vaccine, the Company began to ~~the PCD~~release some of this allowance ~~related to measurement period adjustments~~for credit losses based on ~~loans acquired from CSFL.~~improvements in forecasts. For the ~~nine months ended September 30, 2020,~~prior comparative period, the ACL increased ~~$383.3~~$33.4 million to $144.8 million from the balance of ~~$56.9 million.~~$111.4 million recorded at adoption of the CECL standard as of January 1, 2020. This increase included a ~~$181.4~~$34.7 million provision ~~for~~of credit losses during the ~~period, a $149.4 million allowance for credit losses on PCD loans acquired from CSFL~~first quarter of 2020 and ~~an increase~~net charge offs during the first quarter of ~~$54.5 million through~~2020 of $1.3 million. The significant provision in the first quarter 2020 was due to the impact of the ~~initial adoption of CECL. These increases were partially offset by $2.0 million in net charge-offs. The impact of~~ COVID-19 ~~was~~pandemic being modeled in the forecasted loss period and macroeconomic ~~assumptions.~~assumptions in the first quarter of 2020.

At ~~September~~ ~~30, 2020,~~March 31, 2021, the Company ~~also~~ had a reserve on unfunded commitments of ~~$43.2~~$35.8 million which was recorded ~~in Other Liabilities~~as a liability on the Balance Sheet, compared to ~~$21.1~~$43.4 million at ~~June 30,~~December 31, 2020. During three months ended March 31, 2021, the Company had a release of allowance or negative provision for credit losses on unfunded commitments of $7.6 million. With the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to release some of this allowance for credit losses based on improvements in forecasts. This amount was recorded in the (recovery) provision for credit losses on the Condensed Consolidated Statements of Income. For the prior comparative period, the Company had a reserve on unfunded commitments of $8.6 million recorded at March 31, 2020. With the adoption of ASU 2016-13 on January 1, 2020, the Company increased its reserve on unfunded commitments by $6.5 ~~million in~~million. During the first quarter of ~~2020. During the three and nine months ended September 30,~~ 2020, the provision for credit losses on unfunded commitments was $22.1 million and $36.4 million, respectively. Of these amounts, $9.6 million was related to the merger with CSFL during the second quarter of 2020. These amounts were recorded in the provision for credit losses on the Statements of Income.$1.8 million. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financials asset during the first ~~nine~~three months of 2021 or 2020.

~~For the three and nine months ended September 30, 2019,~~At March 31, 2021, the allowance for ~~non-acquired loan~~credit losses was ~~$54.9~~$406.5 million, or ~~0.62%~~1.66%, of ~~non-acquired~~ period-end loans. ~~With the adoption of ASU 2016-13 on January 1, 2020, the allowance was adjusted by $54.5 million.~~ The ACL provides ~~3.91~~4.02 times coverage of nonperforming loans at ~~September 30, 2020.~~March 31, 2021. Net ~~charge offs~~recoveries to the total average loans during ~~the~~ three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 were ~~0.01% and 0.02%, respectively.~~0.00%. We continued to show solid and stable asset quality numbers and ratios as of ~~September 30, 2020.~~

March 31, 2021. The following table provides the allocation, by segment, for expected credit losses. Because PPP loans are government guaranteed and management implemented additional reviews and procedures to help mitigate potential losses, Management does not expect to recognize credit losses on this loan portfolio and as a result, did not record an ACL for PPP loans within the C&I loan segment presented in the table below.

The following table provides the allocation, by segment, for expected credit losses.

September 30, 2020
(Dollars in thousands)
Amount

%*
Residential Mortgage Senior
$
62,219

18.7
%
Residential Mortgage Junior

1,434

0.1
%
Revolving Mortgage

21,107

5.8
%
Residential Construction

5,367

2.5
%
Other Construction and Development

63,851

5.1
%
Consumer

23,956

3.7
%
Multifamily

8,567

1.8
%
Municipal

1,434

2.5
%
Owner Occupied Commercial Real Estate

93,780

20.2
%
Non Owner Occupied Commercial Real Estate

120,436

24.1
%
Commercial and Industrial

38,008

15.5
%
Total
$
440,159

100.0
%


	March 31, 2021
(Dollars in thousands)	Amount		%*
Residential Mortgage Senior	$	63,042	18.5	%
Residential Mortgage Junior		1,190	0.1	%
Revolving Mortgage		16,003	5.9	%
Residential Construction		3,892	2.3	%
Other Construction and Development		55,337	6.1	%
Consumer		27,883	3.9	%
Multifamily		5,884	1.6	%
Municipal		1,544	2.9	%
Owner Occupied Commercial Real Estate		90,660	21.4	%
Non Owner Occupied Commercial Real Estate		107,559	25.8	%
Commercial and Industrial		33,466	11.7	%
Total	$	406,460	100.0	%

* Loan balance in each category expressed as a percentage of total loans excluding PPP loans.

7965

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The following table presents a summary of the changes in the ACL, for ~~the~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020:

Three Months Ended September 30,

2020


Non-PCD
PCD


(Dollars in thousands)

Loans
Loans

Total

Balance at beginning of period

$
280,301
$
154,307

$
434,608

Allowance Adjustment - FMV for CenterState merger

—

(1,542)

(1,542)

Loans charged-off

(2,783)

(1,859)

(4,642)

Recoveries of loans previously charged off

1,911

2,137

4,048

Net charge-offs

(872)

278

(594)

Provision for credit losses

7,077

610

7,687

Balance at end of period

$
286,506
$
153,653

$
440,159

Total loans, net of unearned income:

At period end

$
25,237,815

Average

25,312,632

Net charge-offs as a percentage of average loans (annualized)

0.01
%

Allowance for credit losses as a percentage of period end loans

1.74
%

Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)

391.47
%


	Three Months Ended March 31,
	2021						2020

	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Balance at beginning of period	$	315,470	$	141,839	$	457,309	$	56,927	$	—	$	56,927
Adjustment for implementation of CECL		—		—		—		51,030		3,408		54,438
Loans charged-off		(2,517)		(857)		(3,374)		(2,331)		(892)		(3,223)
Recoveries of loans previously charged off		1,980		1,415		3,395		840		1,069		1,909
Net (charge-offs) recoveries		(537)		558		21		(1,491)		177		(1,314)
(Recovery) provision for credit losses		(30,676)		(20,194)		(50,870)		30,910		3,824		34,734
Balance at end of period	$	284,257	$	122,203	$	406,460	$	137,376	$	7,409	$	144,785

Total loans, net of unearned income:
At period end	$	24,491,465					$	11,506,890
Average		24,492,089						11,439,676
Net (recoveries) charge-offs as a percentage of average loans (annualized)		(0.00)	%					0.05	%
Allowance for credit losses as a percentage of period end loans		1.66	%					1.26	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		402.20	%					255.34	%

Nine Months Ended September 30,

2020


Non-PCD
PCD


(Dollars in thousands)

Loans
Loans

Total

Allowance for credit losses at January 1

$
56,927
$
—

$
56,927

Adjustment for implementation of CECL

51,030

3,408

54,438

Allowance Adjustment - FMV for CenterState merger

—

149,404

149,404

Loans charged-off

(7,480)

(2,816)

(10,296)

Recoveries of loans previously charged off

4,308

3,979

8,287

Net charge-offs

(3,172)

1,163

(2,009)

Provision for credit losses

181,721

(322)

181,399

Balance at end of period

$
286,506
$
153,653

$
440,159

Total loans, net of unearned income:

At period end

$
25,237,815

Average

17,518,532

Net charge-offs as a percentage of average loans (annualized)

0.02
%

Allowance for credit losses as a percentage of period end loans

1.74
%

Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)

391.47
%

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~~The following table presents a summary of the changes in the ALLL, for comparative periods, prior to the adoption of ASU 2016-13 as follows:~~

Three Months Ended September 30,

2019

Acquired

Acquired

Non-credit

Credit


Non-acquired

Impaired

Impaired


(Dollars in thousands)

Loans

Loans

Loans

Total

Balance at beginning of period

$
53,590

$
—

$
4,623

$
58,213

Loans charged-off

(1,969)

(810)

—

(2,779)

Recoveries of loans previously charged off

834

50

—

884

Net charge-offs

(1,135)

(760)

—

(1,895)

Provision for loan losses

2,482

760

786

4,028

Reductions due to loan removals

—

—

(91)

(91)

Balance at end of period

$
54,937

$
—

$
5,318

$
60,255

Total non-acquired loans:

At period end

$
8,928,512

Average

8,753,742

Net charge-offs as a percentage of average non-acquired loans (annualized)

0.05
%

Allowance for loan losses as a percentage of period end non-acquired loans

0.62
%

Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”)

286.32
%

Nine Months Ended September 30,

2019

Acquired

Acquired

Non-credit

Credit


Non-acquired

Impaired

Impaired


(Dollars in thousands)

Loans

Loans

Loans

Total
Balance at beginning of period

$
51,194

$
—

$
4,604

$
55,798
Loans charged-off

(4,541)

(2,719)

—

(7,260)
Recoveries of loans previously charged off

2,461

372

—

2,833
Net charge-offs

(2,080)

(2,347)

—

(4,427)
Provision for loan losses

5,823

2,347

1,050

9,220
Reductions due to loan removals

—

—

(336)

(336)
Balance at end of period

$
54,937

$
—

$
5,318

$
60,255

Total non-acquired loans:

At period end

$
8,928,512

Average

8,433,419

Net charge-offs as a percentage of average non-acquired loans (annualized)

0.03
%

Allowance for loan losses as a percentage of period end non-acquired loans

0.62
%

Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”)

286.32
%

~~Table of Contents~~

Nonperforming Assets (“NPAs”)

The following table summarizes our nonperforming assets for the past five quarters:


	September 30,			June 30,			March 31,			December 31,			September 30,			March 31,			December 31,			September 30,			June 30,			March 31,
(Dollars in thousands)	2020			2020			2020			2019			2019			2021			2020			2020			2020			2020
Non-acquired:
Nonaccrual loans	$	18,078		$	19,011		$	19,773		$	19,724		$	18,310		$	16,956		$	16,035		$	18,078		$	19,011		$	19,773
Accruing loans past due 90 days or more		636			419			119			514			333			853			9,586			636			419			119
Restructured loans - nonaccrual		3,749			3,453			4,020			2,578			544			3,225			3,550			3,749			3,453			4,020
Total nonperforming loans		22,463			22,883			23,912			22,816			19,187
Other real estate owned (“OREO”) (3) (7)		726			1,181			784			875			1,394
Total non-acquired nonperforming loans																	21,034			29,171			22,463			22,883			23,912
Other real estate owned (“OREO”) (2) (6)																	490			552			726			1,181			784
Other nonperforming assets ~~(4)~~(3)		99			508			157			136			70			164			136			99			508			157
Total non-acquired nonperforming assets		23,288			24,572			24,853			23,827			20,651			21,688			29,859			23,288			24,572			24,853
Acquired:
Nonaccrual loans (1)		89,067			99,346			32,548			10,839			9,596			79,919			75,603			89,067			99,346			32,548
Accruing loans past due 90 days or more		907			1,053			243			275			—			105			2,065			907			1,053			243
Total acquired nonperforming loans ~~(2)~~		89,974			100,399			32,791			11,114			9,596			80,024			77,668			89,974			100,399			32,791
Acquired OREO and other nonperforming assets:
Acquired OREO (3) (8)		12,754			16,836			6,648			5,664			7,030
Acquired OREO (2) (7)																	10,981			11,362			12,754			16,836			6,648
Other acquired nonperforming assets ~~(4)~~(3)		150			151			154			184			177			311			206			150			151			154
Total acquired OREO and other nonperforming assets		12,904			16,987			6,802			5,848			7,207
Total acquired nonperforming assets																	11,292			11,568			12,904			16,987			6,802
Total nonperforming assets	$	126,166		$	141,958		$	64,446		$	40,789		$	37,454		$	113,004		$	119,095		$	126,166		$	141,958		$	64,446

Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets ~~(5)~~(4)		0.20	%		0.23	%		0.26	%		0.26	%		0.23	%		0.16	%		0.24	%		0.20	%		0.23	%		0.26	%
Total nonperforming assets as a percentage of total assets ~~(6)~~(5)		0.06	%		0.07	%		0.15	%		0.15	%		0.13	%		0.05	%		0.08	%		0.06	%		0.07	%		0.15	%
Nonperforming loans as a percentage of period end loans ~~(5)~~(4)		0.19	%		0.22	%		0.25	%		0.25	%		0.21	%		0.16	%		0.24	%		0.19	%		0.22	%		0.25	%

Including Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets ~~(5)~~(4)		0.50	%		0.56	%		0.56	%		0.36	%		0.33	%		0.46	%		0.48	%		0.50	%		0.56	%		0.56	%
Total nonperforming assets as a percentage of total assets ~~(6)~~		0.33	%		0.38	%		0.39	%		0.26	%		0.24	%		0.28	%		0.32	%		0.33	%		0.38	%		0.39	%
Nonperforming loans as a percentage of period end loans ~~(5)~~(4)		0.45	%		0.48	%		0.49	%		0.30	%		0.25	%		0.41	%		0.43	%		0.45	%		0.48	%		0.49	%

(1)

Includes 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 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.

(2)	Periods prior to the adoption of CECL exclude the acquired credit impaired loans that are contractually past due 90 days or more totaling $9.2 million and $8.5 million as of December 31, 2019 and September 30, 2019, respectively, including the valuation discount.

~~(3)~~

Excludes certain real estate acquired as a result of foreclosure and property not intended for bank use.

~~(4)~~(3)

Consists of non-real estate foreclosed assets, such as repossessed vehicles.

~~(5)~~(4)

Loan data excludes mortgage loans held for sale.

~~(6)~~(5)

For purposes of this calculation, total assets include all assets (both acquired and non-acquired).

~~(7)~~(6)

Excludes non-acquired bank premises held for sale of $1.9 million, $2.2 million, $2.3 million, $2.0 million ~~$2.7 million, $2.7 million~~ and ~~$2.3~~$2.7 million as of ~~September 30, 2020, June 30,~~March 31, 2021, December 31, 2020, December 31, ~~2019,~~2020, March 31, 2020, ~~September 30, 2019,~~March 31, 2020, respectively, that is now separately disclosed on the balance sheet.

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~~(8)~~(7)

Excludes acquired bank premises held for sale of $29.3 million, $33.8 million, $22.2 million, $23.5 ~~million, $2.7 million, $2.7~~ million and $2.7 million as of March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020, December 31, 2020 and March 31, 2020, ~~December 31, 2019 and September 30, 2019,~~ respectively, that is now separately disclosed on the balance sheet.

