SOUTH STATE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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. Results for the three months ended March 31, 2020 are not necessarily
indicative of the results for the year ending December 31, 2020 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. References to the
"Bank" means South State Corporation's wholly owned subsidiary, South State
Bank, a South Carolina banking corporation.



Overview



South State Corporation is a bank holding company headquartered in Columbia,
South Carolina, 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, South State Bank, a South
Carolina-chartered commercial bank that opened for business in 1934. The
Bank also operates South State Advisory, Inc. (formerly First Southeast 401K
Fiduciaries), a wholly owned registered investment advisor. We merged Minis &
Co., Inc., another registered investment advisor that was wholly-owned by the
Bank, with and into South State Advisory effective January 1, 2019. We do not
engage in any significant operations other than the ownership of our banking
subsidiary.



At March 31, 2020, we had approximately $16.6 billion in assets and 2,583
full-time equivalent employees.  Through the Bank, we provide our customers with
checking accounts, NOW accounts, savings and time deposits of various types,
brokerage services and alternative investment products such as annuities and
mutual funds, trust and asset management services, business loans, agriculture
loans, real estate loans, personal use loans, home improvement loans,
manufactured housing loans, automobile loans, credit cards, letters of credit,
home equity lines of credit, safe deposit boxes, bank money orders, wire
transfer services, correspondent banking services, and use of ATM facilities.

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
months ended March 31, 2020 as compared to the three months ended March 31, 2019
and also analyzes our financial condition as of March 31, 2020 as compared to
December 31, 2019 and March 31, 2019. 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 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. 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 loan 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.

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Recent Events



COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have
surfaced in China, and has since spread to a number of other countries,
including the United States. In March 2020, the World Health Organization
declared COVID-19 a global pandemic and the United States declared a National
Public Health Emergency. The COVID-19 pandemic has severely restricted the level
of economic activity in our markets. 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.



While our business has been designated an essential business, which allows us to
continue to serve our customers, we serve many customers that have been deemed,
or who are employed by businesses that have been deemed, to be non-essential.
And many of our customers that have been categorized to date as essential
businesses, or who are employed by businesses that have been categorized as
essential businesses, have been adversely affected by the COVID-19 pandemic.



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 significant volatility and disruption in
financial markets, and has had an adverse effect on our business, financial
condition and results of operations. The ultimate extent of the impact of the
COVID-19 pandemic on our business, financial condition and results of operations
is currently 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 begun to have a significant impact on our business and
operations. As part of our efforts to exercise social distancing, in March 2020,
we closed all of our banking lobbies and are conducting most of our business at
this time through drive-thru tellers and through electronic and online means. To
support the health and well-being of our employees, a majority of our workforce
is working from home. To support our customers or to comply with law, we have
deferred loan payments from 90 to 120 days for consumer and commercial
customers, and we have suspended residential property foreclosure sales,
evictions, and involuntary automobile repossessions, and are offering fee
waivers, payment deferrals, and other expanded assistance for automobile,
mortgage, small business and personal lending customers. Future governmental
actions may require these and other types of customer-related responses.



As of March 31, 2020, we have deferrals of $1.7 billion of our total loan
portfolio, which had increased to $2.4 billion as of April 30, 2020. For
commercial loans, the standard deferral was 90 days for both principal and
interest or 120 days of principal only.  For consumer and mortgage loans, the
standard deferral was 120 days of both principal and interest.  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 has not
experienced an increase in borrowers drawing down on their lines.  Below are the
loan portfolios which we view are of the greatest risk:

Lodging (hotel / motel) loan portfolio - we have experienced 100% deferrals,

? the average loan balance was $8.2 million and the weighted average loan to

value ("LTV") was 57%. The Company currently has $590 million, or 5.1% of the

   total loan portfolio, in lodging loans.

Restaurant loan portfolio - 59% is under deferral, with average loan balance of

? $692,000, and weighted average LTV of real estate secured was 66%. The Company

currently has $225 million, or 2% of the total loan portfolio, in restaurants.

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Retail loan portfolio - 37% of retail CRE loan portfolio is under deferral,

? with an average loan balance of $888,000, and weighted average LTV of 59%. The

Company currently has $558 million, or 4.8% of the total loan portfolio, in

   retail CRE loans.




Also, we have extended credit to both customers and non-customers related to the
Payroll Protection Program ("PPP"). As of April 30, 2020, we have secured
funding of approximately 9,300 loans totaling approximately $1.1 billion through
the PPP.



We are 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. Taking into consideration the
COVID-19 pandemic into our CECL models, we recorded a provision for credit
losses of $36.4 million in the first quarter of 2020 which was significantly
higher than in previous quarters. Our provision for credit losses for periods
ending after March 31, 2020 may be materially impacted by the COVID-19 pandemic.
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 COVID-19 on the valuation of goodwill. Our
stock price has historically traded above its book value and tangible book
value. However, during the first quarter of 2020, our stock price fell below
book value. This drop in stock was in reaction to the COVID-19 pandemic which
has affected stock prices of companies in almost all industries. The lowest
trading price for our stock during the first quarter of 2020 was $51.47, and the
stock price closed on March 31, 2020 at $58.73, which was below book value of
$69.40 but above tangible book value of $38.01. The Company updated its
valuation of the carrying value of goodwill as of March 31, 2020 based on the
drop in the Company's stock price in the first quarter of 2020, and taking into
account the effect that the COVID-19 pandemic has had and continues to have on
our local economy, we determined that no impairment charge was necessary at this
time. We will continue to monitor the impact of COVID-19 on the Company'
business, operating results, cash flows and/or financial condition. If the
COVID-19 pandemic extends beyond a few more months and the economy continues to
deteriorate, we will have to reevaluate the impact on our financial condition
and impairment of goodwill.

CenterState Bank Corporation Proposed Merger

On January 25, 2020, South State and CenterState entered into the merger
agreement, pursuant to which South State and CenterState have agreed to combine
their respective companies in an all-stock merger of equals. The merger
agreement provides that, upon the terms and subject to the conditions set forth
therein, CenterState will merge with and into South State, with South State
continuing as the surviving entity, in a transaction we refer to as the
"merger."  The merger agreement was unanimously approved by the boards of
directors of South State and CenterState, and is subject to shareholder and
regulatory approval and other customary closing conditions.



Under the terms of the merger agreement, shareholders of CenterState will
receive 0.3001 shares of South State common stock for each share of CenterState
common stock they own. After the merger, it is anticipated that CenterState
shareholders will own approximately 53% and South State shareholders will own
approximately 47% of the combined company. The aggregate consideration,
including "in the money" outstanding stock options, is valued at approximately
$2.2 billion, based on approximately 124,132,401 shares of CenterState common
stock outstanding as of April 29, 2020 and on South State's April 30, 2020
closing stock price of $57.84.  The transaction is expected to close by the
third quarter of 2020. At March 31, 2020, CenterState reported $18.6 billion in
total assets, $12.0 billion in loans and $14.1 billion in deposits.



Capital Management



During the first quarter of 2020, we remained active in repurchasing the
company's 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. In June of
2019, the Company's Board of Directors authorized a new Repurchase Program of
2,000,000 shares, and there were 515,000 shares available for repurchase under
this plan as of March 31, 2020.



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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 1 of our consolidated financial statements
in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for
the year ended December 31, 2019.

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. Management uses a
systematic methodology to determine its ACL 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 6 - Allowance for Credit Losses in this
Quarterly Report on Form 10-Q, "Provision for Loan 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 March 31, 2020, December 31, 2019 and March 31, 2019, the
balance of goodwill was $1.0 billion for all periods. 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. The goodwill impairment analysis is a two-step test. The
first step, used to identify potential impairment, involves comparing each
reporting unit's estimated fair value to its carrying value, including goodwill.
If the estimated fair value of a reporting unit exceeds its carrying value,
goodwill is not considered to be impaired. If the carrying value exceeds
estimated fair value, there is an indication of potential impairment and the
second step is performed to measure the amount of impairment, if any.



If required, the second step involves calculating an implied fair value of
goodwill for each reporting unit for which the first step indicated impairment.
The implied fair value of goodwill is determined in a manner similar to the
amount of goodwill calculated in a business combination, by measuring the excess
of the estimated fair value of the reporting unit, as determined in the first
step, over the aggregate estimated fair values of the individual assets,
liabilities and identifiable intangibles as if the reporting unit was being
acquired in a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting unit, there is
no impairment. If the carrying value of goodwill assigned to a reporting unit
exceeds the implied fair value of the goodwill, an impairment charge is recorded
for the excess. An impairment loss cannot exceed the carrying value of goodwill
assigned to a reporting unit, and the loss establishes a new basis in the
goodwill. Subsequent reversal of goodwill impairment losses is not permitted.



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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 the first step in today's two-step impairment test under
ASC Topic 350 and eliminating Step 2 from the goodwill impairment test. This
guidance was effective for the Company as of January 1, 2020.



We previously had evaluated the carrying value of goodwill as of April 30, 2019,
our annual test date, and 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, our stock price fell below
book value. This drop in stock was in reaction to the COVID-19 pandemic which
has affected stock prices of companies in almost all industries. The lowest
trading price for our stock during the first quarter of 2020 was $51.47, and the
stock price closed on March 31, 2020 at $58.73, which was below book value of
$69.40 but above tangible book value of $38.01. The Company updated its
valuation of the carrying value of goodwill as of March 31, 2020 based on the
drop in the Company's stock price in the first quarter of 2020 along with the
effect that the COVID-19 pandemic is having on our local economy and determined
again that no impairment charge was necessary. We will continue to monitor the
impact of COVID-19 on the Company' business, operating results, cash flows
and/or financial condition. If the pandemic extends beyond a few more months and
the economy continues to deteriorate, we will have to reevaluate the impact on
our financial condition and impairment to goodwill. Should our future earnings
and cash flows decline and/or the market value of our stock decreases further,
an impairment charge to goodwill and other intangible assets may be required.



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 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.

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 state of South Carolina, Georgia, North Carolina,
Florida, Virginia, Alabama, and Mississippi. We evaluate the need for income tax
reserves related to uncertain income tax positions but had no material reserves
at March 31, 2020 or 2019.



