Please ensure Javascript is enabled for purposes of website accessibility

South State Corporation (SSB) Q1 2019 Earnings Call Transcript

By Motley Fool Transcribing – Apr 30, 2019 at 9:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

SSB earnings call for the period ending March 31, 2019.

Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

SCBT Financial (SSB -0.33%)
Q1 2019 Earnings Call
April 30, 2019 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Morning, and welcome to the South State Corporation quarterly earnings conference call. Today's call is being recorded. [Operator instructions] I will now turn the call over to Jim Mabry, South State Corporation executive vice president in charge of investor relations and M&A, please go ahead.

Jim Mabry -- Executive Vice President

Thank you for calling in today to the South State Corporation earnings conference call. Before beginning, I want to remind listeners that the discussion contains forward-looking statements regarding our financial condition and results. Please refer to Slide No. 2 for cautions regarding forward-looking statements and discussion regarding the use of non-GAAP measures.

I would now like to introduce Robert Hill, our chief executive officer who will begin the call.

Robert Hill -- Chief Executive Officer

Good morning. I'll begin the call with summary comments about the first quarter of 2019 and offer insight on where we stand on near-term and longer-term focus. John Pollok will review the quarter in more detail, and we will conclude the call with questions from the research analyst community. This quarter marked the one-year anniversary of integrating the second of two significant mergers and 60% growth in our company.

A year into these markers, I'm pleased with where we are and outlook for these investments over the long term is encouraging. We've also made the shift of our team's focus from integration to execution in our three primary areas of success: Soundness, profitability and growth. With much opportunity for continued improvement, I'm pleased with our start to 2019. Adjusted net income was $44.8 million or $1.26 per diluted share and represents a 1.23% return on average assets and a 14.8% return on tangible equity.

Net income for the first quarter totaled $44.4 million or $1.25 per diluted share. This represents a return on assets and return on tangible equity of 1.21% and 14.66%, respectively. The soundness of our company starts with our strong core-funded balance sheet and credit quality. It is a result of great teams operating in great markets.

Deposits grew 9.5% on an annualized rate, with much of this growth coming from noninterest bearing accounts. This increase moved our loan-to-deposit ratio down to 93% with virtually no broker deposits. This deposit growth, along with the balance sheet modifications John will address in a minute, meaningfully increased our liquidity and provides sizable funding for future loan growth. Asset quality measures showed further improvement from last year's record levels with both nonperforming assets to total assets and net charge offs declining from year end.

Two basis points in charge offs for first quarter and very low past due loans have us feeling very good that we are growing our company with solid customers and long-term relationships. From an economic point of view, South State's markets continue to exhibit excellent growth and low levels of unemployment. The companies we bank are strong and growing and our local economies remain vibrant. We experienced good consumer and commercial loan demand in Q1.

Loan pipelines are solid, and we recorded 4.7% annualized loan growth this quarter. Our enhanced team and our treasury platform have added momentum in our commercial banking line of business. We also see and hear often from customers about our unique approach to banking and are pleased that we recently received a number of excellence and best brand awards in the surveys compiled by Greenwich. We also continue to make investments for the future.

These investments have helped produce good results in Raleigh, Richmond, Charlotte and Augusta. We added 13 new bankers to the team in Q1 and opened our first of two new offices in Raleigh and moved into a new headquarters for our expanded Virginia team. These two markets both had excellent growth in the first quarter. Our Richmond team has now grown to 75 bankers and is operating well on all four lines of business.

We also expanded our team in Charlotte, which has seen their pipeline grow to the largest in the bank over the last two quarters. All of this ultimately leads me to how we are performing in revenue growth and expense management. Our revenue growth has been impacted over the last few years as accretable yield moved from 18% of interest income to 6% today. This coupled with Durbin and an enhanced $10 billion spend has impacted our earnings growth in the short term.