Total nonperforming assets were ~~$126.2~~$113.0 million, or ~~0.50%~~0.46% of total loans and repossessed assets, at ~~September 30, 2020,~~March 31, 2021, a decrease of ~~$15.8~~$6.1 million, or ~~11.1%~~5.1%, from ~~June 30, 2020, and an increase of $88.7 million, or 236.9%, from September~~ ~~30, 2019.~~December 31, 2020. Total nonperforming loans were ~~$112.4~~$101.1 million, or ~~0.45%~~0.41%, of total loans, at ~~September 30, 2020,~~March 31, 2021, a decrease of ~~$10.8~~$5.8 million, or ~~8.8%~~5.4%, from ~~June 30, 2020, and an increase of $83.7 million, or 290.6%, from September 30, 2019.~~December 31, 2020. Non-acquired nonperforming loans declined by ~~$0.4~~$8.1 million from ~~June 30,~~December 31, 2020. The decline in non-acquired nonperforming loans was driven primarily by a decline in accruing loans past due 90 days or more of $8.7 million, a decrease in restructured nonaccrual loans of $325,000, offset by an increase in primarily commercial nonaccrual loans of $929,000. The accruing loans past due 90 days or more at December 31, 2020 were a group of similar loans that were deemed to be low risk and almost all of these loans were brought current in January 2021. Acquired nonperforming loans ~~declined $10.4~~increased $2.4 million from ~~June 30,~~December 31, 2020. The increase in the acquired nonperforming loan balances ~~in the above schedule at September 30, 2020, compared to September 30, 2019,~~ was due to the addition of the above mentioned loans related to the merger with CSB, as well as the addition of $21.0 million in the first quarter of 2020, formerly accounted for as credit impaired loans (with ASU 2016-13 are now considered PCD loans). Prior to the adoption of ASU 2016-13, acquired credit impaired loans were considered to be performing, due to the application of the accretion method under FASB ASC Topic 310-30. ~~The Company has not assumed or taken on any additional risk relative to these assets. There was~~ an increase in ~~non-acquired nonperforming~~nonaccrual loans of ~~$3.3~~$4.3 million, ~~from September 30, 2019, which were primarily~~offset by a decline in restructured ~~loans.~~nonaccrual loans of $2.0 million.

At ~~September 30, 2020,~~March 31, 2021, OREO totaled ~~$13.5~~$11.5 million, which included ~~$0.7~~$0.5 million in non-acquired OREO and ~~$12.8~~$11.0 million in acquired OREO. Total OREO decreased ~~$4.5 million~~$443,000 from ~~June 30, 2020 and increased $5.1 million from September 30, 2019, which was primarily due to the CSB acquisition.~~December 31, 2020. At ~~September~~ ~~30, 2020,~~March 31, 2021, non-acquired OREO consisted of 84 properties with an average value of ~~$91,000.~~$122,000. This compared to 107 properties with an average value of ~~$118,000~~$79,000 at ~~June 30,~~December 31, 2020. In the first quarter of 2021, we added 2 new properties into non-acquired OREO with an aggregate value of $299,000 and we sold 5 properties with an aggregate value of $362,000. On the properties sold we recorded a net gain of $19,000. At ~~September 30, 2020,~~March 31, 2021, acquired OREO consisted of 4737 properties with an average value of ~~$271,000.~~$297,000. This compared to 6635 properties with an average value of ~~$255,000~~$325,000 at ~~June 30,~~December 31, 2020. In the ~~third~~first quarter of ~~2020,~~2021, we added no12 new properties into ~~non-acquired~~acquired OREO with an aggregate value of $1.3 million and we sold 210 properties with an aggregate value of ~~$455,000. For acquired OREO we added 3 properties with an aggregate value of $205,000 and sold 22 properties with an aggregate value of $4.7~~$1.3 million during the current quarter. On the properties sold, we recorded a net gain of $356,000.

Nonperforming assets have been reduced by former bank property held for sale. Prior to the merger with CSFL, 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.

~~Potential Problem Loans~~Income Tax Expense

~~Potential problem loans (excluding all acquired loans) totaled $3.9 million, or 0.03%, of total non-acquired loans outstanding, at September 30, 2020,~~Our effective tax rate was 21.83% for the three months ended March 31, 2021 compared to ~~$4.2 million, or 0.04%, of total non-acquired loans outstanding, at June 30, 2020, and~~15.00% for the three months ended March 31, 2020. The increase in the effective tax rate for the quarter was driven by increased pre-tax book income in the current quarter compared to ~~$7.6 million, or 0.09%~~the same period of ~~total non-acquired loans outstanding, at September~~ ~~30, 2019. Potential problem loans related~~2020. The increase in pre-tax book income was a result of the combined incomes of South State and CenterState subsequent to ~~acquired loans totaled $22.7 million, or 0.17%, of total acquired loans outstanding, at September 30, 2020,~~the merger that closed June 7, 2020. Pre-tax book income was also higher compared to ~~$29.6~~the first quarter of 2020 due to a release in the allowance for credit losses of $59.6 million ~~or 0.20%~~in the current quarter. An additional allowance for credit losses of ~~total acquired loans outstanding, at June 30, 2020. Prior~~$36.5 million was recorded in the first quarter of 2020 as a result of the COVID-19 pandemic. The increase in pre-tax book income for the quarter was partially offset by an increase in federal estimates associated with tax credits and tax-exempt interest income compared to the ~~adoption~~first quarter of ASU 2016-13, prior period acquired problem loans included only the non-credit impaired loans. At September 30, 2019, the acquired non-credit impaired potential problem loans were $5.0 million, or 0.25%, of acquired non-credit impaired loans outstanding. All potential problem loans represent those loans where information about possible credit problems of the borrowers has caused Management to have serious concern about the borrower’s ability to comply with present repayment terms.2020.

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~~Noninterest Income~~Analysis of Financial Condition

Summary

Investment Securities

~~Noninterest~~We use investment securities, our second largest category of earning assets, to generate interest income ~~provides us~~through the deployment of excess funds, provide liquidity, fund loan demand or deposit liquidation, and pledge as collateral for public funds deposits, repurchase agreements and as collateral for derivative exposure. At March 31, 2021, investment securities totaled $5.3 billion, compared to $4.4 billion at December 31, 2020, an increase of $820.6 million, or 18.5%. We continue to increase our investment securities strategically primarily with ~~additional revenues that are significant sources of income. For~~excess funds due to continued deposit growth and slow loan demand. During the three months ended ~~September~~ ~~30,~~March 31, 2021, we purchased $1.1 billion of securities, $276.7 million classified as held to maturity and $850.6 million classified as available for sale. These purchases were partially offset by maturities, paydowns, and calls of investment securities totaling $234.6 million. Net amortization of premiums were $9.5 million in the first three months of 2021. The decrease in fair value in the available for sale investment portfolio in the first three months of 2021 compared to December 31, 2020 was mainly due to an increase in short and ~~2019, noninterest income comprised 29.8%, and 22.8%, respectively, of total net~~long term interest ~~income and noninterest income. For~~rates during the ~~nine~~three months ended ~~September 30, 2020 and 2019, noninterest income comprised 27.5%, and 22.1%, respectively, of total net interest income and noninterest income.~~March 31, 2021.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Service charges on deposit accounts

$
15,809

$
13,382

$
38,228

$
38,828

Debit, prepaid, ATM and merchant card related income

8,537

6,343

20,938

17,446

Mortgage banking income

48,022

6,115

81,040

13,807

Trust and investment services income

7,404

7,320

21,931

22,309

Correspondent banking and capital market income

26,432

690

36,992

1,536

Securities gains, net

15

437

15

2,687

Bank owned life insurance income

4,127

1,498

8,038

4,399

Recoveries on acquired loans

—

1,401

—

4,615

Other

4,444

396

6,087

1,631

Total noninterest income

$
114,790

$
37,582

$
213,269

$
107,258

The following is the combined amortized cost and fair value of investment securities available for sale and held for maturity, aggregated by credit quality indicator:


					Unrealized
	Amortized		Fair		Net Gain						BB or
(Dollars in thousands)	Cost		Value		(Loss)		AAA - A		BBB		Lower		Not Rated
March 31, 2021
U.S. Government agencies	$	74,988	$	71,622	$	(3,366)	$	74,988	$	—	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		2,310,035		2,278,633		(31,402)		—		—		—		2,310,035
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		781,738		785,249		3,511		98		—		—		781,640
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		832,484		825,253		(7,231)		13,814		—		—		818,670
State and municipal obligations		589,954		596,103		6,149		588,402		—		—		1,552
Small Business Administration loan-backed securities		504,210		501,706		(2,504)		504,210		—		—		—
Corporate securities		13,549		13,686		137		—		—		—		13,549
	$	5,106,958	$	5,072,252	$	(34,706)	$	1,181,512	$	—	$	—	$	3,925,446

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At March 31, 2021, we had 217 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $79.2 million. At December 31, 2020, we had 86 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $5.3 million. The total number of investment securities with an unrealized loss position increased by 131 securities, while the total dollar amount of the unrealized loss increased by $73.9 million. The increase in both the number of investment securities in a loss position and the total unrealized loss from December 31, 2020 is due to an increase in short and long term interest rates during the first three months of 2021.

All investment securities in an unrealized loss position as of March 31, 2021 continue to perform as scheduled. We have evaluated the cash flows and determined that all contractual cash flows should be received; therefore impairment is temporary because we have the ability to hold these securities within the portfolio until the maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for credit losses related to investment securities could impact cash flow, tangible capital or liquidity. See Note 2 – Summary of Significant Account Policies and Note 5 – Investment securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.

Other Investments

~~Noninterest income~~Other investment securities include primarily our investments in FHLB and FRB stock with no readily determinable market value. Accordingly, when evaluating these securities for impairment, Management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of March 31, 2021, we determined that there was no impairment on our other investment securities. As of March 31, 2021, other investment securities represented approximately $161.5 million, or 0.41% of total assets and primarily consists of FHLB and FRB stock which totals $146.0 million, or 0.37% of total assets. There were no gains or losses on the sales of these securities for the three months ended March 31, 2021 and 2020, respectively.

Trading Securities

Through its Correspondent Banking Department and its wholly-owned broker dealer Duncan-Williams Inc., the Company will occasionally purchase trading securities and subsequently sell them to their customers to take advantage of market opportunities, when presented, for short-term revenue gains. Securities purchased for this portfolio are primarily municipals, treasuries and mortgage-backed agency securities and are held for short periods of time. This portfolio is carried at fair value and realized and unrealized gains and losses are included in trading securities revenue, a component of Correspondent Banking and Capital Market Income in our Consolidated Statements of Net Income. At March 31, 2021, we had $83.9 million of trading securities.

Loans Held for Sale

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Loans

The following table presents a summary of the loan portfolio by category (excludes loans held for sale):



LOAN PORTFOLIO (ENDING BALANCE)	March 31,		% of		December 31,		% of
(Dollars in thousands)	2021		Total		2020		Total
Acquired loans:
Acquired - non-purchased credit deteriorated loans:
Construction and land development	$	334,495	1.4	%	$	503,849	2.0	%
Commercial non-owner occupied		2,337,495	9.5	%		2,470,402	10.0	%
Commercial owner occupied real estate		1,762,063	7.2	%		1,823,209	7.4	%
Consumer owner occupied		1,326,185	5.4	%		1,424,655	5.8	%
Home equity loans		576,007	2.4	%		643,009	2.6	%
Commercial and industrial		1,657,827	6.8	%		2,112,514	8.6	%
Other income producing property		253,639	1.0	%		274,165	1.1	%
Consumer non real estate		185,949	0.8	%		206,812	0.8	%
Other		253	-	%		254	-	%
Total acquired - non-purchased credit deteriorated loans		8,433,913	34.5	%		9,458,869	38.3	%
Acquired - purchased credit deteriorated loans (PCD):
Construction and land development		81,890	0.3	%		115,146	0.5	%
Commercial non-owner occupied		1,074,398	4.4	%		1,159,518	4.7	%
Commercial owner occupied real estate		713,338	2.9	%		752,290	3.1	%
Consumer owner occupied		443,080	1.8	%		476,969	1.9	%
Home equity loans		77,546	0.3	%		84,514	0.3	%
Commercial and industrial		157,787	0.6	%		178,907	0.7	%
Other income producing property		58,649	0.2	%		68,177	0.3	%
Consumer non real estate		73,778	0.4	%		80,288	0.3	%
Other		-	-	%		-	-	%
Total acquired - purchased credit deteriorated loans (PCD)		2,680,466	10.9	%		2,915,809	11.8	%
Total acquired loans		11,114,379	45.4	%		12,374,678	50.1	%
Non-acquired loans:
Construction and land development		1,472,516	6.0	%		1,280,071	5.2	%
Commercial non-owner occupied		2,514,560	10.3	%		2,301,403	9.3	%
Commercial owner occupied real estate		2,351,250	9.6	%		2,266,593	9.2	%
Consumer owner occupied		2,257,244	9.2	%		2,206,418	8.9	%
Home equity loans		633,535	2.6	%		609,166	2.5	%
Commercial and industrial		3,271,802	13.4	%		2,755,726	11.2	%
Other income producing property		250,839	1.0	%		245,106	1.0	%
Consumer non real estate		620,407	2.5	%		607,234	2.5	%
Other		4,933	-	%		17,739	0.1	%
Total non-acquired loans		13,377,086	54.6	%		12,289,456	49.9	%
Total loans (net of unearned income)	$	24,491,465	100.0	%	$	24,664,134	100.0	%

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), decreased by $172.7 million, or 0.7%, to $24.5 billion at March 31, 2021. Our non-acquired loan portfolio increased by ~~$77.2~~$1.1 billion, or 35.9% annualized, driven by growth in all categories except other loans. Commercial and industrial loans and commercial non-owner occupied loans led the way with $516.1 million and $212.2 million in quarterly loan growth, respectively, or ~~205.4%~~75.9% and 37.6% annualized growth, respectively. The acquired loan portfolio decreased by $1.3 billion, or 41.3% annualized, from paydowns and payoffs in both the PCD and NonPCD loan categories. Acquired loans as a percentage of total loans decreased to 45.4% and non-acquired loans as a percentage of the overall portfolio increased to 54.6% at March 31, 2021.

Allowance for Credit Losses (“ACL”)

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amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. Management has evaluated the appropriateness of the reasonable and supportable forecast scenarios and has made adjustments as needed. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally utilizes a four-quarter forecast and a four-quarter reversion period.

As stated above, Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data (such as COVID-19 epidemiological data and federal stimulus), as well as the volatility and magnitude of changes within those scenarios quarter over quarter. The current environment has brought increased volatility in economic forecasts. During the fourth quarter, Management used a blended forecast scenario (two-thirds baseline and one-third more severe scenario) to determine the allowance for credit losses as of December 31, 2020. Rapidly changing macroeconomic variables challenges the ability of the forecasts to assimilate and reflect most recent data, and uncertainties persist around the future path of those variables, given the speed and magnitude of the monthly and quarterly shifts. While the recent forecasts were significantly revised upward, given the uncertain path of economic recovery and efforts to contain the spread of COVID-19, it is possible that future forecasts are overly optimistic, and therefore forecast volatility should be considered. As such, Management adjusted the blended forecast scenario to an equal weight between baseline and the more adverse scenario during the current quarter to determine the allowance for credit losses as of March 31, 2021 resulting in a release of approximately $58 million. If the economic forecast weighting had not been adjusted, this would have resulted in an additional release of approximately $35 million, which Management did not deem appropriate given the uncertainty around COVID-19 and the speed of economic recovery.