Other Real Estate Owned



We report OREO, consisting of properties obtained through foreclosure or through
a deed in lieu of foreclosure in satisfaction of loans or through
reclassification of former branch sites, at the lower of cost or fair value,
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, 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. Subsequent adjustments to this value are described below.

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We report subsequent declines in the fair value of OREO below the new cost basis
through valuation adjustments. Significant judgments and complex estimates are
required in estimating the fair value of OREO, 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 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 OREO. Management reviews the value of OREO 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



We reported consolidated net income of $24.1 million, or diluted earnings per
share ("EPS") of $0.71, for the first quarter of 2020 as compared to
consolidated net income of $44.4 million, or diluted EPS of $1.25, in the
comparable period of 2019, a 45.7% decrease in consolidated net income and a
43.2% increase in diluted EPS. The $20.3 million decrease in consolidated net
income was the net result of the following items:

A $4.4 million increase in interest income, resulting from a $1.1 million

increase in interest income from loans and a $3.2 million increase in interest

income from investment securities. Non-acquired loan interest income increased

$11.4 million due to a $1.3 billion increase in average balance on such loans. ? This increase in loan interest income was offset by a $10.3 million decline in

interest income from the acquired loan portfolio due to a $931.5 million

decline in the average loan balance on such loans. The increase in interest

income from investment securities was due to an increase in average balance of

$507.7 million;

A $336,000 decrease in interest expense, resulting from an 11 basis points

decrease in the cost of interest-bearing liabilities mostly offset by the

effects from a $990.6 million increase in average balance 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 increase in average balances was due to a $585.7 million increase in other

  borrowings and a $360.9 million increase in interest-bearing deposits;

A $35.0 million increase in the provision for credit losses which resulted ? primarily from forecasted losses taking into consideration the impact that

COVID-19 pandemic will have on the loan portfolio;

A $12.1 million increase in noninterest income, which resulted primarily from a

$12.3 million increase in mortgage banking income and a $1.8 million increase ? in other noninterest income. These increases were partially offset by a $1.9

  million decrease in recoveries on acquired loans (See Noninterest Income
  section on page 79 for further discussion);

A $9.0 million increase in noninterest expense, which resulted primarily from a

$3.0 million increase in merger and branch consolidation related expense, a ? $2.5 million increase in salaries and employee benefits, and a $2.1 million

increase in other noninterest (See Noninterest Expense section on page 79 for

further discussion); and

A $7.0 million decrease in the provision for income taxes. This decrease was ? due to a lower effective tax rate which was driven by both lower pretax income

and by additional federal and state tax credits available in the first quarter

  of 2020 compared to previous quarters.

Our asset quality related to loans continued to remain strong at the end of the
first quarter of 2020. Total nonperforming assets ("NPAs") increased by $27.5
million from March 31, 2019 to $69.9 million as of March 31, 2020 due to the
addition of $21.0 million, 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. The Company has not assumed or taken on any additional risk relative to
these assets. NPAs as a percentage of total loans and repossessed assets
increased 23 basis points to 0.61% at March 31, 2020 as compared to 0.38% at
March 31, 2019. This increase also was related to the addition of the
non-accrual acquired credit impaired loans into NPAs due to the adoption of ASU
2016-13 and accounted for 19 basis points of the increase in the first quarter
of 2020 compared to the first quarter of 2019. NPAs increased $23.6 million from
$46.2 million at December 31, 2019. Excluding the $21.0 million increase due the
inclusion of acquired credit impaired non-accrual loans, NPAs increased $2.6
million compared to the balance at December 31, 2019. Annualized net charge-offs
for the first quarter of 2020 were 0.05%, or $1.3

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million. Of the net charge-offs in the first quarter of 2020, $782,000 were related to charge-offs from overdrafts and ready reserve accounts.

Non-acquired NPAs increased $7.6 million from $20.0 million at March 31, 2019 to
$27.6 million at March 31, 2020, which resulted from an $8.0 million increase in
non-acquired nonperforming loans. NPAs as a percentage of non-acquired loans and
repossessed assets increased five basis points to 0.29% at March 31, 2020 as
compared to 0.24% at March 31, 2019. Non-acquired NPAs increased $1.0 million
from $26.5 million at December 31, 2019. Acquired NPAs increased $20.0 million
from $22.3 million at March 31, 2019 to $42.3 million at March 31, 2020 which
was due to the inclusion of the non-accrual acquired credit impaired loans noted
above. Excluding the $21.0 million increase due the inclusion of acquired credit
impaired non-accrual loans, acquired NPAs decreased $1.0 million compared the
balance at March 31, 2019 and increased $1.6 million from $19.7 million at
December 31, 2019.



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 for further
details. At March 31, 2020, the ACL was $144.8 million, or 1.26% of period end
loans. Additionally, with the adoption of ASU 2016-13, the Company recorded
separately a reserve for unfunded commitments of $8.6 million, or 0.07% of
period end loans. For prior comparative periods, the allowance for non-acquired
loan losses was $56.9 million, or 0.62%, of non-acquired period-end loans and
$52.0 million, or 0.63%, at March 31, 2019. The ACL provides 2.55 times coverage
of nonperforming loans at March 31, 2020. At December 31, 2019 and March 31,
2019, the allowance for loan losses on non-acquired loans provided coverage of
2.50 times and 3.27 times, respectively. We continued to show solid and stable
asset quality numbers and ratios as of March 31, 2020.



During the first quarter of 2020, acquired loan interest income increased
$587,000 compared to the fourth quarter of 2019. The yield on acquired loans was
up to 7.14% at March 31, 2020 from 6.28% at December 31, 2019. The increase in
the yield in the first quarter of 2020 was primarily the result of the increase
in accretion income recognized in the first quarter of 2020. Accretion income
increased from $7.4 million in the fourth quarter of 2019 to $10.9 million in
the first quarter of 2020. The higher accretion was directly related to the
adoption of CECL and elimination of loan pools, resulting in an acceleration of
the recognition of the loan discount. The increase in income on acquired loans
from the increase in yield was partially offset by the effects of the reduction
in the balance of acquired loans. Acquired period-end loan balances decreased by
$173.2 million and acquired loans average balance declined by $208.9 million,
from December 31, 2019. This decrease was due to continued payoffs, charge-offs,
transfers to OREO, and renewals of acquired loans moved to the non-acquired

loan
portfolio.



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 increased from the first quarter of 2019 due to increase
in acquired loan accretion related to the adoption of ASU 2016-13, which
eliminated loan pools and changed the accounting for credit impaired loans
discussed above, together with acquired credit impaired loans being renewed

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and the cash flow from these assets being extended out, which increased the
weighted average life of the loan pools within all acquired loan portfolios.




                                                                Three Months Ended
                                                            March 31,       March 31,
(Dollars in thousands)                                         2020            2019

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

$  2,015,492    $  2,947,018
Non-acquired loans                                            9,424,184    

8,075,987

Total loans, excluding held for sale                       $ 11,439,676

$ 11,023,005

Interest income:
Accretion income on acquired loans (1)                     $     10,931

$      9,662
Acquired loan interest income                                    24,867          36,421
Total acquired loans                                             35,798          46,083
Non-acquired loans                                               96,905          85,537

Total loans, excluding held for sale                       $    132,703

$    131,620

Non-taxable equivalent yield:
Acquired loans                                                     7.14 %          6.34 %
Non-acquired loans                                                 4.14 %          4.30 %

Total loans, excluding held for sale                               4.67 %  

       4.84 %




     The accretion income on acquired loans includes the accretion from the

discount on all acquired loans for the three months ended March 31, 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

(1) acquired non-credit impaired loan only. For the prior period, we reclassed

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 December 31, 2019, our non-acquired loan portfolio
has increased $310.1 million, or 13.5% annualized, to $9.6 billion, driven by
increases in almost all categories: consumer real estate lending by $6.7
million, or 1.0% annualized; consumer non real estate lending by $18.5 million,
or 13.9% annualized; commercial and industrial by $44.9 million, or 14.1%
annualized; commercial owner occupied real estate by $65.8 million, or $14.8%
annualized; and commercial non-owner occupied by $181.0 million, or 26.2%
annualized. The acquired loan portfolio decreased by $178.3 million to $1.9
billion in the first quarter of 2020 compared to $2.1 billion at December 31,
2019. This decrease was due to continued payoffs, charge-offs, transfers to
OREO, and renewals of acquired loans moved to the non-acquired loan portfolio.
Since March 31, 2019, the non-acquired loan portfolio has grown by $1.3 billion,
or 15.1%, driven by increases in most loan categories. Consumer real estate
loans, commercial non-owner occupied real estate loans, commercial owner
occupied real estate loans, commercial and industrial loans and consumer non
real estate loans have accounted for the largest increases contributing $130.5
million, or 5.2%, $534.5 million, or 22.0%, $248.5 million, or 15.5%, $253.7
million, or 23.7%, and $91.9 million, or 19.8% of growth, respectively. Since
March 31, 2019, the acquired loan portfolio decreased by $891.5 million, or
31.4% due to continued payoffs, charge-offs, transfers to OREO, and renewals of
acquired loans moved to the non-acquired loan portfolio.