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the credit environment and make adjustments to this threshold in ~~total noninterest income primarily resulted from~~ the ~~following:~~future if warranted. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

●

~~Service charges on deposit accounts were higher in the third quarter of 2020 by $2.4 million than the same quarter in 2019, due primarily to the merger with CSFL during the second~~

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession met the criteria as defined under the CARES Act.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of March 31, 2021, the accrued interest receivable for loans recorded in Other Assets was $89.5 million.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As part of the new combined ACL methodology implemented during the current year, Management completed a funding study based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applied this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. Prior to the third quarter, the Company applied a utilization rate instead of a funding rate to the South State legacy portfolio to determine the reserve for unfunded

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commitments. As of March 31, 2021, the liability recorded for expected credit losses on unfunded commitments was $35.8 million. The current adjustment to the ACL for unfunded commitments is recognized through the provision for credit losses in the Condensed Consolidated Statements of Income.

With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating it’s allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies and Note 7 – Allowance for Credit Losses for further details. As of March 31, 2021, the balance of the ACL was $406.5 million or 1.66% of total loans. The ACL decreased $50.8 million from the balance of $457.3 million recorded at December 31, 2020. This decrease during the first quarter of 2021 included a $50.9 million release or decline in the provision for credit losses partially offset by $21,000 in net recoveries. In the first quarter of 2021, with the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to release some of this allowance for credit losses based on improvements in forecasts. For the prior comparative period, the ACL increased $33.4 million to $144.8 million from the balance of $111.4 million recorded at adoption of the CECL standard as of January 1, 2020. This increase included a $34.7 million provision of credit losses during the first quarter of 2020 and net charge offs during the first quarter of 2020 of $1.3 million. The significant provision in the first quarter 2020 was due to the impact of the COVID-19 pandemic being modeled in the forecasted loss period and macroeconomic assumptions in the first quarter of 2020.

At March 31, 2021, the Company had a reserve on unfunded commitments of $35.8 million which was recorded as a liability on the Balance Sheet, compared to $43.4 million at December 31, 2020. During three months ended March 31, 2021, the Company had a release of allowance or negative provision for credit losses on unfunded commitments of $7.6 million. With the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to release some of this allowance for credit losses based on improvements in forecasts. This amount was recorded in the (recovery) provision for credit losses on the Condensed Consolidated Statements of Income. For the prior comparative period, the Company had a reserve on unfunded commitments of $8.6 million recorded at March 31, 2020. With the adoption of ASU 2016-13 on January 1, 2020, the Company increased its reserve on unfunded commitments by $6.5 million. During the first quarter of 2020, the provision for credit losses on unfunded commitments was $1.8 million. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financials asset during the first three months of 2021 or 2020.

At March 31, 2021, the allowance for credit losses was $406.5 million, or 1.66%, of period-end loans. The ACL provides 4.02 times coverage of nonperforming loans at March 31, 2021. Net recoveries to the total average loans during three months ended March 31, 2021 were 0.00%. We continued to show solid and stable asset quality numbers and ratios as of March 31, 2021. The following table provides the allocation, by segment, for expected credit losses. Because PPP loans are government guaranteed and management implemented additional reviews and procedures to help mitigate potential losses, Management does not expect to recognize credit losses on this loan portfolio and as a result, did not record an ACL for PPP loans within the C&I loan segment presented in the table below.

The following table provides the allocation, by segment, for expected credit losses.


	March 31, 2021
(Dollars in thousands)	Amount		%*
Residential Mortgage Senior	$	63,042	18.5	%
Residential Mortgage Junior		1,190	0.1	%
Revolving Mortgage		16,003	5.9	%
Residential Construction		3,892	2.3	%
Other Construction and Development		55,337	6.1	%
Consumer		27,883	3.9	%
Multifamily		5,884	1.6	%
Municipal		1,544	2.9	%
Owner Occupied Commercial Real Estate		90,660	21.4	%
Non Owner Occupied Commercial Real Estate		107,559	25.8	%
Commercial and Industrial		33,466	11.7	%
Total	$	406,460	100.0	%

* Loan balance in each category expressed as a percentage of total loans excluding PPP loans.

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The following table presents a summary of the changes in the ACL, for three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021						2020

	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Balance at beginning of period	$	315,470	$	141,839	$	457,309	$	56,927	$	—	$	56,927
Adjustment for implementation of CECL		—		—		—		51,030		3,408		54,438
Loans charged-off		(2,517)		(857)		(3,374)		(2,331)		(892)		(3,223)
Recoveries of loans previously charged off		1,980		1,415		3,395		840		1,069		1,909
Net (charge-offs) recoveries		(537)		558		21		(1,491)		177		(1,314)
(Recovery) provision for credit losses		(30,676)		(20,194)		(50,870)		30,910		3,824		34,734
Balance at end of period	$	284,257	$	122,203	$	406,460	$	137,376	$	7,409	$	144,785

Total loans, net of unearned income:
At period end	$	24,491,465					$	11,506,890
Average		24,492,089						11,439,676
Net (recoveries) charge-offs as a percentage of average loans (annualized)		(0.00)	%					0.05	%
Allowance for credit losses as a percentage of period end loans		1.66	%					1.26	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		402.20	%					255.34	%

Nonperforming Assets (“NPAs”)

The following table summarizes our nonperforming assets for the past five quarters:


	March 31,			December 31,			September 30,			June 30,			March 31,
(Dollars in thousands)	2021			2020			2020			2020			2020
Non-acquired:
Nonaccrual loans	$	16,956		$	16,035		$	18,078		$	19,011		$	19,773
Accruing loans past due 90 days or more		853			9,586			636			419			119
Restructured loans - nonaccrual		3,225			3,550			3,749			3,453			4,020
Total non-acquired nonperforming loans		21,034			29,171			22,463			22,883			23,912
Other real estate owned (“OREO”) (2) (6)		490			552			726			1,181			784
Other nonperforming assets (3)		164			136			99			508			157
Total non-acquired nonperforming assets		21,688			29,859			23,288			24,572			24,853
Acquired:
Nonaccrual loans (1)		79,919			75,603			89,067			99,346			32,548
Accruing loans past due 90 days or more		105			2,065			907			1,053			243
Total acquired nonperforming loans		80,024			77,668			89,974			100,399			32,791
Acquired OREO and other nonperforming assets:
Acquired OREO (2) (7)		10,981			11,362			12,754			16,836			6,648
Other acquired nonperforming assets (3)		311			206			150			151			154
Total acquired nonperforming assets		11,292			11,568			12,904			16,987			6,802
Total nonperforming assets	$	113,004		$	119,095		$	126,166		$	141,958		$	64,446

Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets (4)		0.16	%		0.24	%		0.20	%		0.23	%		0.26	%
Total nonperforming assets as a percentage of total assets (5)		0.05	%		0.08	%		0.06	%		0.07	%		0.15	%
Nonperforming loans as a percentage of period end loans (4)		0.16	%		0.24	%		0.19	%		0.22	%		0.25	%

Including Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets (4)		0.46	%		0.48	%		0.50	%		0.56	%		0.56	%
Total nonperforming assets as a percentage of total assets		0.28	%		0.32	%		0.33	%		0.38	%		0.39	%
Nonperforming loans as a percentage of period end loans (4)		0.41	%		0.43	%		0.45	%		0.48	%		0.49	%

(1)	Includes nonaccrual loans that are purchase credit deteriorated (PCD loans).

●(2)

Mortgage banking income increased by $41.9 million, or 685.3%, which was primarily from higher income from the secondary market of $39.9 million, net of an increase in commissions totaling $8.6 million, due to higher activity and sales volume resulting from the decrease in interest rates and a higher margin, and from the addition of loan production from the CSFL merger. MSR income, net of the hedge which increased by $2.0 million comparing third quarter of 2020 to the same quarter one year ago.

●

~~Correspondent banking and capital markets income increased by $25.7 million with $24.4 million of the increase being attributable to correspondent banking division of CSFL~~Excludes certain real estate acquired ~~in the second quarter of 2020. Legacy capital markets income increased approximately $1.4 million due primarily to a reduction in the CVA loss recorded in the current quarter.~~

●	~~Securities gains, net of $437,000 during the third quarter of 2019 while there were securities gains, net of $15,000 in the third quarter of 2020.~~

●

There were no recoveries on acquired loans recorded in the income statement in the third quarter of 2020, due to the adoption of ASU 2016-13 at the beginning of 2020. Recoveries on acquired loans are no longer recorded through the income statement and are recorded through the ACL on the balance sheet. In the third quarter of 2019, there were $1.4 million in recoveries on acquired loans recorded through the income statement.

●	~~Bank owned life insurance income is now separately reported (not included in other) in the table above and resulted in higher income from the merger with CSFL than the third quarter of 2019.~~

●	Other income was higher by $4.0 million due to the merger with CSFL in the second quarter of 2020. This increase was mainly due to increases in SBA loan servicing fees, gains on sale of SBA loans and rental income.

Noninterest income increased by $106.0 million, or 98.8%, during the first nine month of 2020 compared to the same period in 2019. This quarterly change in total noninterest income primarily resulted from the following:

●

~~Service charges on deposit accounts were lower in 2020 by $600,000 compared to 2019, due primarily to lower non-sufficient fund fees~~ as a result of ~~the COVID -19 pandemic due to funds provided by the CARES Act~~foreclosure and property not intended for ~~customers leading to higher deposit balances and due to less spending and activity during the quarter.~~bank use.

●(3)	~~Mortgage banking income increased by $67.2~~Consists of non-real estate foreclosed assets, such as repossessed vehicles.

(4)	Loan data excludes mortgage loans held for sale.

(5)	For purposes of this calculation, total assets include all assets (both acquired and non-acquired).

(6)

Excludes non-acquired bank premises held for sale of $1.9 million, ~~or 487.0%, which was primarily the result of higher income from the secondary market of $64.9~~$2.2 million, net of an increase in commissions totaling $10.3 million, due to higher activity and sales volume resulting from the decrease in interest rates and a higher margin, and from the addition of loan production from the CSFL merger. Income from MSR, net of the hedge increased $2.3 million, ~~comparing~~$2.0 million and $2.7 million as of March 31, 2021, December 31, 2020, ~~to 2019.~~December 31, 2020, March 31, 2020, March 31, 2020, respectively, that is now separately disclosed on the balance sheet.

8466

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●(7)

~~Correspondent banking~~Excludes acquired bank premises held for sale of $29.3 million, $33.8 million, $22.2 million, $23.5 million and capital markets income increased by $35.5 million with the primary increase being attributable to correspondent banking division of CSB acquired in the second quarter of 2020. Legacy capital markets income increased approximately $2.8 million due to an increase in fee income from swap transactions.

●	~~Securities gains, net of~~ $2.7 million ~~during 2019 while there were securities gains, net~~as of ~~$15,000 from sales of available for sale securities in 2020.~~

●

~~There were no recoveries on acquired loans recorded in the income statement in~~March 31, 2021, December 31, 2020, ~~due to the adoption of ASU 2016-13 at the beginning of 2020. Recoveries on acquired loans are no longer recorded through the income statement~~September 30, 2020, June 30, 2020, December 31, 2020 and ~~are recorded through the ACL~~March 31, 2020, respectively, that is now separately disclosed on the balance sheet. ~~In 2019, there were $4.6 million in recoveries on acquired loans recorded through the income statement.~~

●	Bank owned life insurance income is now separately reported (not included in other) in the table above. Income from BOLI increased $3.6 million in 2020 compared to 2019 due to an increase in income from the payout of insurance policies and from the addition of BOLI through the merger with CSFL.

●	Other income was higher by $4.5 million due to the merger with CSFL in the second quarter of 2020. This increase was mainly due to increases in SBA loan servicing fees, gains on sale of SBA loans and rental income.

~~Noninterest Expense~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Salaries and employee benefits

$
134,919

$
59,551

$
277,617

$
176,529

Occupancy expense

23,845

11,883

52,091

35,344

Information services expense

18,855

8,878

40,317

26,558

OREO expense and loan related

1,146

597

2,840

2,229

Pension plan termination expense

—

—

—

9,526

Amortization of intangibles

9,560

3,268

17,232

9,817

Business development and staff related expense

2,599

2,018

6,290

6,477

Supplies and printing

1,435

420

2,522

1,391

Postage expense

1,320

998

3,348

3,026

Professional fees

4,385

2,442

9,727

7,463

FDIC assessment and other regulatory charges

2,849

228

7,310

3,218

Advertising and marketing

1,203

1,052

2,548

2,818

Merger and branch consolidation related expense

21,662

—

66,070

3,058

Other

13,109

5,029

31,334

16,556

Total noninterest expense

$
236,887

$
96,364

$
519,246

$
304,010

~~Noninterest expense increased by $140.5~~Total nonperforming assets were $113.0 million, or ~~145.8%~~0.46% of total loans and repossessed assets, at March 31, 2021, a decrease of $6.1 million, or 5.1%, from December 31, 2020. Total nonperforming loans were $101.1 million, or 0.41%, of total loans, at March 31, 2021, a decrease of $5.8 million, or 5.4%, from December 31, 2020. Non-acquired nonperforming loans declined by $8.1 million from December 31, 2020. The decline in non-acquired nonperforming loans was driven primarily by a decline in accruing loans past due 90 days or more of $8.7 million, a decrease in restructured nonaccrual loans of $325,000, offset by an increase in primarily commercial nonaccrual loans of $929,000. The accruing loans past due 90 days or more at December 31, 2020 were a group of similar loans that were deemed to be low risk and almost all of these loans were brought current in January 2021. Acquired nonperforming loans increased $2.4 million from December 31, 2020. The increase in the ~~third~~acquired nonperforming loan balances was due to an increase in nonaccrual loans of $4.3 million, offset by a decline in restructured nonaccrual loans of $2.0 million.

At March 31, 2021, OREO totaled $11.5 million, which included $0.5 million in non-acquired OREO and $11.0 million in acquired OREO. Total OREO decreased $443,000 from December 31, 2020. At March 31, 2021, non-acquired OREO consisted of 4 properties with an average value of $122,000. This compared to 7 properties with an average value of $79,000 at December 31, 2020. In the first quarter of ~~2020 as~~2021, we added 2 new properties into non-acquired OREO with an aggregate value of $299,000 and we sold 5 properties with an aggregate value of $362,000. On the properties sold we recorded a net gain of $19,000. At March 31, 2021, acquired OREO consisted of 37 properties with an average value of $297,000. This compared to 35 properties with an average value of $325,000 at December 31, 2020. In the ~~same period in 2019. The quarterly increase in total noninterest expense primarily resulted from~~first quarter of 2021, we added 12 new properties into acquired OREO with an aggregate value of $1.3 million and sold 10 properties with an aggregate value of $1.3 million during the ~~following:~~

current quarter. On the properties sold, we recorded a net gain of $356,000.

●

An increase in merger-related and branch consolidation related expense of $21.7 million compared to the third quarter of 2019. The costs in the third quarter of 2020 were related to the merger with CSFL while ~~they were no costs in the third quarter of 2019 related to branch consolidation and other cost saving initiatives.~~

●

Salaries and employee benefits expense increased by $75.4 million, or 126.6%, in the third quarter of 2020 compared to the same period in 2019. This increase was mainly attributable to an increase in all categories of salaries and benefits due to the increase in employees through the merger with CSFL in June 2020. Full time equivalent employees increased 2,722 to 5,266 at September 30, 2020 through the merger with CSFL.

●	The increases in the other line items, including occupancy expense, information services expense, amortization of intangibles, FDIC assessment and other regulatory charges and other noninterest expense, include full quarter of the expenses related to CSFL.

~~Noninterest expense increased~~Nonperforming assets have been reduced by ~~$215.2 million, or 70.8%, in the first nine months of 2020 as compared~~former bank property held for sale. Prior to the ~~same period~~merger with CSFL, the Company included this information in ~~2019. The categories and explanations for~~nonperforming assets but is now reported as a separate item on the ~~increases year-to-date are similar~~balance sheet. All periods have been reclassified to ~~the ones noted above in the quarterly comparison.~~reflect this change.

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Income Tax Expense

Our effective tax rate was ~~19.61% and 7.38%~~21.83% for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to ~~20.13% and 20.05%~~15.00% for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. The ~~decrease~~increase in the effective tax rate for the quarter was driven ~~mainly~~ by ~~generating~~increased pre-tax book income ~~during~~in the current quarter whereas the Company generated a pre-tax book loss during the second quarter of 2020, increasing the income tax benefit recorded on the rate-impacting items during that quarter. The lower year-to-date effective tax rate compared to the same period of 2020. The increase in ~~2019 is driven mainly by lower~~ pre-tax book income was a result of the combined incomes of South State and CenterState subsequent to the merger that closed June 7, 2020. Pre-tax book income was also higher compared to the first quarter of 2020 due to a release in the allowance for credit losses of $59.6 million in the current quarter. An additional allowance for credit losses of $36.5 million was recorded in the first quarter of 2020 as a result of the COVID-19 pandemic. The increase in pre-tax book income for the quarter was partially offset by an increase in federal estimates associated with tax credits and tax-exempt interest income compared to the first quarter of 2020.

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Analysis of Financial Condition

Summary

Investment Securities

The following is the combined amortized cost and fair value of investment securities available for sale and held for maturity, aggregated by credit quality indicator:


					Unrealized
	Amortized		Fair		Net Gain						BB or
(Dollars in thousands)	Cost		Value		(Loss)		AAA - A		BBB		Lower		Not Rated
March 31, 2021
U.S. Government agencies	$	74,988	$	71,622	$	(3,366)	$	74,988	$	—	$	—	$	—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		2,310,035		2,278,633		(31,402)		—		—		—		2,310,035
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		781,738		785,249		3,511		98		—		—		781,640
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		832,484		825,253		(7,231)		13,814		—		—		818,670
State and municipal obligations		589,954		596,103		6,149		588,402		—		—		1,552
Small Business Administration loan-backed securities		504,210		501,706		(2,504)		504,210		—		—		—
Corporate securities		13,549		13,686		137		—		—		—		13,549
	$	5,106,958	$	5,072,252	$	(34,706)	$	1,181,512	$	—	$	—	$	3,925,446

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Other Investments

Other investment securities include primarily our investments in FHLB and FRB stock with no readily determinable market value. Accordingly, when evaluating these securities for impairment, Management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of March 31, 2021, we determined that there was no impairment on our other investment securities. As of March 31, 2021, other investment securities represented approximately $161.5 million, or 0.41% of total assets and primarily consists of FHLB and FRB stock which totals $146.0 million, or 0.37% of total assets. There were no gains or losses on the sales of these securities for the three months ended March 31, 2021 and 2020, respectively.

Trading Securities

Loans Held for Sale

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Loans

The following table presents a summary of the loan portfolio by category (excludes loans held for sale):



LOAN PORTFOLIO (ENDING BALANCE)	March 31,		% of		December 31,		% of
(Dollars in thousands)	2021		Total		2020		Total
Acquired loans:
Acquired - non-purchased credit deteriorated loans:
Construction and land development	$	334,495	1.4	%	$	503,849	2.0	%
Commercial non-owner occupied		2,337,495	9.5	%		2,470,402	10.0	%
Commercial owner occupied real estate		1,762,063	7.2	%		1,823,209	7.4	%
Consumer owner occupied		1,326,185	5.4	%		1,424,655	5.8	%
Home equity loans		576,007	2.4	%		643,009	2.6	%
Commercial and industrial		1,657,827	6.8	%		2,112,514	8.6	%
Other income producing property		253,639	1.0	%		274,165	1.1	%
Consumer non real estate		185,949	0.8	%		206,812	0.8	%
Other		253	-	%		254	-	%
Total acquired - non-purchased credit deteriorated loans		8,433,913	34.5	%		9,458,869	38.3	%
Acquired - purchased credit deteriorated loans (PCD):
Construction and land development		81,890	0.3	%		115,146	0.5	%
Commercial non-owner occupied		1,074,398	4.4	%		1,159,518	4.7	%
Commercial owner occupied real estate		713,338	2.9	%		752,290	3.1	%
Consumer owner occupied		443,080	1.8	%		476,969	1.9	%
Home equity loans		77,546	0.3	%		84,514	0.3	%
Commercial and industrial		157,787	0.6	%		178,907	0.7	%
Other income producing property		58,649	0.2	%		68,177	0.3	%
Consumer non real estate		73,778	0.4	%		80,288	0.3	%
Other		-	-	%		-	-	%
Total acquired - purchased credit deteriorated loans (PCD)		2,680,466	10.9	%		2,915,809	11.8	%
Total acquired loans		11,114,379	45.4	%		12,374,678	50.1	%
Non-acquired loans:
Construction and land development		1,472,516	6.0	%		1,280,071	5.2	%
Commercial non-owner occupied		2,514,560	10.3	%		2,301,403	9.3	%
Commercial owner occupied real estate		2,351,250	9.6	%		2,266,593	9.2	%
Consumer owner occupied		2,257,244	9.2	%		2,206,418	8.9	%
Home equity loans		633,535	2.6	%		609,166	2.5	%
Commercial and industrial		3,271,802	13.4	%		2,755,726	11.2	%
Other income producing property		250,839	1.0	%		245,106	1.0	%
Consumer non real estate		620,407	2.5	%		607,234	2.5	%
Other		4,933	-	%		17,739	0.1	%
Total non-acquired loans		13,377,086	54.6	%		12,289,456	49.9	%
Total loans (net of unearned income)	$	24,491,465	100.0	%	$	24,664,134	100.0	%

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), decreased by $172.7 million, or 0.7%, to $24.5 billion at March 31, 2021. Our non-acquired loan portfolio increased by $1.1 billion, or 35.9% annualized, driven by growth in all categories except other loans. Commercial and industrial loans and commercial non-owner occupied loans led the way with $516.1 million and $212.2 million in quarterly loan growth, respectively, or 75.9% and 37.6% annualized growth, respectively. The acquired loan portfolio decreased by $1.3 billion, or 41.3% annualized, from paydowns and payoffs in both the PCD and NonPCD loan categories. Acquired loans as a percentage of total loans decreased to 45.4% and non-acquired loans as a percentage of the overall portfolio increased to 54.6% at March 31, 2021.

Allowance for Credit Losses (“ACL”)

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amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. Management has evaluated the appropriateness of the reasonable and supportable forecast scenarios and has made adjustments as needed. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally utilizes a four-quarter forecast and a four-quarter reversion period.

As stated above, Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data (such as COVID-19 epidemiological data and federal stimulus), as well as the volatility and magnitude of changes within those scenarios quarter over quarter. The current environment has brought increased volatility in economic forecasts. During the fourth quarter, Management used a blended forecast scenario (two-thirds baseline and one-third more severe scenario) to determine the allowance for credit losses as of December 31, 2020. Rapidly changing macroeconomic variables challenges the ability of the forecasts to assimilate and reflect most recent data, and uncertainties persist around the future path of those variables, given the speed and magnitude of the monthly and quarterly shifts. While the recent forecasts were significantly revised upward, given the uncertain path of economic recovery and efforts to contain the spread of COVID-19, it is possible that future forecasts are overly optimistic, and therefore forecast volatility should be considered. As such, Management adjusted the blended forecast scenario to an equal weight between baseline and the more adverse scenario during the current quarter to determine the allowance for credit losses as of March 31, 2021 resulting in a release of approximately $58 million. If the economic forecast weighting had not been adjusted, this would have resulted in an additional ~~federal tax credits available~~release of approximately $35 million, which Management did not deem appropriate given the uncertainty around COVID-19 and the speed of economic recovery.

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A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession met the criteria as defined under the CARES Act.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of March 31, 2021, the accrued interest receivable for loans recorded in Other Assets was $89.5 million.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As part of the new combined ACL methodology implemented during the current year, Management completed a funding study based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applied this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. Prior to the third quarter, the Company applied a ~~favorable revaluation~~utilization rate instead of a funding rate to the South State legacy portfolio to determine the reserve for unfunded

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With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its method for calculating it’s allowance for loans from an incurred loss method to a life of loan method. See Note 2 – Significant Accounting Policies and Note 7 – Allowance for Credit Losses for further details. As of March 31, 2021, the balance of the ~~legacy South State deferred taxes~~ACL was $406.5 million or 1.66% of total loans. The ACL decreased $50.8 million from the balance of $457.3 million recorded at December 31, 2020. This decrease during the first quarter of 2021 included a $50.9 million release or decline in the provision for credit losses partially offset by $21,000 in net recoveries. In the first quarter of 2021, with the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to release some of this allowance for credit losses based on improvements in forecasts. For the prior comparative period, the ACL increased $33.4 million to $144.8 million from the balance of $111.4 million recorded at adoption of the CECL standard as of January 1, 2020. This increase included a $34.7 million provision of credit losses during the first quarter of 2020 and net charge offs during the first quarter of 2020 of $1.3 million. The significant provision in the first quarter 2020 was due to the impact of the COVID-19 pandemic being modeled in the forecasted loss period and macroeconomic assumptions in the first quarter of 2020.

The following table provides the allocation, by segment, for expected credit losses.


	March 31, 2021
(Dollars in thousands)	Amount		%*
Residential Mortgage Senior	$	63,042	18.5	%
Residential Mortgage Junior		1,190	0.1	%
Revolving Mortgage		16,003	5.9	%
Residential Construction		3,892	2.3	%
Other Construction and Development		55,337	6.1	%
Consumer		27,883	3.9	%
Multifamily		5,884	1.6	%
Municipal		1,544	2.9	%
Owner Occupied Commercial Real Estate		90,660	21.4	%
Non Owner Occupied Commercial Real Estate		107,559	25.8	%
Commercial and Industrial		33,466	11.7	%
Total	$	406,460	100.0	%

* Loan balance in each category expressed as a percentage of total loans excluding PPP loans.

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The following table presents a summary of the changes in the ACL, for three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021						2020

	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Balance at beginning of period	$	315,470	$	141,839	$	457,309	$	56,927	$	—	$	56,927
Adjustment for implementation of CECL		—		—		—		51,030		3,408		54,438
Loans charged-off		(2,517)		(857)		(3,374)		(2,331)		(892)		(3,223)
Recoveries of loans previously charged off		1,980		1,415		3,395		840		1,069		1,909
Net (charge-offs) recoveries		(537)		558		21		(1,491)		177		(1,314)
(Recovery) provision for credit losses		(30,676)		(20,194)		(50,870)		30,910		3,824		34,734
Balance at end of period	$	284,257	$	122,203	$	406,460	$	137,376	$	7,409	$	144,785

Total loans, net of unearned income:
At period end	$	24,491,465					$	11,506,890
Average		24,492,089						11,439,676
Net (recoveries) charge-offs as a percentage of average loans (annualized)		(0.00)	%					0.05	%
Allowance for credit losses as a percentage of period end loans		1.66	%					1.26	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		402.20	%					255.34	%

Nonperforming Assets (“NPAs”)

The following table summarizes our nonperforming assets for the past five quarters:


	March 31,			December 31,			September 30,			June 30,			March 31,
(Dollars in thousands)	2021			2020			2020			2020			2020
Non-acquired:
Nonaccrual loans	$	16,956		$	16,035		$	18,078		$	19,011		$	19,773
Accruing loans past due 90 days or more		853			9,586			636			419			119
Restructured loans - nonaccrual		3,225			3,550			3,749			3,453			4,020
Total non-acquired nonperforming loans		21,034			29,171			22,463			22,883			23,912
Other real estate owned (“OREO”) (2) (6)		490			552			726			1,181			784
Other nonperforming assets (3)		164			136			99			508			157
Total non-acquired nonperforming assets		21,688			29,859			23,288			24,572			24,853
Acquired:
Nonaccrual loans (1)		79,919			75,603			89,067			99,346			32,548
Accruing loans past due 90 days or more		105			2,065			907			1,053			243
Total acquired nonperforming loans		80,024			77,668			89,974			100,399			32,791
Acquired OREO and other nonperforming assets:
Acquired OREO (2) (7)		10,981			11,362			12,754			16,836			6,648
Other acquired nonperforming assets (3)		311			206			150			151			154
Total acquired nonperforming assets		11,292			11,568			12,904			16,987			6,802
Total nonperforming assets	$	113,004		$	119,095		$	126,166		$	141,958		$	64,446

Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets (4)		0.16	%		0.24	%		0.20	%		0.23	%		0.26	%
Total nonperforming assets as a percentage of total assets (5)		0.05	%		0.08	%		0.06	%		0.07	%		0.15	%
Nonperforming loans as a percentage of period end loans (4)		0.16	%		0.24	%		0.19	%		0.22	%		0.25	%

Including Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets (4)		0.46	%		0.48	%		0.50	%		0.56	%		0.56	%
Total nonperforming assets as a percentage of total assets		0.28	%		0.32	%		0.33	%		0.38	%		0.39	%
Nonperforming loans as a percentage of period end loans (4)		0.41	%		0.43	%		0.45	%		0.48	%		0.49	%

(1)	Includes nonaccrual loans that are purchase credit deteriorated (PCD loans).