Compared to the fourth quarter of 2019, non-taxable equivalent net interest
income increased $1.6 million or 5.0% annualized. The increase in net interest
income during the first quarter of 2020 was mainly due to the increase in
interest income on loans of $752,000 (non-acquired loans interest income
increased $165,000 and acquired loans interest income increased $587,000), an
increase in interest income from investment securities of $812,000 and a decline
in interest expense from deposits of $790,000 and from other borrowings of
$446,000. The increase in interest income on non-acquired loans was due to an
increase in the average balance of $351.1 million through organic loan growth.
The effects from the increase in average balance on non-acquired loans was
mostly offset by the decline in yield of nine basis points due to the falling
interest rate environment as the Federal Reserve dropped the federal funds
target rate by 75 basis points from July 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. The increase in interest income
on acquired loans was due to an increase in yield of 86 basis points due to
higher accretion income of $3.5 million resulting from the adoption of CECL as
discussed above. The increase in interest income from investment securities was
due to an increase in the average balance of $133.4 million. The increase in the
average balance of investment securities 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. The declines in
interest expense on interest-bearing deposits and other

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borrowings 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. The positive effects on net interest income were partially offset by
a decline in interest income on federal funds sold, reverse repurchase
agreements and interest-earning deposits of $885,000 and on loans held for sale
of $333,000. The decrease in interest income from federal funds sold, reverse
repurchase agreements and interest-earning deposits was due to decline in yield
of 54 basis points due the falling rate environment as well as a decrease in
average balance of $35.6 million. The decrease in interest income from loans
held for sale was mostly due to a decline in average balance $31.7 million. The
non-taxable equivalent net interest margin increased during the first quarter of
2020 compared to the fourth quarter of 2019 by four basis points from 3.63% to
3.67%. The increase in the net interest margin was mainly due to the decline in
cost on interest-bearing liabilities of six basis points to 0.78% from 0.84% as
well as the increase in yield on acquired loans of 86 basis points to 7.14%. The
cost of all categories of interest-bearing liabilities declined during the first
quarter of 2020 as interest-bearing deposits declined four basis points, federal
funds purchased and repurchase agreements declined six basis points and other
borrowings declined 37 basis points. These declines in cost were mainly due to
the falling rate environment resulting from the drops in the federal funds rate
made by the Federal Reserve during 2019 and in March 2020. The increase in
interest income on acquired loans was due to an increase in yield of 86 basis
points due to higher accretion income of $3.5 million resulting from the
adoption of CECL as discussed above.



Compared to the first quarter of 2019, non-taxable equivalent net interest
income increased $4.7 million, or 15.5% annualized, and the non-taxable
equivalent net interest margin decreased to 3.67% from 3.90%. For further
discussion of the comparison of net interest income and net interest margin for
the periods ended March 31, 2020 and 2019, see Net Interest Income and Margin
section below on page 68.



Our quarterly efficiency ratio increased to 62.1% in the first quarter of 2020
compared to 61.6% in the fourth quarter of 2019 and decreased from 63.2% in the
first quarter of 2019. The increase in the efficiency ratio compared to the
fourth quarter of 2019 was the result of a $6.6 million, or 6.6% increase in
noninterest expense partially offset by the effects of a $9.4 million, or 5.8%
increase in net interest income and noninterest income. The increase in
noninterest expense from the fourth quarter of 2019 was mainly due to a $2.8
million increase in salaries and employee benefits, a $1.6 million increase in
other noninterest expense and a $2.6 million decrease in merger and branch
consolidation related expense. The increase in net interest income was mainly
due to the decrease in interest expense of $1.2 million and the increase in
noninterest income was mainly due to a $10.9 million increase in mortgage
banking income. The main reason for the decrease in the efficiency ratio
compared to the first quarter of 2019 was due to an increase in net interest
margin and noninterest income of $16.8 million, or 10.8% partially offset by the
effects of a $9.0 million, or 9.2% increase in noninterest expense. The increase
in net interest income was mainly due to the increase in interest income of $4.4
million and the increase in noninterest income was mainly due to a $12.3 million
increase in mortgage banking income. The increase in noninterest expense was
mainly due to an increase in merger and branch consolidation expense of $3.0
million, an increase in salaries and employee benefits of $2.5 million, and an
increase in other noninterest expense of $2.1 million.



Diluted EPS and basic EPS decreased to $0.71 and $0.72, respectively, for the
first quarter of 2020, from the first quarter 2019 amounts of $1.25 and $1.25,
respectively. This was the result of the 45.7% decrease in net income partially
offset by a 5.4% decrease in outstanding common shares. The decrease in net
income was mainly due the increase in the provision for credit losses of $35.0
million which resulted primarily from forecasted losses taking into
consideration the impact that the COVID-19 pandemic will have on the loan
portfolio in 2020 and beyond. The decrease in outstanding shares from March 31,
2019 was due to the Company repurchasing 1,985,000 common shares through its
share repurchase programs.



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Selected Figures and Ratios


                                                       Three Months Ended
                                                           March 31,
(Dollars in thousands)                                2020           2019
Return on average assets (annualized)                     0.60 %         1.21 %
Return on average equity (annualized)                     4.15 %         7.61 %
Return on average tangible equity (annualized)*           8.35 %        14.66 %
Dividend payout ratio **                                 65.70 %        30.29 %
Equity to assets ratio                                   13.95 %        15.42 %
Average shareholders' equity                       $ 2,336,348    $ 2,364,299


* -  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.

** - See explanation of the dividend payout ratio below.

For the three months ended March 31, 2020, return on average tangible equity

decreased to 8.35% compared to 14.66% for the same period in 2019. This ? decrease was the result of a decrease in net income excluding amortization of

intangibles of 43.2% partially offset by the effects of a slight decrease of

1.1% in average tangible equity.

For the three months ended March 31, 2020, return on average assets was 0.60%, ? a decrease from 1.21% for the three months ended March 31, 2019, due to a 45.7%

decrease in net income partially offset by the effects of an 8.4% increase in

average assets.

Dividend payout ratio was 65.7% for the three months ended March 31, 2020, and

increase from 30.29% for the three months ended March 31, 2019. The increase

from the comparable period in 2019 reflects the increase of 17.9% in cash ? dividends declared per common share as well as a 45.7% decrease in net income.

The dividend payout ratio is calculated by dividing total dividends paid during

the quarter by the total net income reported for the same period. The dividend

payout range for shareholders was adjusted to a range of 30% to 35% annually,

from our historical range of 25% to 30% during the first quarter of 2019.

Equity to assets ratio was 13.95% for the three months ended March 31, 2020, a

decrease from 15.42% for the three months ended March 31, 2019. The decrease ? from the comparable period in 2019 was due to both an increase in assets of

8.0% and a 2.3% decrease in equity resulting from the Company repurchasing

  1,985,000 common shares for $148.5 million since March 31, 2019.

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.

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                                                                 Three Months Ended
                                                                     March 31,
(Dollars in thousands)                                         2020             2019

Return on average equity (GAAP)                                     4.15 %           7.61 %
Effect to adjust for intangible assets                              4.20 %           7.05 %
Return on average tangible equity (non-GAAP)                        8.35 % 

14.66 %

Average shareholders' equity (GAAP)                        $   2,336,348    $   2,364,299
Average intangible assets                                    (1,051,491)   

(1,064,450)

Adjusted average shareholders' equity (non-GAAP)           $   1,284,857

$   1,299,849

Net income (GAAP)                                          $      24,110    $      44,367
Amortization of intangibles                                        3,007            3,281
Tax effect                                                         (451)            (663)
Net income excluding the after-tax effect of
amortization of intangibles (non-GAAP)                     $      26,666

$      46,985

Net Interest Income and Margin

Summary

Our taxable equivalent ("TE") net interest margin for the first quarter of 2020
decreased by 24 basis points from 3.92% in the first quarter of 2019 to 3.68%.
This decrease was due to a decrease in the yield of interest-earning assets

of
31 basis points.



Non-TE net interest margin decreased by 23 basis points from the first quarter
of 2019, which was mainly due to the yield on interest-earning assets decreasing
by 21 basis points. The decrease in the yield on interest-earning assets was due
to decreases in the yield on federal funds sold, reverse repurchase agreements
and interest-earning deposits of 131 basis point and decreases in the yield on
investment securities of five basis point and on non-acquired loans of 16 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 declined due to a change in the mix of
interest-earning assets. The average balance on federal funds sold, reverse
repurchase agreements and interest earning deposit and investments securities,
the Company's lowest yielding assets, increased $797.3 million while the average
balance on the acquired loan portfolio, the Company's highest yielding asset,
declined $931.5 million. The decreases in yield on interest-earning assets noted
above was partially offset by an increase in the yield on acquired loans. The
increase in yield of 80 basis points on acquired loans was due to higher
accretion income of $1.3 million and due to acquired credit impaired loans being
renewed and the cash flow from these assets being extended out, increasing the
weighted average life of the loan pools within all acquired loan portfolios. The
higher accretion income was due to the adoption of ASU 2016-13, which eliminated
loan pools and changed the accounting for acquired credit impaired loans. The
effects from the decline in yield on interest-earning assets were partially
offset by a decrease in the cost of interest-bearing liabilities. The cost of
interest-bearing liabilities declined 11 basis points from 0.89% in the first
quarter of 2019 to 0.78% in the first quarter of 2020. This decrease in cost on
interest-bearing liabilities was due to decrease in cost on interest-bearing
deposits of 14 basis points, a decrease in cost on federal funds purchased and
repurchase agreements of 32 basis points and a decrease in cost on other
borrowings of 151 basis points. The decrease in cost on interest-bearing
deposits and federal funds purchased and repurchase agreements was due to the
falling interest rate environment in the last half of 2019 and first quarter of
2020. The decrease in cost in other borrowings since March 31, 2019 was also due
to the falling interest rate environment, but also related to the fact that the
Company added $700 million in borrowings ($200 million FHLB borrowings in the
second quarter of 2019, $300 million in FHLB borrowings in the first quarter of
2020 and $200 million in FRB borrowings in the first quarter of 2020) at a lower
average cost than the borrowings held in the first quarter of 2019. The increase
in other borrowings during 2019 was due to the Bank making the strategic
decision to use longer term FHLB funding strategy to fund its balance sheet
growth while the increase in borrowings in the first quarter of 2020 was to
provide the Bank with additional liquidity in reaction to the COVID-19 pandemic.



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                                                 Three Months Ended
                                                     March 31,
(Dollars in thousands)                           2020         2019
Non-TE net interest income                     $ 128,013    $ 123,267
Non-TE yield on interest-earning assets             4.23 %       4.54 %
Non-TE rate on interest-bearing liabilities         0.78 %       0.89 %
Non-TE net interest margin                          3.67 %       3.90 %
TE net interest margin                              3.68 %       3.92 %




Non-TE net interest income increased $4.7 million, or 3.9%, in the first quarter
of 2020 compared to the same period in 2019. Some key highlights are outlined
below:

Higher interest income of $4.4 million with non-acquired loan interest income

increasing by $11.4 million because of higher average balances resulting from

organic loan growth, investment securities interest income increasing by $3.2

million because of higher average balances resulting from the Bank having more

? funds to invest from the increases in total deposit and other borrowings. The

increases in interest income were partially offset by a $10.3 million decline

in acquired loan interest income due a decline in average balances of the

acquired loan portfolio because of continued payoffs, charge-offs, transfers to

OREO, and renewals of acquired loans moved to the non-acquired loan portfolio.

Lower interest expense of $336,000 with interest-bearing deposit interest

expense decreasing $2.2 million due to a lower average cost of 14 basis points.

This decline in yield was due to the falling rate environment in the last half

of 2019 and first quarter of 2020. This decrease was partially offset by an

increase in interest expense of other borrowings of $2.0 million, which was due

? to a higher average balances in other borrowings of $585.7 million. This

increase in other borrowings during 2019 of $500 million was due to the Bank

making the strategic decision to use longer term FHLB funding strategy to fund

its balance sheet growth during while the increase in borrowings in the first

   quarter of 2020 of $500 million was to provide the Bank with additional
   liquidity in reaction to the COVID-19 pandemic.

Non-TE yield on interest-earning assets for the first quarter of 2020 decreased

21 basis points from the comparable period in 2019. 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. The Bank's

change in asset mix occurred as the average balance on federal funds sold,

reverse repurchase agreements and interest earning deposit and investments

securities, the Bank's lowest yielding assets, increased $797.3 million, while

the average balance on the acquired loan portfolio, the Bank's highest yielding

asset, declined $931.5 million.

The average cost of interest-bearing liabilities for the first quarter of 2020

decreased 11 basis points from the same period in 2019. This decrease in cost

on interest-bearing liabilities was due to decrease in cost on interest-bearing

deposits of 14 basis points, a decrease in cost on federal funds purchased and

repurchase agreements of 32 basis points and a decrease in cost on other

borrowings of 151 basis points. The decrease in cost on interest-bearing

? deposits and federal funds purchased and repurchase agreements was due to the

falling interest rate environment in the last half of 2019 and first quarter of

2020. The decrease in cost in other borrowings was also due to the falling

interest rate environment, but also related to the fact that the Company added

$700 million in borrowings ($200 million FHLB borrowings in the second quarter

of 2019, $300 million in FHLB borrowings in the first quarter of 2020 and $200

million in FRB borrowings in the first quarter of 2020) since March 31, 2019 at

a lower average cost than the borrowings held in the first quarter of 2019.

The Non-TE net interest margin decreased by 23 basis points and the TE net

interest margin decreased by 24 basis points in the first quarter of 2020

compared to the first quarter of 2019 due mainly the decline in yield on the

? interest earning assets, the decline in the average balance of acquired loans

of $931.5 million which is the Company's highest yielding asset and the

increases in the average balance of federal funds sold and reverse repurchase

   agreements and investment securities of $797.3 million which is the Bank's
   lowest yielding assets.




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  Table of Contents

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       March 31,     % of
(Dollars in thousands)                               2020       Total          2019        Total         2019       Total
Acquired loans:
Commercial non-owner occupied real estate:
Construction and land development               $     42,720      0.4 %  $       48,901      0.4 %  $    135,952      1.2 %
Commercial non-owner occupied                        473,486      4.1 %         512,829      4.5 %       714,033      6.4 %
Total commercial non-owner occupied real estate      516,206      4.5 %    

    561,730      4.9 %       849,985      7.6 %
Consumer real estate:
Consumer owner occupied                              553,863      4.8 %         588,121      5.2 %       726,185      6.5 %
Home equity loans                                    225,843      2.0 %         239,392      2.1 %       283,332      2.5 %
Total consumer real estate                           779,706      6.8 %         827,513      7.3 %     1,009,517      9.0 %
Commercial owner occupied real estate                327,894      2.8 %         374,684      3.3 %       485,302      4.4 %
Commercial and industrial                             92,619      0.8 %         105,468      0.9 %       179,649      1.6 %
Other income producing property                      109,785      1.0 %    

    127,937      1.1 %       165,942      1.5 %
Consumer non real estate                             117,761      1.0 %         124,941      1.1 %       145,114      1.3 %
Total acquired loans                               1,943,971     16.9 %       2,122,273     18.6 %     2,835,509     25.4 %
Non-acquired loans:
Commercial non-owner occupied real estate:
Construction and land development                  1,062,588      9.2 %         968,360      8.5 %       810,551      7.3 %
Commercial non-owner occupied                      1,897,885     16.5 %       1,811,138     15.9 %     1,615,416     14.5 %
Total commercial non-owner occupied real estate    2,960,473     25.7 %    

  2,779,498     24.4 %     2,425,967     21.8 %
Consumer real estate:
Consumer owner occupied                            2,111,542     18.4 %       2,118,839     18.6 %     2,005,314     18.0 %
Home equity loans                                    532,639      4.6 %         518,628      4.6 %       508,326      4.6 %

Total consumer real estate                         2,644,181     23.0 %       2,637,467     23.2 %     2,513,640     22.6 %
Commercial owner occupied real estate              1,849,844     16.1 %       1,784,017     15.7 %     1,601,360     14.4 %
Commercial and industrial                          1,325,802     11.5 %       1,280,859     11.3 %     1,072,070      9.6 %
Other income producing property                      217,911      1.9 %    

    218,617      1.9 %       214,235      1.9 %
Consumer non real estate                             557,030      4.8 %         538,481      4.7 %       465,117      4.2 %
Other                                                  7,678      0.1 %          13,892      0.2 %        18,224      0.1 %
Total non-acquired loans                           9,562,919     83.1 %       9,252,831     81.4 %     8,310,613     74.6 %

Total loans (net of unearned income)            $ 11,506,890    100.0 %  $ 

 11,375,104    100.0 %  $ 11,146,122    100.0 %

Total loans, net of deferred loan costs and fees (excluding mortgage loans held
for sale), increased by $360.8 million, or 3.2%, to $11.5 billion at March 31,
2020 as compared to the same period in 2019. Non-acquired loans or legacy loans
increased by $1.3 billion, or 15.1%, from March 31, 2019 to March 31, 2020
through organic loan growth. Acquired loans decreased by $891.5 million, or
31.4% as compared to the same period in 2019. The overall decrease in acquired
loans was the result of principal payments, charge-offs, foreclosures and
renewals of acquired loans. Acquired loans as a percentage of total loans
decreased to 16.9% at March 31, 2020 compared to 25.4% at March 31, 2019. As of
March 31, 2020, non-acquired loans as a percentage of the overall portfolio were
83.1% compared to 74.6% at March 31, 2019.




                                    Three Months Ended March 31,
(Dollars in thousands)                 2020               2019
Average total loans               $    11,439,676     $ 11,023,005
Interest income on total loans            132,703          131,620
Non-TE yield                                 4.67 %           4.84 %




Interest earned on loans increased $1.1 million in the first quarter of 2020
compared to the first quarter of 2019. Some key highlights for the quarter ended
March 31, 2020 are outlined below:

Our non-TE yield on total loans decreased seventeen basis points in the first

quarter of 2020 compared to the same period in 2019 and average total loans

increased $416.7 million or 3.8%, in the first quarter of 2020, as compared to

the same period in 2019. The increase in average total loans was the result of

16.7% growth in the average non-acquired loan portfolio, offset by a 31.6%

? decline in the average acquired loan portfolio during period. The growth in the

non-acquired loan portfolio was due to normal organic growth while the decline

in the acquired loan portfolio was due to principal payments, charge-offs, and

foreclosures. The yield on the non-acquired loan portfolio decreased from 4.30%

in the first quarter of 2019 to 4.14% in the same period in 2020 and the yield

   on the acquired loan portfolio increased from 6.34% in the first quarter of
   2019 to 7.14% in the


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same period in 2020. The yield on the non-acquired loan portfolio decreased

mainly due to the falling interest rate environment as the Federal Reserve

dropped the federal funds target rate by 75 basis points from July 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. The increase in yield of 80 basis points on

acquired loans was due to higher accretion income of $1.3 million and due to

acquired credit impaired loans being renewed and the cash flow from these assets

being extended out, increasing the weighted average life of the loan pools

within all acquired loan portfolios. The higher accretion income was due to the

adoption of ASU 2016-13, which eliminated loan pools and changed the accounting

for acquired credit impaired loans. Even with the yield on acquired loans

increasing 80 basis points, the overall yield on the loan portfolio decreased 17

basis points. The effects from the increase in yield on the acquired loan

portfolio was offset by the effects of average balance on acquired loans

declining $931.5 million. Therefore, the decline in yield on non-acquired loan

portfolio of 16 basis points along with the reduction in the average balance of

the higher yielding acquired loan portfolio caused the overall yield on loans to

  decline.

The balance of mortgage loans held for sale increased $12.4 million from December 31, 2019 to $71.7 million at March 31, 2020, and increased $38.4 million from a balance of $33.3 million at March 31, 2019.

Investment Securities



We use investment securities, our second largest category of earning assets, to
generate interest income through the deployment of excess funds, to provide
liquidity, to fund loan demand or deposit liquidation, and to pledge as
collateral for public funds deposits and repurchase agreements.  At March 31,
2020, investment securities totaled $2.0 billion, compared to $2.0 billion and
$1.5 billion at December 31, 2019 and March 31, 2019, respectively. Our
investment portfolio increased $29.0 million from December 31, 2019 and $527.3
million from March 31, 2019. The increase in investment securities from December
31, 2019 was a result of purchases of $104.0 million as well as improvements in
the market value of the available for sale investment securities portfolio of
$40.5 million. These increases were partially offset by maturities, calls and
paydowns of investment securities totaling $113.4 million. Net amortization of
premiums were $2.7 million in the first three months of 2020. We continue to try
and increase our investment securities strategically with the excess funds from
deposit growth and the increase in other borrowings in 2019 and the first
quarter of 2020. The increase in fair value in the available for sale investment
portfolio in the first quarter of 2020 compared to December 31, 2019 was mainly
due to the decrease in interest rates in March 2020 in reaction to the COVID-19
pandemic.