(2)	Excludes certain real estate acquired as a result of foreclosure and property not intended for bank use.

(3)	Consists of non-real estate foreclosed assets, such as repossessed vehicles.

(4)	Loan data excludes mortgage loans held for sale.

(5)	For purposes of this calculation, total assets include all assets (both acquired and non-acquired).

(6)	Excludes non-acquired bank premises held for sale of $1.9 million, $2.2 million, $2.3 million, $2.0 million and $2.7 million as of March 31, 2021, December 31, 2020, December 31, 2020, March 31, 2020, March 31, 2020, respectively, that is now separately disclosed on the balance sheet.

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(7)

Excludes acquired bank premises held for sale of $29.3 million, $33.8 million, $22.2 million, $23.5 million and $2.7 million as of March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020, December 31, 2020 and March 31, 2020, respectively, that is now separately disclosed on the balance sheet.

Total nonperforming assets were $113.0 million, or 0.46% of total loans and repossessed assets, at March 31, 2021, a decrease of $6.1 million, or 5.1%, from December 31, 2020. Total nonperforming loans were $101.1 million, or 0.41%, of total loans, at March 31, 2021, a decrease of $5.8 million, or 5.4%, from December 31, 2020. Non-acquired nonperforming loans declined by $8.1 million from December 31, 2020. The decline in non-acquired nonperforming loans was driven primarily by a decline in accruing loans past due 90 days or more of $8.7 million, a decrease in restructured nonaccrual loans of $325,000, offset by an increase in primarily commercial nonaccrual loans of $929,000. The accruing loans past due 90 days or more at December 31, 2020 were a group of similar loans that were deemed to be low risk and almost all of these loans were brought current in January 2021. Acquired nonperforming loans increased $2.4 million from December 31, 2020. The increase in the acquired nonperforming loan balances was due to an ~~updated deferred tax rate resulting~~increase in nonaccrual loans of $4.3 million, offset by a decline in restructured nonaccrual loans of $2.0 million.

At March 31, 2021, OREO totaled $11.5 million, which included $0.5 million in non-acquired OREO and $11.0 million in acquired OREO. Total OREO decreased $443,000 from December 31, 2020. At March 31, 2021, non-acquired OREO consisted of 4 properties with an average value of $122,000. This compared to 7 properties with an average value of $79,000 at December 31, 2020. In the first quarter of 2021, we added 2 new properties into non-acquired OREO with an aggregate value of $299,000 and we sold 5 properties with an aggregate value of $362,000. On the properties sold we recorded a net gain of $19,000. At March 31, 2021, acquired OREO consisted of 37 properties with an average value of $297,000. This compared to 35 properties with an average value of $325,000 at December 31, 2020. In the first quarter of 2021, we added 12 new properties into acquired OREO with an aggregate value of $1.3 million and sold 10 properties with an aggregate value of $1.3 million during the current quarter. On the properties sold, we recorded a net gain of $356,000.

Nonperforming assets have been reduced by former bank property held for sale. Prior to the merger with ~~CenterState.~~CSFL, 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.

Potential Problem Loans

Potential problem loans, which are not included in nonperforming loans, related to non-acquired loans were approximately $3.2 million, or 0.02%, of total non-acquired loans outstanding, at March 31, 2021, compared to $5.9 million, or 0.05%, of total non-acquired loans outstanding, at December 31, 2020. Potential problem loans related to acquired loans totaled $13.0 million, or 0.12%, of total acquired loans outstanding, at March 31, 2021, compared to $13.4 million, or 0.11% of total acquired loans outstanding, at December 31, 2020. All potential problem loans represent those loans where information about possible credit problems of the borrowers has caused Management to have serious concern about the borrower’s ability to comply with present repayment terms.

Interest-Bearing Liabilities

Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, securities sold under agreements to repurchase and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

Total deposits increased $1.7 billion or 23.1% annualized to $32.4 billion at March 31, 2021 from $30.7 billion at December 31, 2020. We continue to focus on increasing core deposits (excluding certificates of deposits and other time deposits), which increased $2.0 billion in the first quarter of 2021 as these funds are normally lower cost funds. Federal funds purchased related to the correspondent bank division and repurchase agreements were $878.8 million at March 31, 2021 up $98.9 million from December 31, 2020. Some key highlights are outlined below:

●

Interest-bearing deposits increased $657.1 million to $21.6 billion at March 31, 2021 from the period end balance at December 31, 2020 of $21.0 billion. Average interest-bearing deposits increased $620.5 million to $21.1 billion from the quarter ended December 31, 2020 to the quarter ended March 31, 2021. The increase from December 31, 2020 was driven by an increase in interest-bearing transactional accounts including money

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markets of $713.2 million, and savings of $212.7 million, partially offset by a decline in certificate of deposits of $268.9 million.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At March 31, 2021, the period end balance of noninterest-bearing deposits was $10.8 billion, which increased from the December 31, 2020 balance by $1.1 billion. We continue to focus on increasing the noninterest-bearing deposits to try and limit our funding costs. This increase was also partially driven by the federal government stimulus programs in the first quarter 2021 which pushed funds into the economy.

Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of ~~September 30, 2020,~~March 31, 2021, shareholders’ equity was ~~$4.6~~$4.7 billion, an increase of ~~$2.2 billion,~~$71.9 million, or ~~92.3%~~1.5%, from December 31, ~~2019, and an increase of $2.2 billion, or 94.1%, from $2.4 billion at September 30, 2019.~~2020. The change from year-end was mainly attributable to the increase in equity through net income less dividends paid and a decline in the ~~issuance of common stock and the conversion of stock options and restricted stock totaling $2.3 billion from the merger with CSFL during the second quarter of 2020.~~unrealized gain (loss) in investment securities available for sale. The following table shows the changes in shareholders’ equity during ~~2020.~~2021.

Total shareholders' equity at December 31, 2019

$
2,373,013
Net income

34,396
Cumulative adjustment pursuant to adoption of ASU 2016-13

(44,820)
Dividends paid on common shares ($1.41 per share)

(64,907)
Net increase in market value of securities available for sale, net of deferred taxes

37,875
Net decrease in market value of interest rate swap, net of deferred taxes

(21,846)
Stock options exercised

740
Employee stock purchases

807
Equity based compensation

18,694
Stock repurchase pursuant to buyback plan (320,000 shares, average price of $ 77.29 per share)

(24,715)
Common stock repurchased - equity plans

(7,638)
Stock issued pursuant to acquisition of CSFL

2,246,327
Stock options and restricted stock acquired and converted pursuant to CSFL acquisition

15,487
Total shareholders' equity at September 30, 2020

$
4,563,413


Total shareholders' equity at December 31, 2020	$	4,647,880
Net income		146,949
Dividends paid on common shares ($0.47 per share)		(33,380)
Dividends paid on restricted stock units		(68)
Net decrease in market value of securities available for sale, net of deferred taxes		(48,620)
Stock options exercised		1,771
Equity based compensation		6,092
Common stock repurchased - equity plans		(804)
Total shareholders' equity at March 31, 2021	$	4,719,820

In June 2019, our Board of Directors ~~authorized~~announced the authorization for the repurchase of up to an additional 2,000,000 shares of our common stock under our 2019 Repurchase Program. Through December 31, 2020 we had repurchased 1,485,000 of the shares authorized. In January 2021, the Board of Directors of the Company approved the authorization of a new 3,500,000 share Company stock repurchase plan (the “New Repurchase Program”), which replaced in its entirety the revised 2019 Repurchase Program. Our Board of Directors approved the new plan after considering, among other things, our liquidity needs and capital resources as well as the estimated current value of our net ~~assets (the “new Repurchase Program”).~~assets. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, general business conditions, regulatory requirements, the market price of our common stock, and the availability of alternative investment opportunities. As of ~~December~~March 31, ~~2019,~~2021, we ~~had~~have not repurchased ~~1,165,000~~any shares ~~at an average price~~ of ~~$74.72 a share (excluding sales commission)~~the 3,500,000 shares authorized for ~~a total of $87.1 million in common stock~~repurchase under the New Repurchase Program. During the first quarter of 2020, we remained active in repurchasing our common stock and bought 320,000 shares at an average price of $77.29 per share (excludes commission expense), a total of $24.7 million. No shares were repurchased during the second or third quarter of 2020. There were 515,000 shares available for repurchase remaining under the New Repurchase Program as of September 30, 2020.

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Specifically, we are required to maintain the following minimum capital ratios:

●a CET1, risk-based capital ratio of 4.5%;

●a Tier 1 risk-based capital ratio of 6%;

●a total risk-based capital ratio of 8%; and

●a leverage ratio of 4%.

Under ~~Basel III,~~the current capital rules, Tier 1 capital includes two components: CET1 capital and additional Tier 1 capital. The highest form of capital, CET1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority

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interests that are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities (as discussed below). Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. Cumulative perpetual preferred stock is included only in Tier 2 capital, except that the ~~Basel III~~capital rules permit bank holding companies with less than $15 billion in total consolidated assets to continue to include trust preferred securities and cumulative perpetual preferred stock issued before May 19, 2010 in Tier 1 Capital (but not in CET1 capital), subject to certain restrictions. With the merger with CSFL during the second quarter of 2020, the Company’s $115.0 million in trust preferred securities no longer qualifies for ~~tier~~Tier 1 capital and is now only included in ~~tier~~Tier 2 capital for regulatory capital calculations. AOCI is presumptively included in CET1 capital and often would operate to reduce this category of capital. When the current capital rules were first implemented, ~~Basel III provided a~~the Bank exercised its one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of ~~AOCI. We made this opt-out election and, as a result, retained~~AOCI, allowing us to retain our pre-existing treatment for AOCI.

In ~~addition, in~~ order to avoid restrictions on capital distributions or discretionary bonus payments to executives, ~~under Basel III,~~ a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital)~~. The 2.5% capital conservation buffer became fully effective for us on January 1, 2019,~~, resulting in the following effective minimum capital plus capital conservation buffer ratios: (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

~~On December 21, 2018, the~~The federal banking agencies ~~issued a joint final rule to revise~~revised their regulatory capital rules to (i) address the implementation of CECL; (ii) provide an optional three-year phase-in period for the day 1 adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. CECL became effective for us on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects on regulatory capital from ASU 2016-13 at adoption, the ~~standard included a transitional method~~Company initially elected the option for recognizing the ~~day 1~~adoption date effects on the Company’s regulatory capital calculations over a three-year phase-in.

In ~~March~~ 2020, in response to the COVID-19 pandemic, the federal banking agencies issued ~~an interim~~a final rule for additional transitional relief to regulatory capital related to the impact of the adoption of CECL. The ~~interim~~ final rule provides banking organizations that adopt CECL in the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by the aforementioned three-year transition period to phase out the aggregate amount of benefit during the initial two-year delay for a total five-year transition. The estimated impact of CECL on regulatory capital (modified CECL transitional amount) is calculated as the sum of the day-one impact on retained earnings upon adoption of CECL (CECL transitional amount) and the calculated change in the ACL relative to the day-one ACL upon adoption of CECL multiplied by a scaling factor of 25%. The scaling factor is used to approximate the difference in the ACL under CECL relative to the incurred loss methodology. The modified CECL transitional amount will be calculated each quarter for the first two years of the five-year transition. The amount of the modified CECL transition amount will be fixed as of December 31, 2021, and that amount will be subject to the three-year phase out. The Company chose the five-year transition method and is deferring the recognition of the effects from day 1 and the CECL difference for the first two years of application.

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The well-capitalized minimums and the Company’s and the Bank’s regulatory capital ratios for the following periods are reflected below:


	Well-Capitalized		September 30,		December 31,		September 30,		Well-Capitalized		March 31,		December 31,
	Minimums		2020		2019		2019		Minimums		2021		2020
South State Corporation:
Common equity Tier 1 risk-based capital	N/A		11.48	%	11.30	%	11.22	%	N/A		12.13	%	11.77	%
Tier 1 risk-based capital	6.00	%	11.48	%	12.25	%	12.19	%	6.00	%	12.13	%	11.77	%
Total risk-based capital	10.00	%	13.86	%	12.78	%	12.71	%	10.00	%	14.49	%	14.24	%
Tier 1 leverage	N/A		8.12	%	9.73	%	9.72	%	N/A		8.47	%	8.27	%

SouthState Bank:
South State Bank:
Common equity Tier 1 risk-based capital	6.50	%	11.95	%	12.07	%	12.00	%	6.50	%	12.87	%	12.39	%
Tier 1 risk-based capital	8.00	%	11.95	%	12.07	%	12.00	%	8.00	%	12.87	%	12.39	%
Total risk-based capital	10.00	%	12.80	%	12.60	%	12.52	%	10.00	%	13.70	%	13.33	%
Tier 1 leverage	5.00	%	8.46	%	9.59	%	9.58	%	5.00	%	8.99	%	8.71	%

~~The tier 1 leverage ratio~~All of the Company’s and ~~the tier 1 risk-based~~Bank’s regulatory capital ~~ratio decreased~~ratios increased compared to December 31, ~~2019 due mainly to~~2020. For the ~~merger with CSFL. The~~Tier 1 leverage ratio, the percentage increase in Tier 1 risk-based capital was greater than the percentage increase in the average assets for regulatory capital purposes for the ~~tier~~Tier 1 leverage ratio ~~of 144.7%~~at both the holding company and ~~the percentage increase in risk-based weighted assets for the tier 1 risk-based capital ratio of 118.0% was greater than the percentage~~bank. The increase in Tier 1 risk-based capital ~~of 104.3% at~~was driven by net income during the ~~holding company. The decline in~~quarter. For the ~~holding company ratios was greater than the decline at the bank due to the reduction in tier~~common equity Tier 1 risk-based capital ~~related to~~ratio, the ~~$115.0 in trust preferred debt no longer being able to be included as tier~~Tier 1 risk-based capital ~~based on~~ratio and the ~~merger with CSFL along with the Company exceeding $15.0 billion in assets. The reduction in tier 1 risk based capital was also due to our repurchase of~~ 320,000 shares of common stock at a cost of $24.7 million through our stock repurchase plans, the common stock dividend paid of $64.9 million, and a reduction in retained earnings of $44.8 million from a cumulative change in accounting principle from the adoption of ASU 2016-13. The total risk-based capital ratio, Tier 1 risk-based capital and total risk-based capital both increased ~~compared to December~~ ~~31, 2019 due to an increase in~~during the ~~allowance for credit losses that qualifies as tier 2 capital~~first quarter of ~~$156.2 million and an increase in trust preferred debt and subordinated debt of $279.2 million that qualified for tier 2 capital~~2021 while total risk-based assets declined during the quarter at both the holding ~~company.~~company and bank. The increase in capital for these ratios was driven by net income during the ~~allowance~~quarter while the decline in risk-based assets was mainly ~~due~~driven by a ~~provision for credit losses of $119.1 million recorded on the loan portfolio and unfunded commitments acquired~~decline in ~~the merger with CSFL during the second quarter of 2020. The increase in debt that qualifies for tier 2 capital was~~our current exposure within derivatives related to back to back swaps due to the ~~Company acquiring $238.0 million in subordinated debt and $38.5 million in trust preferred debt in the merger with CSFL. The~~ increase in ~~debt that qualifies for tier 2 capital did not affect the Bank’s total risk-based capital ratio because the debt is at the holding company level.~~ interest rates. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

On April 28, 2021, the Company announced it received approval from its Board of Directors to redeem $25.0 million of Subordinated Note and $38.5 million of Trust Preferred Securities as outlined in the table below. The Company also received regulatory approval from the Federal Reserve Bank of Atlanta to redeem the Subordinated Note and Trust Preferred Securities. The redemption of the Subordinated Note and Trust Preferred Securities will result in a reduction of Tier 2 capital of $63.5 million during the second quarter 2021.