                                                Three Months Ended
                                                    March 31,
(Dollars in thousands)                         2020           2019
Average investment securities               $ 2,022,726    $ 1,515,068

Interest income on investment securities 13,314 10,093 Non-TE yield

                                       2.65 %         2.70 %




Interest earned on investment securities was higher in the first quarter of 2020
compared to the first quarter of 2019, as a result of the Bank carrying a higher
average balance in investment securities in the first quarter of 2020 compared
to the same period in 2019. The average balance of investment securities during
the first quarter of 2020 increased $507.7 million from the first quarter of
2019. With the excess liquidity from the growth in deposits and other borrowings
during 2019 and the first quarter of 2020, the Bank used the excess funds to
strategically increase the size of its investment portfolio. The yield on the
investment portfolio declined five basis points from the first quarter of 2019
compared to the first quarter of 2020 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.



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                                                                 Unrealized
                                 Amortized          Fair            Gain                                 BB or
(Dollars in thousands)              Cost           Value           (Loss)        AAA - A       BBB       Lower       Not Rated
March 31, 2020
Government-sponsored
entities debt                   $      4,882    $      4,921    $         39    $    4,882    $    -    $      -    $          -
State and municipal
obligations                          215,387         221,603           6,216       215,387         -           -               -
Mortgage-backed securities *       1,695,191       1,744,671          49,480             -         -           -       1,695,191
                                $  1,915,460    $  1,971,195    $     55,735    $  220,269    $    -    $      -    $  1,695,191


* Agency mortgage-backed securities ("MBS") 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 issued, senior debt securities
issued by GSEs are rated consistently as "Triple-A." Most market participants
consider agency MBS 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.



At March 31, 2020, we had 62 securities available for sale in an unrealized loss
position, which totaled $2.9 million. At December 31, 2019, we had 143
securities available for sale in an unrealized loss position, which totaled $4.5
million. At March 31, 2019, we had 269 securities available for sale in an
unrealized loss position, which totaled $11.9 million.



As of March 31, 2020 as compared to December 31, 2019 and March 31, 2019, the
total number of available for sale securities with an unrealized loss position
decreased by 81 and 207 securities, respectively, while the total dollar amount
of the unrealized loss decreased by $1.6 million and $9.0 million, respectively.
This decrease in number and 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 quarter of 2020. In particular, the Federal Reserve 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 securities available for sale in an unrealized loss position as of
March 31, 2020 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 4 -
Investment securities for further discussion on the application of ASU 2016-13
on the investment securities portfolio.



As securities 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. We do not currently hold, nor have we ever held, any securities
that are designated as trading securities. 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

Other investment securities include primarily our investments in FHLB 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, 2020, we determined that there was no impairment on its other investment
securities. As of March 31, 2020, other investment securities represented
approximately $63.0 million, or 0.38% of total assets and primarily consists of
FHLB stock which totals $56.9 million, or 0.34% of total assets. There were no
gains or losses on the sales of these securities for the three months ended
March 31, 2020 and 2019, respectively.

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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
                                               March 31,
(Dollars in thousands)                    2020            2019
Average interest-bearing liabilities   $ 10,159,093    $ 9,168,474
Interest expense                             19,787         20,123
Average rate                                   0.78 %         0.89 %




The average balance of interest-bearing liabilities increased $990.6 million in
the first quarter of 2020 compared to the same period in 2019 due to increases
in interest-bearing deposits of $360.9 million and in other borrowings of $585.7
million. The increase in average interest-bearing deposits is due to our
continued focus on increasing core deposits (excluding certificates of deposits
and other time deposits), which increased $491.5 million during the first
quarter of 2020 compared to the same period in 2019. These funds are normally
lower cost funds. The increase in other borrowings was due to the Company
executing two 90-day FHLB advances of $350.0 million and $150.0 million in March
2019 and another 90-day FHLB advance of $200.0 million in June 2019, each with a
cash flow hedge. These advances with these hedges are effectively locking in
four and five years of fixed rate funding. The $350.0 million advance is four
year funding at a rate of 2.44%, the $150.0 million advance is five year funding
at a rate of 2.21% and the $200.0 million advance is five year funding at a rate
of 1.89%. In March 2020, the Bank 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. The borrowings executed in March 2020 were
to provide additional liquidity in reaction to the COVID-19 pandemic. The
decrease in interest expense of $336,000 in the first quarter of 2020 compared
to the same period in 2019 was driven by lower deposit interest expense of $2.2
million and was mostly offset by an increase in interest expense from other
borrowings of $2.0 million. The cost on interest-bearing deposits was 0.65% for
the first quarter of 2020 compared to 0.79% for the same period in 2019. The
decline in cost related to deposits was due 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 increase in interest expense
related to other borrowing was from an increase in the average balance due to
our strategic decision to use a longer term FHLB funding strategy to fund
balance sheet growth. This increase was partially offset by a decrease in cost
in other borrowings of 151 basis points due to the falling interest rate
environment, but also related to the fact that the Company has added $700
million in borrowings since March 31, 2019 at a lower average cost than the
borrowings held in the first quarter of 2019. Overall, all these factors
resulted in an 11 basis point decrease in the average rate on all
interest-bearing liabilities from 0.89% to 0.78% for the three months ended
March 31, 2020. Some key highlights are outlined below:

? Average interest-bearing deposits for the three months ended March 31, 2020

increased 4.2% from the same period in 2019.

Interest-bearing deposits increased $278.0 million to $9.0 billion at March 31,

2020 from the period end balance at March 31, 2019 of $8.7 billion. The

increase from March 31, 2019 was driven by an increase in money market accounts

? of $302.4 million and interest-bearing transaction accounts of $128.9 million

partially offset by a decline in savings of $36.8 million and in certificate of

deposits of $116.5 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 $547.4 million,

or 10.1% to $6.0 billion from the average balance in the first quarter of 2019.

Interest expense on transaction and money market accounts decreased $1.7

? million as a result of an 18 basis point decrease in the average cost of funds

to 52 basis points for the three months ended March 31, 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 decreased 4.1%, or $55.9 million to $1.3

billion from the average balance in the first quarter of 2019. Interest expense

? on savings accounts decreased $606,000 as a result of a 17 basis point decrease

in the average rate to 20 basis points for the three months ended March 31,

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.


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The average rate on certificates of deposit and other time deposits for the

three months ended March 31, 2020 increased 11 basis points to 1.49% from the

comparable period in 2019. Average balances on certificates of deposits and

? other time deposits for the three months ended March 31, 2020 decreased $130.6

million from the comparable period in 2019. The cost of funds on certificate of

deposit has declined five basis points over the past two quarters as interest

rates have declined, but is still higher than in the first quarter of 2019 as

these type deposits take longer to reprice.

In the first quarter of 2020, average other borrowings increased $585.7 million

compared to the first quarter of 2019. The average rate on other borrowings

experienced a 151 basis point decrease to 2.15% for the three months ended

March 31, 2020 compared to 3.66% for the same period in 2019. The increase in

average balance was the result of the Company executing $700.0 million in FHLB

advances in 2019 to provide funding for growth in the investment and loan

portfolios. The increase was also due to the addition of $500.0 million in

borrowings in March 2020 to provide additional liquidity in reaction to the

? COVID-19 pandemic. The decrease in the average cost of other borrowings is also

due to the $700.0 million in FHLB advances added in 2019 which have an average

effective rate with the hedges of 2.23% and $500.0 million added in March 2020

which have an average effective rate of 0.38%. These borrowings are at a lower

cost than our remaining other borrowings which mainly consist of our long term

trust preferred borrowings which reprice quarterly and are tied to three month

LIBOR. For the first quarter of 2020, the average rate for our long term trust

preferred borrowing was 4.16%. The new FHLB borrowings have driven down the

   average cost of our other borrowings.




Noninterest-Bearing Deposits



Noninterest-bearing deposits are transaction accounts that provide our Bank with
"interest-free" sources of funds. Average noninterest-bearing deposits increased
$209.4 million, or 6.8%, to $3.3 billion in the first quarter of 2020 compared
to $3.1 billion during the same period in 2019. At March 31, 2020, the period
end balance of noninterest-bearing deposits was $3.4 billion, exceeding the
March 31, 2019 balance by $147.6 million. 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 0.59% for the three
months ended March 31, 2020 compared to 0.67% for the three months ended March
31, 2019.

Provision for Expected Credit Losses

The ACL reflects management's estimate of losses that will result from the
inability of our borrowers to make required loan payments. Management uses a
systematic methodology 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. 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. The Company's
measurement of credit losses policy adheres to GAAP as well as interagency
guidance. The Company's ACL is calculated using collectively evaluated and
individually evaluated loans.



For collectively evaluated loans, the Company in general uses four modeling
approaches to estimate expected credit losses. A prepayment assumption is
inherently embedded in the vintage modeling methodology. For all other modeling
approaches, the Company projects the contractual run-off of its portfolio at the
segment level and incorporates a prepayment assumption in order to estimate
exposure at default. 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 segment or should be individually evaluated. 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 has determined that the Company's historical loss experience provides
the best basis for its assessment of expected credit losses to determine the
ACL. The Company utilized its own internal data to measure historical credit
loss experience with similar risk characteristics within the segments. For the
majority of segment models for collectively evaluated loans, the Company
incorporated at least one macroeconomic driver either using a statistical

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regression modeling methodology or simple loss rate modeling methodology.
Management considers forward-looking information in estimating expected credit
losses. The Company subscribes to a third-party to provide a quarterly
macroeconomic baseline outlook and alternative scenarios for the United States
economy. The baseline, along with the evaluation of alternative scenarios, are
used by Management to determine the best estimate within the range of expected
credit losses. The baseline forecast was used for the two-year reasonable and
supportable forecast period. For the contractual term that extends beyond the
reasonable and supportable forecast period, the Company reverts to historical
loss information within four quarters using a straight-line approach.



Included in its systematic methodology to determine its ACL for loans held for
investment and certain off-balance-sheet credit exposures, 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)
Concentration Risk, 2) Trends in Industry Conditions, 3) Trends in Portfolio
Nature, Quality, and Composition, 4) Model Limitations, and 5) Other Qualitative
Adjustments. For further discussion of our Allowance for Credit Losses - See
Note 2 - Summary of Significant Accounting Policies.



With the adoption of ASU 2016-13 on January 1, 2020, the Company changed its
method for calculating it allowance for loans from an incurred loss method to a
life of loan method. See Note 2 - Significant Accounting Policies for further
details. As of March 31, 2020, the balance of the ACL was $144.8 million or
1.26% of total loans. The ACL increased $33.4 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. This provision increase was a result of a $31.0 million
increase from adjustments in qualitative measures, a $2.3 million increase from
collectively evaluated loans, a $1.3 million increase from the impact of net
charge offs during the quarter and a $0.1 million decline in the reserve for
individually evaluated loans. The increase from qualitative measures was
predominately driven by the impact of COVID-19. Forecasts considering the
effects of COVID-19 caused a $20.3 million increase in concentration risk from
loans with a balance greater than $15.0 million and a $7.3 million increase in
model limitations from the impact of the COVID-19. The increase from the
provision on collectively evaluated loans is a result of a 0.02% increase from
the total loss rate that was used during adoption of CECL. Net charge offs
during the first quarter of 2020 were $1.3 million. These net charge offs were
primarily driven by the Overdraft/Ready Reserves, HELOCs and Mobile Home
segments with net charge offs of $797,000, $211,000 and $326,000, respectively.



At March 31, 2020, the Company also had an ACL on unfunded commitments of $8.6
million which was recorded in Other Liabilities on the Balance Sheet. With the
adoption of ASU 2016-13 on January 1, 2020, the Company increased its allowance
for credit losses 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 which was recorded in the provision for credit losses on the
Statement of Operations. 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 quarter of 2020.



For prior comparative periods, the allowance for non-acquired loan losses was
$56.9 million, or 0.62%, of non-acquired period-end loans and $52.0 million, or
0.63%, at March 31, 2019. With the adoption of ASU 2016-13 on January 1, 2020,
the allowance was adjusted by $54.5 million. The ACL provides 2.55 times
coverage of nonperforming loans at March 31, 2020. At December 31, 2019 and
March 31, 2019, the allowance for loan losses on non-acquired loans provided
coverage of 2.50 times and 3.27 times, respectively. Net charge-offs to total
loans during the first quarter of 2020 were 0.05%. Net charge-offs from
non-acquired loans were 0.06% and 0.02% for the three months ended December 31,
2019 and March 31,2019, respectively. On acquired loans only, net charge-offs
were 0.04% during the first quarter of 2020. For the fourth quarter of 2019 and
first quarter of 2019, acquired loan net charge-offs were net recoveries of
(0.01)% and net charge-offs of 0.03%, respectively. We continued to show solid
and stable asset quality numbers and ratios as of March 31, 2020.



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




                                                              March 31, 2020
(Dollars in thousands)                                    Amount             %*

Consumer 1-4 Family Mortgage                           $      16,033        24.8 %
Home Equity Line of Credit                                    12,050         6.8 %
Consumer Non-Mobile Homes                                      2,732         3.9 %
Mobile Home                                                    4,458         1.9 %
Land and Builder Finance                                       7,254         2.2 %
Commercial Real Estate Owner-Occupied and Commercial
Non-Real Estate                                               40,345        26.9 %
Commercial Income Producing                                   57,437        24.8 %
Business Express and Microbusiness                             2,665       

 8.2 %
Ready Reserves                                                   513         0.1 %
Overdrafts                                                       855         0.1 %
Other                                                            443         0.3 %
Total                                                  $     144,785       100.0 %

* Loan amortized cost in each category, expressed as a percentage of total loans

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

                                                                Three Months Ended March 31,
(Dollars in thousands)                                                      2020

Allowance for credit losses at January 1                      $            

111,365

Loans Charged­off                                                         

(3,223)

Recoveriesof loans previously charged off                                  

       1,909
Net charge­offs                                                                  (1,314)
Provision for loan losses                                                         34,734

Allowance for credit losses at March 31,                      $            

144,785

Average loans, net of unearned income                         $            

11,439,676

Ratio of net charge­offs to average loans, net of unearned income (annualized)

                                                        0.05 %
Allowance for credit losses as a percentage of total loans                 

        1.26 %

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:

                                                                                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                                            (1,245)          (374)             -      (1,619)
Recoveries of loans previously charged off                       752       

    206             -          958
Net charge-offs                                                (493)          (168)             -        (661)
Provision for loan losses                                      1,307            168            13        1,488

Reductions due to loan removals                                    -       

      -         (103)        (103)
Balance at end of period                              $       52,008    $         -    $    4,514    $  56,522

Total non-acquired loans:
At period end                                         $    8,310,613
Average                                                    8,075,987
Net charge-offs as a percentage of
average non-acquired loans (annualized)                         0.02 %
Allowance for loan losses as a percentage of
period end non-acquired loans                                   0.63 %
Allowance for loan losses as a percentage of
period end non-performing non-acquired loans
("NPLs")                                                      326.89 %


















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Nonperforming Assets



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)                     2020            2019              2019            2019          2019
Non-acquired:
Nonaccrual loans                        $    19,773   $       19,724    $        18,310    $  14,654    $    14,584
Accruing loans past due 90 days or
more                                            119              514                333          280            496
Restructured loans - nonaccrual               4,020            2,578       

        544          671            830
Total nonperforming loans                    23,912           22,816             19,187       15,605         15,910
Other real estate owned (3)                   3,478            3,569              3,654        4,345          3,918

Other nonperforming assets (4)                  157              136                 70           29            152
Total non-acquired nonperforming
assets                                       27,547           26,521             22,911       19,979         19,980
Acquired:
Nonaccrual loans (1)                         32,548           10,839              9,596        9,948         14,294
Accruing loans past due 90 days or
more                                            243              275                  -           37            264
Total acquired nonperforming loans
(2)                                          32,791           11,114              9,596        9,985         14,558
Acquired OREO and other
nonperforming assets:
Acquired OREO (3)                             9,366            8,395              9,761       10,161          7,379
Other acquired nonperforming assets
(4)                                             154              184                177          251            403
Total acquired OREO and other
nonperforming assets                          9,520            8,579              9,938       10,412          7,782
Total nonperforming assets              $    69,858   $       46,214    $  

42,445 $ 40,376 $ 42,320

Excluding Acquired Assets
Total NPAs as a percentage of total
loans and repossessed assets (5)               0.29 %           0.29 %             0.26 %       0.23 %         0.24 %
Total NPAs as a percentage of total
assets (6)                                     0.17 %           0.17 %             0.15 %       0.13 %         0.13 %
Total NPLs as a percentage of total
loans (5)                                      0.25 %           0.25 %     

0.21 % 0.18 % 0.19 %

Including Acquired Assets
Total NPAs as a percentage of total
loans and repossessed assets (5)               0.61 %           0.41 %             0.38 %       0.36 %         0.38 %
Total NPAs as a percentage of total
assets                                         0.42 %           0.29 %             0.27 %       0.26 %         0.27 %
Total NPLs as a percentage of total
loans (5)                                      0.49 %           0.30 %     

0.25 % 0.23 % 0.27 %

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 (1) 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.

Prior periods exclude the acquired credit impaired loans that are (2) contractually past due 90 days or more totaling $9.2 million, $8.5 million,

$9.5 million, and $15.9 million as of December 31, 2019, September 2019, June

30, 2019, and March 31, 2019, respectively, including the valuation discount.

(3) Includes certain real estate acquired as a result of foreclosure and property

not intended for bank use.

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

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

(6) For purposes of this calculation, total assets include all assets (both

    acquired and non-acquired).

Nonperforming assets were $69.9 million, or 0.49% of total loans, at March 31,
2020, an increase of $23.6 million, or 51.1%, from December 31, 2019 and an
increase of $27.5 million, or 65.1%, from March 31, 2019. The increase in the
nonperforming loan balance in the above schedule at March 31, 2020, compared to
these prior periods, is due to the addition of $21.0 million, 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. The Company has not assumed or
taken on any additional risk relative to these assets. Excluding the addition of
these loans

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in the current period, nonperforming assets increased $2.6 million and $6.5 million, respectively, from December 31, 2019 and March 31, 2019.

Nonperforming non-acquired loans, including restructured loans, were $23.9
million, or 0.25% of non-acquired loans, at March 31, 2020, an increase of $8.0
million, or 50.3%, from March 31, 2019. The increase in nonperforming loans was
driven primarily by an increase in commercial nonaccrual loans of $6.1 million
and an increase in restructured loans of $3.2 million, offset by a decline in
consumer nonaccrual loans of $934,000 and a decline in past due 90 day loans
still accruing of $377,000. Nonperforming non-acquired loans, including
restructured loans, increased by $1.1 million during the first quarter of 2020
from the level at December 31, 2019. This increase was primarily driven by an
increase in restructured nonaccrual loans of $1.4 million and consumer
nonaccrual loans of $384,000, offset by a decline in commercial nonaccrual loans
of $335,000 and past due 90 day loans still accruing of $395,000. Non-acquired
nonperforming loans still remain at historically low levels at March 31, 2020.



Nonperforming acquired loans, including restructured loans, were $32.8 million,
or 1.69% of acquired loans, at March 31, 2020, an increase of $18.2 million, or
125.3%, from March 31, 2019. Nonperforming acquired loans increased by $21.7
million during the first quarter of 2020, or 195.0%, from December 31, 2019.
These increase were primarily due to the application of ASU-2016-13 as discussed
above.



At March 31, 2020, OREO totaled $12.8 million which included $3.5 million in
non-acquired OREO and $9.3 million in acquired OREO. Total OREO increased
$880,000 from December 31, 2019. At March 31, 2020, non-acquired OREO consisted
of 17 properties with an average value of $205,000. This compared to 17
properties with an average value of $210,000 at December 31, 2019. At March 31,
2020, acquired OREO consisted of 55 properties with an average value of
$170,000. This compared to 42 properties with an average value of $200,000 at
December 31, 2019. In the first quarter of 2020, we added one property with an
aggregate value of $8,000 into non-acquired OREO, and we sold one property with
a basis of $99,000. We added 19 properties with an aggregate value of $2.0
million into acquired OREO, and we sold 6 properties with a basis of $958,000 in
the first quarter of 2020.