Liquidity

Liquidity refers to our ability to generate sufficient cash to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit and payment of operating expenses. Our Asset/Liability Management Committee (“ALCO”) is charged with monitoring liquidity management policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We have employed our funds in a manner to provide liquidity from both assets and liabilities sufficient to meet our cash needs.

Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and

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investments. Normally, changes in the earning asset mix are of a longer-term nature and are not utilized for day-to-day corporate liquidity needs.

Our liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from our use of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings. We engage in routine activities to retain deposits intended to enhance our liquidity position. These routine activities include various measures, such as the following:

●	Emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with our Bank;

●	Pricing deposits, including certificates of deposit, at rate levels that will attract and/or retain balances of deposits that will enhance our Bank’s asset/liability management and net interest margin requirements; and

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●	Continually working to identify and introduce new products that will attract customers or enhance our Bank’s appeal as a primary provider of financial services.

Our non-acquired loan portfolio increased by approximately ~~$2.3~~$1.1 billion, or approximately ~~33.0%~~35.9% annualized, compared to the balance at December 31, ~~2019, and by $2.6 billion, or 29.2%, compared to the balance at September~~ ~~30, 2019.~~2020. Of the ~~increased~~increase from ~~both~~ December 31, ~~2019 and September 30, 2019, $1.1 billion~~2020, $343.7 million was related to the net increase in PPP loans ~~made in~~during the ~~first nine~~three months ~~of 2020.~~ended March 31, 2021. Excluding PPP loans, the non-acquired loan portfolio increased by ~~$1.2 billion,~~$744.0 million, or ~~17.6%~~24.6% annualized from December 31, ~~2019 and by $1.5 billion, or 17.3% from September 30, 2019.~~2020. The acquired loan portfolio ~~increased~~decreased by ~~$11.6~~$1.3 billion from the balance at December 31, ~~2019 and by $11.3 billion from the balance at September~~ 30, 2019. This increase was due the merger with CSFL in which the Company acquired $13.0 billion in loans in the second quarter of 2020. Excluding the acquired loans in the CSFL merger, the acquired loan portfolio decreased by ~~$1.4 billion, or 64.6% from December 31, 2019 and by $1.6 billion, or 68.1% from September 30, 2019~~2020 through principal paydowns, charge-offs, foreclosures and renewals of acquired loans. This included a reduction in acquired PPP loans of $331.3 million.

Our investment securities portfolio increased ~~$1.7 billion~~$820.6 million compared to the balance at December 31, ~~2019, and increased by $1.9 billion compared to the balance at September~~ 2020.30, 2019. Of these increases in investment securities, $1.2 billion was acquired in the merger with CSFL during the second quarter of 2020. Excluding investment securities acquired in the CSFL merger, the investment portfolio increased by $548.0 million, or 27.3% from December 31, 2019 and by $691.0 million, or 37.1% from September 30, 2019. The increase in investment securities from December 31, ~~2019~~2020 was a result of ~~investments acquired in the CSFL merger of $1.2 billion,~~ purchases of ~~$1.3 billion~~$1.1 billion. This increase was partially offset by maturities, calls, sales and paydowns of investment securities totaling $234.5 million as well as ~~improvements~~declines in the market value of the available for sale investment securities portfolio of ~~$48.6~~$63.8 million. ~~These increases were partially offset by maturities, calls, sales and paydowns of investment securities totaling $770.9 million. N~~etNet amortization of premiums were ~~$13.3~~$9.4 million in the first ~~nine~~three months of ~~2020.~~2021. The increase in investment securities ~~excluding investments acquired in the CSFL merger~~ was due to the Company making the strategic decision to increase the size of the portfolio with the excess funds from deposit ~~growth and the increase in other borrowings.~~growth. Total cash and cash equivalents were ~~$4.5~~$6.0 billion at ~~September 30, 2020~~March 31, 2021 as compared to ~~$688.7 million~~$4.6 billion at December 31, ~~2019 and $719.2 million at September 30, 2019. The Company acquired $2.6~~2020 as deposits grew $1.7 billion ~~in cash and cash equivalents in~~during the ~~merger with CSFL in the second~~first quarter of ~~2020. Total deposits increased $2.2 billion (excluding the $15.6 billion in deposits acquired in the CSFL merger) in the first nine of 2020 which improved liquidity.~~2021.

At ~~September 30,~~March 31, 2021 and December 31, 2020, ~~December 31, 2019 and September~~ ~~30, 2019,~~ we had ~~$600.0~~$475.0 million $0 and ~~$1.3~~$600.0 million of traditional, out–of-market brokered deposits. ~~We acquired $804.0 million in traditional, out-of-market brokered deposits in the merger with CSFL in the second quarter of 2020 of which $204.0 million paid out in the third quarter of 2020.~~ At ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019,~~2020, we had ~~$551.8 million, $45.8~~$700.1 million and ~~$49.2~~$611.1 million, respectively, of reciprocal brokered deposits. ~~Of the total reciprocal brokered deposits at September 30, 2020, $458.3 million were acquired in the CSFL merger.~~ Total deposits were ~~$30.0~~$32.4 billion at ~~September 30, 2020,~~March 31, 2021, an increase of ~~$17.8~~$1.7 billion from ~~$12.2~~$30.7 billion at December 31, 2019 and an increase of $17.9 billion from $12.0 billion at September 30, 2019. This increase was mainly due the merger with CSFL in which the Company acquired $15.6 billion in deposits in the second quarter of 2020. ~~Excluding the acquired deposits in the CSFL merger, deposits increased by~~ ~~$2.2 billion, or 23.8% (annualized) from December 31, 2019 and by $2.3 billion, or 19.3% from September~~ ~~30, 2019.~~ Our ~~legacy~~ deposit growth since December 31, ~~2019~~ 2020 included an increase in demand deposit accounts of ~~$1.2~~$1.1 billion, an increase in savings and money market accounts of ~~$736.1~~$512.4 million and an increase in interest-bearing transaction accounts of ~~$380.5~~$413.5 million partially offset by a decline in certificates of deposit of ~~$4.2~~$268.9 million.Total ~~other~~ borrowings ~~increased $273.7~~at March 31,2021 were $390.3 and consisted of trust preferred and subordinated debt. Of this amount, $11.0 million of the subordinated debt matured in April 2021 and ~~$273.9 million, respectively, from December 31, 2019 and September 30, 2019 to $1.1 billion at September 30, 2020.~~paid off. Total short-term borrowings at ~~September 30, 2020~~March 31, 2021 were ~~$706.7~~$878.6 million, consisting of ~~$351.7~~$479.3 million in federal funds purchased and ~~$355.0~~$399.3 million in securities sold under

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agreements to repurchase. Total other borrowings at September 30, 2020 of $1.1 billion consists of $700.1 million in FHLB advances and $389.5 million in trust preferred and subordinated debt. Other borrowings increased approximately $273.7 million in 2020 through acquisition of trust preferred and subordinated debt in the CSFL merger during the second quarter of 2020. The Company borrowed $500 million in March 2019 and $200 million in June 2019 in 90-day fixed rate FHLB advances, which we currently plan to continuously renew. ~~At the same time, we entered into interest rate swap agreements with a notional amount of $350~~ million (a four year agreement) and $350 million (a five year agreement) to manage the interest rate risk related to these 90-day FHLB advances. We borrowed these FHLB advances to provide liquidity for operations, loan growth and investment growth. In March 2020, we executed another FHLB advance of $300.0 million at a rate of 0.47% for nine months and FRB borrowings of $200.0 million at a rate of 0.25% for three months. These borrowings executed in March 2020 were to provide additional liquidity in reaction to the COVID-19 pandemic. These borrowings were paid off in the second quarter of 2020 as the Company had excess liquidity. To the extent that we employ other types of non-deposit funding sources, typically to accommodate retail and correspondent customers, we continue to take in shorter maturities of such funds. Our current approach may provide an opportunity to sustain a low funding rate or possibly lower our cost of funds but could also increase our cost of funds if interest rates rise.

Our ongoing philosophy is to remain in a liquid position, taking into account our current composition of earning assets, asset quality, capital position, and operating results. Our liquid earning assets include federal funds sold, balances at the Federal Reserve Bank, reverse repurchase agreements, and/or other short-term investments. Cyclical and other economic trends and conditions can disrupt our Bank’s desired liquidity position at any time. We expect that these conditions would generally be of a short-term nature. Under such circumstances, our Bank’s federal funds sold position and any balances at the Federal Reserve Bank serve as the primary sources of immediate liquidity. At ~~September 30, 2020,~~March 31, 2021, our Bank had total federal funds credit lines of ~~$776.0~~$325.0 million with no balance outstanding. If additional liquidity were needed, the Bank would turn to short-term borrowings as an alternative immediate funding source and would consider other appropriate actions such as promotions to increase core deposits or the sale of a portion of our investment portfolio. At ~~September 30, 2020,~~March 31, 2021, our Bank had $1.2 billion of credit available at the Federal Reserve Bank’s Discount Window and had no balance outstanding. In addition, we could draw on additional alternative immediate funding sources from lines of credit extended to us from our correspondent banks and/or the FHLB. At ~~September 30, 2020,~~March 31, 2021, our Bank had a total FHLB credit facility of ~~$3.1~~$2.9 billion with total outstanding FHLB letters of credit consuming ~~$482.2~~$12.2 million ~~and $700.1 million in outstanding advances~~ leaving ~~$1.9~~$2.9 billion in availability on the FHLB credit facility. The ~~Company~~holding company has a $100.0 million unsecured line of credit with no outstanding ~~advances.~~advances at March 31, 2021. We believe that our liquidity position continues to be adequate and readily available.

Our contingency funding plans incorporate several potential stages based on liquidity levels. Also, we review on at least an annual basis our liquidity position and our contingency funding plans with our principal banking regulator. We maintain various wholesale sources of funding. If our deposit retention efforts were to be unsuccessful, we would utilize these alternative sources of funding. Under such circumstances, depending on the external source of funds, our interest cost would vary based on the range of interest rates we are charged. This could increase our cost of funds, impacting net interest margins and net interest spreads.

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Deposit and Loan Concentrations

We have no material concentration of deposits from any single customer or group of customers. We have no significant portion of our loans concentrated within a single industry or group of related industries. Furthermore, we attempt to avoid making loans that, in an aggregate amount, exceed 10% of total loans to a multiple number of borrowers engaged in similar business activities. As of ~~September 30, 2020,~~March 31, 2021, there were no aggregated loan concentrations of this type. We do not believe there are any material seasonal factors that would have a material adverse effect on us. We do not have any foreign loans or deposits.

Concentration of Credit Risk

We consider concentrations of credit to exist when, pursuant to regulatory guidelines, the amounts loaned to a multiple number of borrowers engaged in similar business activities which would cause them to be similarly impacted by general economic conditions represents 25% of total Tier 1 capital plus regulatory adjusted allowance for loan losses of the Company, or ~~$820.4~~$853.7 million at ~~September 30, 2020.~~March 31, 2021. Based on this criteria, we had six such credit concentrations at ~~September 30, 2020,~~March 31, 2021, including loans on hotels and motels of ~~$959.4~~$974.4 million, loans to lessors of nonresidential buildings (except mini-warehouses) of ~~$3.8~~$4.0 billion, loans secured by owner occupied office buildings of ~~$966.3~~$904.1 million, loans

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secured by owner occupied nonresidential buildings (excluding office buildings) of ~~$2.0~~$2.1 billion, loans to lessors of residential buildings (investment properties and multi-family) of ~~$1.0~~$1.3 billion and loans secured by 1^st mortgage 1-4 family owner occupied residential property (including home equity lines) of ~~$3.8~~$4.0 billion. The risk for these loans and for all loans is managed collectively through the use of credit underwriting practices developed and updated over time. The loss estimate for these loans is determined using our standard ACL methodology.

With some financial institutions adopting CECL in the first quarter of 2020, banking regulators established new guidelines for calculating credit concentrations. Banking regulators set the guidelines for construction, land development and other land loans to total less than 100% of total Tier 1 capital less modified CECL transitional amount plus ACL (CDL concentration ratio) and for total commercial real estate loans (construction, land development and other land loans along with other non-owner occupied commercial real estate and multifamily loans) to total less than 300% of total Tier 1 capital less modified CECL transitional amount plus ACL (CRE concentration ratio). Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total Tier 1 capital less modified CECL transitional amount plus ACL. At ~~September 30,~~March 31, 2021 and December 31, 2020, the Bank’s CDL concentration ratio was 52.6% and 54.1%, respectively, and its CRE concentration ratio was ~~236.2%.~~223.7% and 229.5%, respectively. As of ~~September 30, 2020,~~March 31, 2021, the Bank was below the established regulatory guidelines. When a bank’s ratios are in excess of one or both of these loan concentration ratios guidelines, banking regulators generally require an increased level of monitoring in these lending areas by bank Management. Therefore, we monitor these two ratios as part of our concentration management processes.

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Reconciliation of GAAP to Non-GAAP

The return on average tangible equity is a non-GAAP financial measure that excludes the ~~adoption~~effect of the ~~new guidelines established~~average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes these non-GAAP financial measures provide additional information that is useful to investors in ~~2020, the guidelines for the construction, land development~~evaluating our performance and ~~other land loans were to total less than 100% of total risk-based~~ capital and ~~for total commercial real estate loans~~may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons. Non-GAAP measures should not be considered as an alternative to ~~total less than 300%~~any measure of ~~total risk-based capital. Both ratios were calculated~~performance or financial condition as promulgated under GAAP, and investors should consider South State’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of South State. Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by dividing certain types of loan balances for each of the two categories by the Bank’s total risk-based capital. At December 31, 2019 and September 30, 2019 the Bank’s construction, land development and other ~~land loans~~companies. Investors should not consider non-GAAP measures in isolation or as a ~~percentage~~substitute for analysis of total risk-based capital were 68.7% and 70.4%, respectively. Commercial real estate loans (which includes construction, land development and other land loans along with other non-owner occupied commercial real estate and multifamily loans)South State’s results or financial condition as ~~a percentage~~reported under GAAP.