Potential Problem Loans



Potential problem loans (excluding all acquired loans) totaled $8.9 million, or
0.09% of total non-acquired loans outstanding, at March 31, 2020, compared to
$7.5 million, or 0.08% of total non-acquired loans outstanding, at December 31,
2019, and compared to $8.0 million, or 0.10% of total non-acquired loans
outstanding, at March 31, 2019. Potential problem loans related to acquired
loans totaled $7.0 million, or 0.36% of total acquired loans outstanding, at
March 31, 2020. Prior to the adoption of ASU 2016-13, prior period acquired
problem loans included only the non-credit impaired loans. At December 31, 2019
and March 31, 2019, the acquired non-credit impaired potential problem loans
were $4.4 million, or 0.25% of acquired non-credit impaired loans outstanding
and $4.2 million, or 0.18% of acquired non-credit impaired loans outstanding,
respectively. 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.



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Noninterest Income



Noninterest income provides us with additional revenues that are significant
sources of income. At March 31, 2020 and 2019, noninterest income comprised
25.6%, and 20.6%, respectively, of total net interest income and noninterest
income.




                                          Three Months Ended
                                              March 31,
(Dollars in thousands)                     2020         2019
Fees on deposit accounts                $   18,141    $ 17,808
Mortgage banking income                     14,647       2,385

Trust and investment services income 7,389 7,269 Securities gains, net

                            -         541
Recoveries on acquired loans                     -       1,867
Other                                        3,955       2,188
Total noninterest income                $   44,132    $ 32,058

Note that "Fees on deposit accounts" include service charges on deposit accounts and bankcard income

Noninterest income increased by $12.1 million, or 37.7%, during the first quarter of 2020 compared to the same period in 2019. This quarterly change in total noninterest income primarily resulted from the following:

Mortgage banking income increased by $12.3 million, or 514.1%, which was a

result of higher income from the secondary market of $6.6 million due to higher

activity and sales volume resulting from the decrease in interest rates and a

higher margin. The gain on sale of mortgage loans increased by $3.9 million and ? income from the change in fair value in the mortgage pipeline and loans held

for sale increased by $3.4 million. Income from mortgage servicing rights, net

of the hedge increased $5.7 million mainly as a result of the gains on hedge

significantly outpacing the decline in fair value of the MSR resulting from the

decline in interest rates;

Securities gains, net of $541,000 during the first quarter of 2019 while there ? were no sales of securities in the first quarter of 2020 and therefore, no

gains or losses;

There were no recoveries on acquired loans recorded in the income statement in

the first quarter of 2020. Due to the adoption of CECL and beginning in 2020, ? recoveries on acquired loans are no longer recorded through the income

statement and will be recorded through the ACL on the balance sheet. In the

first quarter of 2019, there were $1.9 million in recoveries on acquired loans

recorded through the income statement; and

Other noninterest income increased $1.8 million, or 80.8% during the first

quarter of 2020 compared to the same period in 2019. This increase was mainly

due to $1.2 million in income received from proceeds from the payout on a life ? insurance policy in the first quarter of 2020. Also, income from our capital

markets group increased $509,000 on an increase in swap fees of $2.3 million

  offset by a decline in the credit valuation adjustment on our swaps of $1.9
  million.




Noninterest Expense




                                                     Three Months Ended
                                                         March 31,
(Dollars in thousands)                                2020         2019
Salaries and employee benefits                     $   60,978    $ 58,431
Occupancy expense                                      12,287      11,612
Information services expense                            9,306       9,009
OREO expense and loan related                             587         751
Amortization of intangibles                             3,007       3,281
Supplies, printing and postage expense                  1,505       1,504
Professional fees                                       2,494       2,240
FDIC assessment and other regulatory charges            2,058       1,535
Advertising and marketing                                 814         807
Merger and branch consolidation related expense         4,129       1,114
Other                                                  10,082       7,955
Total noninterest expense                          $  107,247    $ 98,239




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Noninterest expense increased by $9.0 million, or 9.2%, in the first quarter of
2020 as compared to the same period in 2019. The quarterly increase in total
noninterest expense primarily resulted from the following:

An increase in merger and branch consolidation related expense of $3.0 million

compared to the first quarter of 2019. The costs in the first quarter of 2020 ? were related to the pending merger with CenterState while the costs in the

first quarter of 2019 were related to branch consolidation as we closed 13

branches during 2019;

Salaries and employee benefits expense increased by $2.5 million, or 4.4%, in ? the first quarter of 2020 compared to the same period in 2019. This increase

was mainly attributable to an increase in employee salaries and wages of $2.0

million and severance pay and related expense of $594,000;

Other noninterest expense increased by $2.1 million, or 26.8%, in the first

quarter of 2020 compared to the same period in 2019. This increase was mainly ? attributable to an increase in passive losses on tax credit partnerships of

$1.7 million in the first quarter of 2020. Investments in tax credit
  partnerships have increased $37.6 million, or 64.0% since March 31, 2019.

Occupancy expense increased by $675,000, or 5.8% from the first quarter of

2019. This increase was mainly due to an increase in lease expense of $698,000 ? in the first quarter of 2020 compared to the first quarter of 2019. This

increase was due to an increase in expense from new and renewed leases during

2019 along with adjustments made in the first quarter of 2019 from the adoption

of the new lease standard.

FDIC assessment and other regulatory charges increased by $523,000, or 34.1% in ? the first quarter of 2020 compared to the same period in 2019. This was due to

  the Bank's growth together with changes in the risk assessment.




Income Tax Expense



Our effective income tax rate was 15.0% for the three months ended March 31,
2020 compared to 20.2% for the three months ended March 31, 2019.  The lower
effective tax rate was driven mainly by a significant decrease in pretax net
income and an increase in federal tax credits in the first quarter of 2020
compared to the first quarter of 2019.  Pretax income was reduced in the current
quarter by the large provision for credit losses totaling $36.5 million stemming
from the COVID-19 pandemic.  During the first quarter of 2020, the ACL increased
by approximately $60.9 million due the adoption of ASU 2016-13 in the first
quarter, as well as recording $36.5 million of provision for credit losses due
to anticipated losses from COVID-19 pandemic.  The increase in the ACL resulted
in a much larger change in deferred income taxes during the quarter than we

normally experience.



Capital Resources



Our ongoing capital requirements have been met primarily through retained
earnings, less the payment of cash dividends. As of March 31, 2020,
shareholders' equity was $2.3 billion, a decrease of $52.0 million, or 2.2%,
from December 31, 2019, and a decrease of $55.4 million, or 2.3%, from $2.4
billion at March 31, 2019. The change from year-end was mainly attributable to
the common stock dividend paid of $15.8 million, a reduction in capital of $24.7
million from the repurchase of 320,000 shares of common stock through our stock
repurchase plans, and a reduction in retained earnings of $44.8 million from a
cumulative change in accounting principle from the adoption of ASU 2016-13.
These decreases in equity were partially offset by net income of $24.1 million
and an increase in accumulated other comprehensive income of $8.7 million. At
March 31, 2020, we had an accumulated other comprehensive gain of $9.8 million
compared to an accumulated other comprehensive gain of $1.0 million at December
31, 2019. This change was attributable to a $31.5 million, net of tax,
improvement in the unrealized gain (loss) position in the available for sale
securities portfolio and a $22.8 million, net of tax, decline in the unrealized
gain (loss) position related to the cash flow hedges. The change in the
unrealized gain (loss) position in the available for sale securities portfolio
and the cash flow hedges are due to the decline in interest rates during the
last half of 2019 and first quarter in 2020. The decrease in shareholders'
equity from March 31, 2019 was primarily attributable to dividends paid to
common shareholders of $60.1 million, a reduction in retained earnings of $44.8
million from a cumulative change in accounting principle from the adoption of
ASU 2016-13 and a reduction in capital of $148.4 million from the repurchase of
1,985,000 shares of common stock through our stock repurchase plans. These
decreases in equity were partially offset by net income of $166.2 million, an
increase from accumulated other comprehensive income of $23.1 million and
recognition of share based compensation expense of $8.7 million. Our common
equity-to-assets ratio was 13.95% at March 31, 2020, down from 14.90% at
December 31, 2019 and 15.42% at March 31, 2019. The decrease from December 31,
2019 was due to both a decrease in equity of 2.2% and an increase in total
assets of 4.5%. This was mainly due to the reduction in equity during the first
quarter of 2020 from a reduction in retained earnings of $44.8 million from

a
cumulative change in

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accounting principle from the adoption of ASU 2016-13 and our repurchase of 320,000 shares of common stock at a cost of $24.7 million.

On January 25, 2019, our Board of Directors approved a new program to repurchase
up to 1,000,000 of our common stock, which were repurchased in the first and
second quarter of 2019 at an average price of $69.89 per share (excluding
commission expense) for a total of $69.9 million. In June 2019, our Board of
Directors authorized the repurchase of up to an additional 2,000,000 shares of
our common stock 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"). The number of shares to be purchased and the timing
of the purchases during 2019 were 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 31, 2019,
we had repurchased 1,165,000 shares at an average price of $74.72 a share
(excluding sales commission) for a total of $87.1 million in common stock 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.
There were 515,000 shares available for repurchase remaining under the New
Repurchase Program as of March 31, 2020.



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.



As disclosed in our Annual Report on Form 10-K for the year ended December 31,
2019, regulatory capital rules adopted in July 2013 and fully-phased in as of
January 1, 2019, which we refer to as the Basel III rules or Basel III, impose
minimum capital requirements for bank holding companies and banks. The Basel III
rules apply to all national and state banks and savings associations regardless
of size and bank holding companies and savings and loan holding companies with
more than $3 billion in total consolidated assets. More stringent requirements
are imposed on "advanced approaches" banking organizations which are
organizations with $250 billion or more in total consolidated assets, $10
billion or more in total foreign exposures, or that have opted into the Basel
III capital regime.