Table of ~~total risk-based capital were 225.6% and 233.4% as of December 31, 2019 and September 30, 2019, respectively.~~Contents


	Three Months Ended
	March 31,
(Dollars in thousands)	2021			2020
Return on average equity (GAAP)		12.71	%		4.15	%
Effect to adjust for intangible assets		8.45	%		4.20	%
Return on average tangible equity (non-GAAP)		21.16	%		8.35	%

Average shareholders’ equity (GAAP)	$	4,687,149		$	2,336,348
Average intangible assets		(1,733,522)			(1,051,491)
Adjusted average shareholders’ equity (non-GAAP)	$	2,953,627		$	1,284,857

Net income (loss) (GAAP)	$	146,949		$	24,110
Amortization of intangibles		9,164			3,007
Tax effect		(2,001)			(451)
Net income excluding the after-tax effect of amortization of intangibles (non-GAAP)	$	154,112		$	26,666

Cautionary Note Regarding Any Forward-Looking Statements

Statements included in this report, 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, South State and the merger with CSFL. 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. We caution 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:

●

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 the COVID-19 pandemic or government or regulatory responses thereto, federal spending cuts and/or one or more federal budget-related impasses or actions;

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Personnel risk, including our inability to attract and retain consumer and commercial bankers to execute on our client-centered, relationship driven banking model;

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Risks and uncertainties relating to the merger with CSFL, including the ability to successfully integrate the companies or to realize the anticipated benefits of the merger;

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Expenses relating to the merger with CSFL and integration of legacy South State and legacy CSFL;

●

Deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;

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Failure to realize cost savings and any revenue synergies from, and to limit liabilities associated with, mergers and acquisitions within the expected time frame, including our merger with CSFL;

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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;

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Ownership dilution risk associated with potential mergers and acquisitions in which our stock may be issued as consideration for an acquired company;

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Potential deterioration in real estate values;

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The impact of competition with other financial service businesses and from nontraditional financial technology companies, including pricing pressures and the resulting impact, including as a result of compression to net interest margin;

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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;

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●

Interest risk involving the effect of a change in interest rates on our earnings, the market value of our loan and securities portfolios, and the market value of our equity;

●

Liquidity risk affecting our ability to meet our obligations when they come due;

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Risks associated with an anticipated increase in our investment securities portfolio, including risks associated with acquiring and holding investment securities or potentially determining that the amount of investment securities we desire to acquire are not available on terms acceptable to us;

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Price risk focusing on changes in market factors that may affect the value of traded instruments in “mark-to-market” portfolios;

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Transaction risk arising from problems with service or product delivery;

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Compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards;

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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 the possibility of changes in accounting standards, policies, principles and practices, including changes in accounting principles relating to loan loss recognition (2016-13 - CECL);

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Strategic risk resulting from adverse business decisions or improper implementation of business decisions;

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Reputation risk that adversely affects our earnings or capital arising from negative public opinion;

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Civil unrest and/or terrorist activities risk that results in loss of consumer confidence and economic disruptions;

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Cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;

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Greater than expected noninterest expenses;

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Noninterest income risk resulting from the effect of regulations that prohibit or restrict the charging of fees on paying overdrafts on ATM and one-time debit card transactions;

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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;

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The risks of fluctuations in the market price of our common stock that may or may not reflect our economic condition or performance;

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The payment of dividends on our common stock is subject to regulatory supervision as well as the discretion of our Board of Directors, our performance and other factors;

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Risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others;

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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;

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Risks associated with our reliance on models and future updates we make to our models, including the assumptions used by these models; and

●

Other risks and uncertainties disclosed in our most recent Annual Report on Form 10-K filed with the SEC, including the factors discussed in Item 1A, Risk Factors, or disclosed in documents filed or furnished by us with or to the SEC after the filing of such Annual Reports on Form 10-K, including risks and uncertainties disclosed in Part II, ~~Tem~~Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements.

For any forward-looking statements made in this report or in any documents incorporated by reference into this Report, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities

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Litigation Reform Act of 1995. All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do 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. All subsequent written and oral forward-looking statements by us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

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Additional information with respect to factors that may cause actual results to differ materially from those contemplated by our forward-looking statements may also be included in other reports that we file with the SEC. We caution that the foregoing list of risk factors is not exclusive and not to place undue reliance on forward-looking statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk as of ~~September 30, 2020~~March 31, 2021 from those disclosures presented in our Annual Report on Form 10-K for the year ended ~~December 31, 2019.~~2020.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

~~Management, including our~~South State’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of ~~our~~the design and operation of South State’s disclosure controls and procedures ~~(as defined~~as of March 31, 2021, in accordance with Rule 13a-15 of the Securities Exchange Act ~~Rules 13a-15(e)~~ of 1934. We applied our judgment in the process of reviewing these controls and ~~15d-15(e)) as of the end of the period covered~~procedures, which, by ~~this report.~~their nature, can provide only reasonable assurance regarding our control objectives. Based upon that evaluation, ~~under the COSO criteria, which excluded the operations of CSFL as noted below,~~ our Chief Executive Officer and the Chief Financial Officer concluded that ~~our~~South State’s disclosure controls and procedures as of March 31, 2021, were effective to provide reasonable assurance regarding our control objective that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our Management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In conducting the evaluation of the effectiveness of its internal control over financial reporting as of September 30, 2020, the Company excluded the operations of CSFL and its subsidiaries as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). In conducting the evaluation of the effectiveness of its disclosure controls and procedures as of September 30, 2020, the Company excluded those disclosure controls and procedures of CSFL that are subsumed by internal control over financial reporting. The Merger was completed on June 7, 2020. On acquisition date, CSFL’s assets represented approximately 50~~percent of the Company’s consolidated assets. See "Note 4. Business Combinations" for further discussion of the Merger and its impact on the Company’s consolidated financial statements.~~objectives.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

~~During the second quarter of 2020, CSFL merged into South State Corporation. The Company is working to integrate CSFL into its overall~~There has been no change in our internal control over financial reporting ~~processes. Except for changes made in connection with this integration of CSFL, there was no change in the Company's internal control over financial reporting that occurred~~ during the ~~third quarter of 2020~~three months ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, ~~the Company's~~our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As of ~~September~~ ~~30, 2020~~March 31, 2021 and the date of this Quarterly Report on Form 10-Q, we believe that we are not party to, nor is any or our property the subject of, any pending material legal proceeding other than those that may occur in the ordinary course of our business.

Item 1A. RISK FACTORS

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2 of this Quarterly Report on Form 10-Q, risks and matters described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

The Company is providing ~~these~~this additional risk ~~factors~~factor to supplement the risk factors contained in Item 1A of our

Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~The COVID-19 pandemic has adversely affected~~Changes to or the application of incorrect assumptions, estimates, or judgements in our ~~business,~~ financial ~~condition and results of operations, and~~statements could

cause significant unexpected losses or impacts in the ~~ultimate impacts of the pandemic on our business, financial condition and results of operations will depend on~~ future ~~developments and other factors that are highly uncertain and will be impacted by the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.~~

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business, financial condition and results of operations. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. In response to the COVID-19 pandemic, the governments of the states in which we have financial centers and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses, including, among others, those in the travel, hospitality and food and beverage industries, and have resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.

The ultimate effects of the COVID-19 pandemic on the broader economy and the markets that we serve are not known, nor is the ultimate length of the restrictions described above and the extent of any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect our interest income and, therefore, earnings, financial condition and results of operation. Additional impacts of the COVID-19 pandemic on our business could be widespread and material, and may include, or exacerbate, among other consequences, the following:

●

~~employees contracting COVID-19;~~

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~~reductions in our operating effectiveness as our employees work from home;~~

●

~~work stoppages, forced quarantines, or other interruptions of our business;~~

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~~unavailability of key personnel necessary to conduct our business activities;~~

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~~effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls;~~

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~~sustained closures of our branch lobbies or the offices of our customers;~~

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~~declines in demand for loans and other banking services and products;~~

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~~reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic;~~

●

~~unprecedented volatility in United States financial markets;~~

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~~volatile performance of our investment securities portfolio;~~

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~~decline in the credit quality of our loan portfolio, owing to the effects of the COVID-19 pandemic in the markets we serve, leading to a need to increase our allowance for credit losses;~~

●

~~declines in value of collateral for loans, including real estate collateral;~~

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~~declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us; and~~

●

declines in demand resulting from businesses being deemed to be “non-essential” by governments in the markets we serve, and from “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity in our markets.

These factors, together or in combination with other events or occurrences that may not yet be known or anticipated, may materially and adversely affect our business, financial condition and results of operations.

The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, including our own, as well as the trading prices for many other securities. The further spread of the COVID-19 outbreak, ~~as well as ongoing or new governmental, regulatory and private sector responses to the pandemic,~~ may materially disrupt banking and other economic activity generally and in the areas in which we operate. This could result in further decline in demand for our banking products and services, and could negatively impact, among other things, our liquidity, regulatory capital, goodwill and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.

We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic has resulted in a higher allowance for credit losses (“ACL”) determined in accordance with the Current Expected Credit Loss, or CECL standard, and may result in increased volatility and further increases in our allowance for loan losses.

The measure of our ACL is dependent on the adoption and interpretation of applicable accounting standards. The Financial Accounting Standards Board issued a new credit impairment model, the Current Expected Credit Loss, or CECL standard, which has become effective and was adopted by us in the first quarter of 2020. UnderFor example, the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount and certain Management judgments over the life of the loan. This initial measurement took placestandard, as of January 1, 2020, at the time of our adoption of CECL, and measurements will occur periodically thereafter. The adoption of the CECL model has materially affected how we determine our ACL and, combined with the effects of the COVID-19 pandemic, required us to significantly increase our allowance.

~~The CECL model may create more volatility in the level of our ACL, as compared to the “incurred loss” standard~~requires that we ~~previously applied in determining our ACL. The CECL model requires us to~~ provide reserves for a current

estimate ~~the lifetime “expected credit loss” with respect to loans and other applicable financial assets, which may change more rapidly than the level~~ of ~~“incurred losses” that would have been used to determine our allowance for loan losses under the prior incurred loss standard. The potentially material effects of the COVID-19 pandemic on~~ lifetime expected credit ~~loss,~~losses for our loan portfolios and other financial assets, if applicable, at the ~~challenges associated with estimating~~time

those assets are acquired or originated. This estimate is adjusted each period for changes in expected lifetime credit

losses. Our allowance for credit losses ~~in view of~~estimate depends upon the ~~uncertain ultimate impacts of the pandemic, may result in increased volatility~~CECL models and ~~significant additions to our~~ ~~ACL in the future, which could have a material~~assumptions and ~~adverse effect on our business, financial condition and results of operations.~~

forecasted

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~~As a participating lender in~~macroeconomic conditions, including, among other things, the ~~SBA Paycheck Protection Program (“PPP”), the Company~~South Atlantic unemployment rate, and the ~~Bank are subject~~credit indicators, composition, and other characteristics of our loan and other applicable portfolios. These model assumptions and forecasted macroeconomic conditions will change over time, whether due to ~~additional risks of litigation from~~ the ~~Bank’s customers~~COVID-19 pandemic or other ~~parties regarding~~factors, resulting in greater variability in our ACL compared to its provision for loan losses under the ~~Bank’s processing of loans for the PPP~~previous GAAP methodology, and ~~risks that the SBA may not fund some or all PPP loan guaranties.~~

~~The CARES Act included a $349 billion loan program administered through the SBA referred to~~thus, will impact operations, as well as regulatory capital, including as the ~~PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress approved additional funding for the PPP~~CECL phase-in begins as of approximately $320 billion on April 24, 2020. This program has now expired. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. As of September 30, 2020, ~~we have originated approximately 20,000 loans, totaling approximately $2.4 billion though the PPP program.~~ Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. Two lawsuits were filed against the Company and the Bank, along with other larger and smaller banks, relating to the payment of agent fees in connection with the origination of PPP loans, but those lawsuits have been dismissed as against the Company and the Bank. The Company and the Bank may be exposed to the risk of additional litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

~~Paycheck Protection Program loans are fixed, low interest rate loans that are guaranteed by the SBA and subject~~

to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven. If Paycheck Protection Program borrowers fail to qualify for loan forgiveness, the Bank faces a heightened risk of holding these loans at unfavorable interest rates for an extended period of time. While the Paycheck Protection Program loans are

~~guaranteed by the SBA, various regulatory requirements will apply to the Bank’s ability to seek recourse under the~~

~~guarantees, and related procedures are currently subject to uncertainty.~~

The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. Such deficiency also may be found in the event the Bank discovers any evidence of fraud relating to a PPP loan. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

January 1, 2022.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Not applicable

(b)

Not applicable

(c)

Issuer Purchases of Registered Equity Securities:

In January 2019, our Board of Directors approved a share repurchase program allowing us to repurchase up to 1,000,000 shares of our common stock, which replaced and superseded our prior share repurchase program. In June 2019, our Board of Directors announced the authorization for the repurchase of up to an additional 2,000,000 shares of our common stock under our 2019 Repurchase Program. Through December 31, 2020 we had repurchased 1,485,000 of the shares authorized. In January 2021, the Board of Directors of the Company approved the authorization of a new 3,500,000 share Company stock repurchase plan (the “New Repurchase Program”), which ~~began once all shares were repurchased under~~replaced in its entirety the ~~previous~~revised 2019 Repurchase Program. As of ~~September 30, 2020,~~March 31, 2021, we have not repurchased ~~1,485,000~~any shares of the ~~2,000,000~~3,500,000 shares

~~Table of Contents~~

authorized for repurchase under the New Repurchase ~~Program and~~ ~~may repurchase up to an additional 515,000 shares of common stock under the New Repurchase Program~~.Program.