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

?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, 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 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 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. AOCI is presumptively included in
CET1 capital and often would operate to reduce this category of capital. When
implemented, Basel III provided a 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 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-

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based measurements (CET1, Tier 1 capital and total capital). The 2.5% capital
conservation buffer was phased in incrementally over time, and 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 federal banking agencies issued a joint final rule to
revise 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 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 reaction to the COVID-19 pandemic, the regulatory agencies
provided an additional transitional method option of a two years 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, otherwise
referred to herein as the 5 year method. The Company would recognize an estimate
of the previous method for determining the ACL 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 ASU 2016-13 would be phased-in over three years
using the straight-line method. The regulatory rules provide a one-time
opportunity at the end of the first quarter of 2020 for covered banking
organizations to choose its transition option for ASU 2016-13. 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. If the Company had
not chosen to apply a transitional method related to ASU 2016-13, its
consolidated common equity tier 1 to risk-weighted assets ratio would be 10.62%,
its consolidated tier 1 capital to risk-weighted assets would be 11.56%, its
consolidated total capital to risk-weighted assets would be 12.81% and its
consolidated tier 1 capital to average assets (leverage ratio) would be 9.23% at
March 31, 2020. The Company would still exceed the thresholds for the "well
capitalized" regulatory classification.



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.



The Company's and the Bank's regulatory capital ratios for the following periods
are reflected below:




                                           March 31,    December 31,    March 31,
                                             2020           2019          2019
South State Corporation:

Common equity Tier 1 risk-based capital        11.09 %         11.30 %     

11.86 %
Tier 1 risk-based capital                      12.03 %         12.25 %      12.85 %
Total risk-based capital                       12.72 %         12.78 %      13.35 %
Tier 1 leverage                                 9.56 %          9.73 %      10.52 %

South State Bank:

Common equity Tier 1 risk-based capital        11.62 %         12.07 %     

12.67 %
Tier 1 risk-based capital                      11.62 %         12.07 %      12.67 %
Total risk-based capital                       12.31 %         12.60 %      13.17 %
Tier 1 leverage                                 9.24 %          9.59 %      10.37 %




The Tier 1 leverage ratio decreased compared to December 31, 2019 due to the
increase in our average assets and outpacing the increase in our tier 1
risk-based regulatory capital. The CET1 risk-based capital, Tier 1 risk-based
capital and total risk-based capital ratios all decreased compared to December
31, 2019 due to the increase in our risk-based assets outpacing the increase in
our tier 1 risk-based and total risk-based regulatory capital. The main reason
for

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the lesser increase in regulatory capital was due to our repurchase of 320,000
shares of common stock at a cost of $24.7 million through our stock repurchase
plans in the first quarter of 2020 along with the lower net income this quarter.
The main drivers for the increase in both average and risk-weighted assets were
loan growth and growth in interest-bearing deposits. Our capital ratios are
currently well in excess of the minimum standards and continue to be in the
"well capitalized" regulatory classification.



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 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

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 $1.3 billion, or
approximately 15.1%, compared to the balance at March 31, 2019, and by $310.1
million, or 13.5% annualized, compared to the balance at December 31, 2019. The
acquired loan portfolio decreased by $887.0 million, or 31.3%, from the balance
at March 31, 2019 and by $173.2 million, or 32.9%, annualized, from the balance
at December 31, 2019 through principal paydowns, charge-offs, foreclosures and
renewals of acquired loans.

Our investment securities portfolio increased $29.0 million, or 5.8%,
annualized, compared to the balance at December 31, 2019, and increased by
$527.3 million, or 35.0% compared to the balance at March 31, 2019. The increase
in investment securities from December 31, 2019 was a result of purchases of
$104.0 million as well as improvements in the market value of the available for
sale investment securities portfolio of $40.5 million. These increases were
partially offset by maturities, calls and paydowns of investment securities
totaling $113.4 million. Net amortization of premiums were $2.7 million in the
first three months of 2020. The increase in investment securities 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. Total
cash and cash equivalents were $1.3 billion at March 31, 2020 as compared to
$688.7 million at December 31, 2019 and $949.6 million at March 31, 2019. We
borrowed an additional $300.0 million in FHLB advances and $200.0 million in FRB
borrowings in the first quarter of 2020 as well as total deposits increased
$167.5 million which improved liquidity in the first quarter of 2020. We
borrowed an additional $500.0 million in the first quarter of 2020 to provide
the Bank additional liquidity in reaction to the COVID-19 pandemic.



At March 31, 2020 and December 31, 2019, we had no traditional, out -of-market
brokered deposits, and at March 31, 2019, we had $7.6 million in traditional,
out-of-market brokered deposits. At March 31, 2020, December 31, 2019 and March
31, 2019, we had $115.0 million, $45.8 million, and $60.1 million, respectively,
of reciprocal brokered deposits. Total deposits were $12.3 billion at March 31,
2020, an increase of $167.5 million or 5.5% annualized from $12.2 billion at
December 31, 2019 and an increase of $425.6 million or 3.6%, from $11.9 billion
at March 31, 2019. Our deposit growth since December 31, 2019 included an
increase in demand deposit accounts of $122.1 million and an

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increase in savings and money market accounts of $80.6 million partially offset
by declines in interest-bearing transaction accounts of $25.8 million and in
certificates of deposit of $9.5 million. Other borrowings increased $500.2
million and $699.9 million, respectively, from December 31, 2019 and March 31,
2019 to $1.3 billion at March 31, 2019. Other borrowings at March 31, 2020
included $1.2 billion in FHLB advances and FRB borrowing compared to $700.1
million at December 31, 2019 and $500.1 million at March 31, 2019. We had
approximately $115 million in junior subordinated debt at March 31, 2020,
December 31, 2019 and March 31, 2019. During the first quarter of 2019, we
paid-off early the FHLB advance of $150.0 million that was outstanding at
December 31, 2018 that would have matured in December 2019. We then 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. 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
March 31, 2020, our Bank had total federal funds credit lines of $606.0 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 March 31,
2020, our Bank had $387.3 million of credit available at the Federal Reserve
Bank's Discount Window and had outstanding borrowing of $200.0 million resulting
in $187.3 million remaining available at the Federal Reserve Bank Discount
Window. 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 March 31, 2020, our Bank had a total FHLB credit facility of $2.5
billion with total outstanding FHLB letters of credit consuming $231.1 million,
$1.0 billion in outstanding advances and $62,000 in credit enhancements from
participation in the FHLB's Mortgage Partnership Finance Program, leaving $1.2
billion in availability on the FHLB credit facility. The Company has a $25.0
million unsecured line of credit with U.S. Bank National Association with no
outstanding advances. 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.

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 March
31, 2020, 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.



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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 risk-based capital, or
$380.2 million at March 31, 2020. Based on this criteria, we had three such
credit concentrations at March 31, 20120, including loans on hotels and motels
of $590.0 million, loans to lessors of nonresidential buildings (except
mini-warehouses) of $1.1 billion, and loans to lessors of residential buildings
(investment properties and multi-family) of $591.4 million. 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.

Banking regulators have established guidelines for the construction, land
development and other land loans to total less than 100% of total risk-based
capital and for total commercial real estate loans to total less than 300% of
total risk-based capital. Both ratios are calculated by dividing certain types
of loan balances for each of the two categories by the Bank's total risk-based
capital. At March 31, 2020, December 31, 2019, and March 31, 2019 the Bank's
construction, land development and other land loans as a percentage of total
risk-based capital were 72.9%, 68.7%, and 63.2%, 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) as a percentage of total risk-based capital were 229.5%, 225.6% and
219.2% as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.
As of March 31, 2020, December 31, 2019 and March 31, 2019, the Bank was below
the established regulatory guidelines. When a bank's ratios are in excess of one
or both of these commercial real estate loan ratio 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.

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 proposed merger with CenterState.
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;

? Increased expenses, loss of revenues, and increased regulatory scrutiny

associated with our total assets having exceeded $10.0 billion;

Personnel risk, including our inability to attract and retain consumer and

? commercial bankers to execute on our client-centered, relationship driven

banking model;

? Risks related to our proposed merger with CenterState, including:

the possibility that the merger does not close when expected or at all because

o required regulatory, shareholder or other approvals and other conditions to

closing are not received or satisfied on a timely basis or at all;

o the occurrence of any event, change or other circumstances that could give rise

to the termination of the merger agreement;

o potential difficulty in maintaining relationships with clients, employees or

business partners as a result of our proposed merger with CenterState;

o the amount of the costs, fees, expenses and charges related to the merger;

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problems arising from the integration of the two companies, including the risk

o that the integration will be materially delayed or will be more costly or

difficult than expected;

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 proposed merger with CenterState;

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;

Ownership dilution risk associated with potential mergers and acquisitions in

? which our stock may be issued as consideration for an acquired company,

including our proposed merger with CenterState which is an all-stock

transaction;

? Potential deterioration in real estate values;

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;

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;

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;

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;

? Price risk focusing on changes in market factors that may affect the value of

traded instruments in "mark-to-market" portfolios;

? Transaction risk arising from problems with service or product delivery;

Compliance risk involving risk to earnings or capital resulting from violations

? of or nonconformance with laws, rules, regulations, prescribed practices, or

ethical standards;

Regulatory change risk resulting from new laws, rules, regulations, accounting

principles, proscribed practices or ethical standards, including, without

limitation, the possibility that regulatory agencies may require higher levels

? of capital above the current regulatory-mandated minimums and including the

impact of the Tax Cuts and Jobs Act, the Consumer Financial Protection Bureau

rules and regulations, and the possibility of changes in accounting standards,

policies, principles and practices, including changes in accounting principles

relating to loan loss recognition (2016-13 - CECL);

? Strategic risk resulting from adverse business decisions or improper

implementation of business decisions;

? Reputation risk that adversely affects our earnings or capital arising from

negative public opinion;

? Terrorist activities risk that results in loss of consumer confidence and

economic disruptions;

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;

? Greater than expected noninterest expenses;

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;

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;

? The risks of fluctuations in the market price of our common stock that may or

may not reflect our economic condition or performance;

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;

Risks associated with actual or potential information gatherings,

? investigations or legal proceedings by customers, regulatory agencies or

others, including litigation related to our proposed merger with CenterState;

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; 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


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disclosed in Part II, Tem 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
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.



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.

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