The following table reflects share repurchase activity during the ~~third~~first quarter of ~~2020:~~2021:

(d) Maximum

(c) Total

Number (or

(c) Total

Number (or

Number of

Approximate

Number of

Approximate

Shares (or

Dollar Value) of

Shares (or

Dollar Value) of

Units)

Shares (or

Units)

Shares (or

(a) Total

Purchased as

Units) that May

(a) Total

Purchased as

Units) that May

Number of

Part of Publicly

Yet Be

Number of

Part of Publicly

Yet Be

Shares (or

(b) Average

Announced

Purchased

Shares (or

(b) Average

Announced

Purchased

Units)

Price Paid per

Plans or

Under the Plans

Units)

Price Paid per

Plans or

Under the Plans

Period

Purchased

Share (or Unit)

Programs

or Programs

Purchased

Share (or Unit)

Programs

or Programs

July 1 - July 31

1,718

46.91

—

515,000

August 1 - August 31

1,932

53.89

—

515,000

September 1 - September 30

159

47.54

—

515,000

January 1 ‑ January 31

3,296

73.99

—

3,500,000

February 1 ‑ February 28

7,051

79.37

—

3,500,000

March 1 ‑ March 31

—

3,500,000

Total

3,809

—

515,000

10,347

—

3,500,000

For the months ended ~~July~~January 31, ~~2020, August~~2021, February 28, 2021 and March 31, ~~2020 and September~~ ~~30, 2020,~~2021, all shares repurchased this quarter were under arrangements, authorized by our stock-based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to the Company in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares were not purchased under the ~~2004 or 2019~~2020 stock repurchase programs to repurchase shares.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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~~Item 5. OTHER INFORMATION~~

~~Date of Annual Shareholders’ Meeting~~

Under Rule 14a-8 of the Exchange Act, any proposal that a shareholder may intend to present at the 2021 Annual Shareholders’ Meeting (the “2021 Annual Meeting”) must be received in writing by the Secretary of the Company at its principal executive office located at 1101 First Street South, Winter Haven, Florida 33880, no later than 120 calendar days before the first anniversary of the August 14, 2020 release date of the proxy statement for the 2020 annual shareholders’ meeting (the “2020 Annual Meeting”); provided, that if the date of our 2021 Annual Meeting has been changed by more than 30 days before the one year anniversary of the 2020 Annual Meeting, or September 30, 2021, we must receive the proposal within a reasonable time before we begin to print and send the proxy materials. We currently anticipate that we will hold our 2021 Annual Meeting on April 28, 2021, which will be more than 30 calendar days before the anniversary date of our 2020 Annual Meeting. As a result, we must receive any such proposal no later than the close of business on December 29, 2020, which we consider a reasonable time period before we begin to print and send proxy materials. Any such proposal must comply with the procedural, informational and other requirements outlined in our Bylaws. If the proposal complies with all of the requirements of Rule 14a-8, the proposal will be considered for inclusion in the Company’s proxy statement relating to such meeting.

Under our Bylaws, shareholder proposals intended to be raised at the 2021 Annual Meeting outside of Rule 14a-8, including nominations for election of director(s) , must be received in writing by the Secretary of the Company, at 1101 First Street South, Winter Haven, Florida 33880, no earlier than 120 days and no later than 90 days prior to the one year anniversary of our 2020 Annual Meeting, unless the date of our 2021 Annual Meeting is more than 30 days before September 30, 2021. Given that we anticipate holding the 2021 Annual Meeting on April 28, 2021, we must receive any such proposal no later than the close of business on January 28, 2021 but no earlier than December 29, 2020, and any such proposal must comply with the procedural, informational and other requirements outlined in our Bylaws. The Governance and Nominating Committee will consider director candidates recommended by shareholders, provided the nomination and notification contains the nominee’s name, address, principal occupation, total number of shares owned, consent to serve as a director, and all information relating to the nominee and the nominating shareholder as would be required to be disclosed in the solicitation of proxies for the election of such nominee as a director pursuant to the Securities and Exchange Commission’s proxy rules. The Governance and Nominating Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether the candidate was recommended by a shareholder or not.

Item 6. EXHIBITS

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated by reference.

~~Table of Contents~~

Exhibit Index


Exhibit No.		Description

Exhibit 10.1		Form of Restricted Stock Unit Agreement under the South State Corporation 2020 Omnibus Incentive Plan

Exhibit 10.2		Form of Performance-based Restricted Share Unit Agreement under the South State Corporation 2020 Omnibus Incentive Plan

Exhibit 31.1		Rule 13a-14(a) Certification of Principal Executive Officer

Exhibit 31.2		Rule 13a-14(a) Certification of Principal Financial Officer

Exhibit 32		Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer

Exhibit 101		The following financial statements from the Quarterly Report on Form 10-Q of South State Corporation for the quarter ended March, 31, ~~2020,~~2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statement of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.
Exhibit 104		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SOUTH STATE CORPORATION
	(Registrant)


Date: ~~November 6, 2020~~May 7, 2021	/s/ John C. Corbett
	John C. Corbett
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: ~~November 6, 2020~~May 7, 2021	/s/ William E. Matthews, V
	William E. Matthews, V
	Senior Executive Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

Date: ~~November 6, 2020~~May 7, 2021	/s/ Sara G. Arana
	Sara G. Arana
	Senior Vice President and
	Principal Accounting Officer

~~100~~78

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at ~~September 30, 2020,~~March 31, 2021 and December 31, ~~2019 and September 30, 2019~~2020	3

	Condensed Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	4

	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	6

	~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September, 2020 and 2019~~	7

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	87

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6048

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9375

Item 4.	Controls and Procedures	9375

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	9475

Item 1A.	Risk Factors	9475

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9676

Item 3.	Defaults Upon Senior Securities	9776

Item 4.	Mine Safety Disclosures	9776

Item 5.	Other Information	9876

Item 6.	Exhibits	9877


								Accumulated
								Other
	Common Stock					Retained		Comprehensive
	Shares	Amount		Surplus		Earnings		Income		Total
Balance, June 30, 2019	34,735,587	$	86,839	$	1,676,229	$	609,444	$	1,466	$	2,373,978
Comprehensive income:
Net income	—		—		—		51,565		—		51,565
Other comprehensive income, net of tax effects	—		—		—		—		1,404		1,404
Total comprehensive income									��		52,969
Cash dividends declared on common stock at $.43 per share	—		—		—		(14,684)		—		(14,684)
Employee stock purchases	5,598		14		360		—		—		374
Stock options exercised	24,256		61		767		—		—		828
Stock issued pursuant to restricted stock units	578		1		(1)		—		—		—
Common stock repurchased - buyback plan	(858,800)		(2,147)		(62,307)		—		—		(64,454)
Common stock repurchased	(4,493)		(11)		(329)		—		—		(340)
Share-based compensation expense	—		—		2,285		—		—		2,285
Balance, September 30, 2019	33,902,726	$	84,757	$	1,617,004	$	646,325	$	2,870	$	2,350,956
Balance, June 30, 2020	70,907,119	$	177,268	$	3,759,166	$	542,677	$	12,739	$	4,491,850
Comprehensive income:
Net income	—		—		—		95,221		—		95,221
Other comprehensive income, net of tax effects	—		—		—		—		4,307		4,307
Total comprehensive income											99,528
Cash dividends declared at $.47 per share	—		—		—		(33,334)		—		(33,334)
Employee stock purchases	9,316		23		399		—		—		422
Stock options exercised	5,471		14		166		—		—		180
Stock issued pursuant to restricted stock units	10,207		26		(26)		—		—		—
Common stock repurchased	(3,809)		(10)		(183)		—		—		(193)
Share-based compensation expense	—		—		4,960		—		—		4,960
Balance, September 30, 2020	70,928,304	$	177,321	$	3,764,482	$	604,564	$	17,046	$	4,563,413


	Commercial & Industrial				Other Income Producing Property				Commercial Total
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,
	2019		2019		2019		2019		2019		2019
Pass	$	1,256,465	$	1,103,532	$	213,291	$	215,624	$	5,971,069	$	5,682,855
Special mention		16,055		18,148		3,966		3,922		69,268		52,081
Substandard		8,339		9,167		1,360		1,411		22,654		27,208
Doubtful		—		—		—		—		—		—
	$	1,280,859	$	1,130,847	$	218,617	$	220,957	$	6,062,991	$	5,762,144


	Other				Consumer Total
	December 31, 2019		September 30, 2019		December 31, 2019		September 30, 2019
Pass	$	13,892	$	1,457	$	3,152,028	$	3,125,768
Special mention		—		—		14,562		14,848
Substandard		—		—		23,250		25,752
Doubtful		—		—		—		—
	$	13,892	$	1,457	$	3,189,840	$	3,166,368


	Total Non-acquired Loans
	December 31,		September 30,
(Dollars in thousands)	2019		2019
Pass	$	9,123,097	$	8,808,623
Special mention		83,830		66,929
Substandard		45,904		52,960
Doubtful		—		—
	$	9,252,831	$	8,928,512


					Commercial Non-owner
	Construction & Development				Occupied				Commercial Owner Occupied
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,
(Dollars in thousands)	2019		2019		2019		2019		2019		2019
Pass	$	31,690	$	51,340	$	432,710	$	492,258	$	300,678	$	330,005
Special mention		966		736		14,162		5,035		3,092		3,427
Substandard		913		1,226		569		6,150		3,423		11,608
Doubtful		—		—		—		—		—		—
	$	33,569	$	53,302	$	447,441	$	503,443	$	307,193	$	345,040


					Other Income Producing
	Commercial & Industrial				Property				Commercial Total
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,
	2019		2019		2019		2019		2019		2019
Pass	$	97,092	$	120,926	$	87,892	$	95,611	$	950,062	$	1,090,140
Special mention		2,948		4,051		5,837		5,937		27,005		19,186
Substandard		1,840		1,115		1,968		1,545		8,713		21,644
Doubtful		—		—		—		—		—		—
	$	101,880	$	126,092	$	95,697	$	103,093	$	985,780	$	1,130,970


	Total Acquired
	Non-credit Impaired Loans
	December 31,		September 30,
(Dollars in thousands)	2019		2019
Pass	$	1,697,942	$	1,897,922
Special mention		39,772		31,970
Substandard		22,713		35,711
Doubtful		—		—
	$	1,760,427	$	1,965,603


					Commercial Real Estate—
					Construction and
	Commercial Real Estate				Development
	December 31,		September 30,		December 31,		September 30,
(Dollars in thousands)	2019		2019		2019		2019
Pass	$	108,762	$	121,264	$	17,756	$	18,978
Special mention		6,465		9,064		2,904		3,018
Substandard		15,711		18,806		4,372		4,934
Doubtful		—		—		—		—
	$	130,938	$	149,134	$	25,032	$	26,930


	Residential Real Estate				Consumer				Commercial & Industrial
	December 31,		September 30,		December 31,		September 30,		December 31,		September 30,
	2019		2019		2019		2019		2019		2019
Pass	$	82,203	$	88,131	$	4,483	$	4,696	$	5,160	$	5,703
Special mention		35,968		36,901		12,658		12,723		286		471
Substandard		45,188		50,012		18,347		19,393		1,583		1,938
Doubtful		—		—		—		—		—		—
	$	163,359	$	175,044	$	35,488	$	36,812	$	7,029	$	8,112


	Total Acquired
	Credit Impaired Loans
	December 31,		September 30,
	2019		2019
Pass	$	218,364	$	238,772
Special mention		58,281		62,177
Substandard		85,201		95,083
Doubtful		—		—
	$	361,846	$	396,032


	Non-acquired		Acquired Non-Credit		Acquired Credit
(Dollars in thousands)	Loans		Impaired Loans		Impaired Loans		Total
Three Months Ended September 30, 2019:
Balance at beginning of period	$	53,590	$	—	$	4,623	$	58,213
Loans charged-off		(1,969)		(810)		—		(2,779)
Recoveries of loans previously charged off (1)		834		50		—		884
Net charge-offs		(1,135)		(760)		—		(1,895)
Provision for loan losses charged to operations		2,482		760		786		4,028
Reduction due to loan removals		—		—		(91)		(91)
Balance at end of period	$	54,937	$	—	$	5,318	$	60,255


	Construction		Commercial		Commercial		Consumer						Other Income
	& Land		Non-owner		Owner		Owner		Home		Commercial		Producing				Other
(Dollars in thousands)	Development		Occupied		Occupied		Occupied		Equity		& Industrial		Property		Consumer		Loans		Total
Three Months Ended September 30, 2019
Allowance for loan losses:
Balance, June 30, 2019	$	5,718	$	10,311	$	9,526	$	12,432	$	3,177	$	7,495	$	1,359	$	3,572	$	—	$	53,590
Charge-offs		(69)		—		(31)		(10)		(100)		(32)		—		(1,727)		—		(1,969)
Recoveries		208		2		18		149		86		77		29		265		—		834
Provision (benefit)		159		238		456		(24)		28		21		(29)		1,633		—		2,482
Balance, September 30, 2019	$	6,016	$	10,551	$	9,969	$	12,547	$	3,191	$	7,561	$	1,359	$	3,743	$	—	$	54,937
Loans individually evaluated for impairment	$	587	$	—	$	33	$	33	$	121	$	387	$	58	$	2	$	—	$	1,221
Loans collectively evaluated for impairment	$	5,429	$	10,551	$	9,936	$	12,514	$	3,070	$	7,174	$	1,301	$	3,741	$	—	$	53,716
Loans:
Loans individually evaluated for impairment	$	32,673	$	87	$	7,135	$	5,127	$	2,345	$	5,313	$	2,096	$	91	$	—	$	54,867
Loans collectively evaluated for impairment		922,645		1,777,240		1,670,560		2,113,000		519,399		1,125,534		218,861		524,949		1,457		8,873,645
Total non-acquired loans	$	955,318	$	1,777,327	$	1,677,695	$	2,118,127	$	521,744	$	1,130,847	$	220,957	$	525,040	$	1,457	$	8,928,512


			Commercial
			Real Estate-
	Commercial		Construction and		Residential				Commercial
(Dollars in thousands)	Real Estate		Development		Real Estate		Consumer		and Industrial		Total
Three Months Ended September 30, 2019
Allowance for loan losses:
Balance, June 30, 2019	$	1,009	$	798	$	2,346	$	470	$	—	$	4,623
Provision (benefit) for loan losses		386		(38)		447		(9)		—		786
Reduction due to loan removals		—		—		(91)		—		—		(91)
Balance, September 30, 2019	$	1,395	$	760	$	2,702	$	461	$	—	$	5,318

Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	$	1,395	$	760	$	2,702	$	461	$	—	$	5,318

Loans:*
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		149,134		26,930		175,044		36,812		8,112		396,032
Total acquired credit impaired loans	$	149,134	$	26,930	$	175,044	$	36,812	$	8,112	$	396,032


	Three Months Ended September 30,
	2019
				Acquired		Acquired
				Non-credit		Credit
	Non-acquired			Impaired		Impaired
(Dollars in thousands)	Loans			Loans		Loans		Total
Balance at beginning of period	$	53,590		$	—	$	4,623	$	58,213
Loans charged-off		(1,969)			(810)		—		(2,779)
Recoveries of loans previously charged off		834			50		—		884
Net charge-offs		(1,135)			(760)		—		(1,895)
Provision for loan losses		2,482			760		786		4,028
Reductions due to loan removals		—			—		(91)		(91)
Balance at end of period	$	54,937		$	—	$	5,318	$	60,255

Total non-acquired loans:
At period end	$	8,928,512
Average		8,753,742
Net charge-offs as a percentage of average non-acquired loans (annualized)		0.05	%
Allowance for loan losses as a percentage of period end non-acquired loans		0.62	%
Allowance for loan losses as a percentage of period end non-performing non-acquired loans (“NPLs”)		286.32	%