We begin to move past these headwinds in 2019 and returned to improving our operating leverage. Adjusted expenses are down $5 million or 5% from the first quarter of 2018. We provided long-term operating targets at our Investor Day in December, that are on Page 3 of this presentation. We are focused on these targets and feel well-positioned to achieve these.

Finally, capital levels remain strong. Even with our share repurchase activity, our tangible book value increased 9% year over year. Total risk-based capital at quarter end is over 13% and allows us to be opportunistic with capital management. The company has declared a cash dividend of $0.40 per share.

This represents a 17.6% increase in our dividend year over year. I'll now turn the call over to John Pollok for more detail on the financial performance for the quarter.

John Pollok -- Chief Operating Officer

Thank you, Robert. My comments today will primarily focus on our margin, noninterest income and expense and capital management. I will also review a few steps taken this quarter that, when coupled with loan growth, should position the company for improved operating leverage. Beginning with Slide No. 5.

You can see that our net interest margin decreased by 6 basis points linked quarter to 3.92%. The total yield on interest earning assets increased 4 basis points while the cost on interest-bearing liabilities increased by 11 basis points. The increasing yield on interest earning assets is primarily due to the December rate hike, improving yields 9 basis points for both the acquired and legacy loans.

A full quarter's impact of the December acquired credit impaired release also added to the improved loan yields. The increase in interest-bearing liabilities is primarily due to the higher rates on money market accounts and CD, as well as the small impact from additional long-term borrowings we secured toward the end of the quarter. Our total cost of funds increased 10 basis points for the quarter to 67 basis points. Noninterest bearing DDA average balances were down $105.5 million linked quarter, but period-end balances grew by over $158 million.

Net interest income was down $3.1 million in the quarter on approximately $500,000 lower interest income, $2.6 million in higher interest expense. Interest income was down on lower acquired loan balances and two fewer days in the first quarter. Slide No. 6 shows the higher yields on the acquired look represent 23% of interest earning assets in the fourth quarter compared to 25% in the fourth.

We also show you the difference between the average balance for the quarter and the period-end balance. You can see the period-ending balance of interest earning assets is $600 million higher than the average and that the majority of this difference is in short-term investors. This is the result of a decision to lock in some longer-term attractive funding rates toward the end of the quarter.

Slide No. 7 shows loan accretion totaled $9.1 million in the first quarter or 6.4% of total interest income compared to 10.3% the first quarter of 2018. You can also see the impact loan accretion has on our loan yields on the bottom of the slide. As shown on the Slide No. 8, we have $8.5 million in less noninterest income as compared to the first quarter of 2018, primarily due to the impact of the Durbin amendment on our fees on deposit accounts.

Mortgage banking was also lower partly due to the decline in mortgage servicing income. The sizable downward pressure on mortgage rates that occurred after the March debt announcement had a negative impact on the MSR value net of the hedge of about $1 million this quarter. Much of this value has returned now that rates have increased since March quarter end. Acquired loan recoveries were also lower by $1.1 million year over year.

On Slide No. 9 you can see the net changes in all noninterest expense categories. We had good expense management in the first quarter with adjusted expenses of $97.1 million. This is $5 million below the first quarter of 2018, $4 million of which came from lower salaries and benefits.

Our efficiency ratio, as shown on Slide No. 10. Increased to 63.2% from 59.4% linked quarter, primarily due to lower revenue. Total revenues were down $6.7 million in the quarter which we think should represent a floor in the near future.

Tangible book value, as shown on Slide No. 11, shows an $0.85 increase to $37.15. During the quarter we repurchased 500,000 shares totaling $33.3 million and paid out dividend of $13.4 million. Net income offset 95% of these payouts and so the tangible book value increase came from an $11.5 million improvement in AOCI.

Tangible book value grew year over year by $3.10 or 9.1%. Earlier, Robert mentioned our long-term targets from our Investor Day in December. On Slide No. 12 we show you a few areas we are currently focusing on to help increase our operating leverage and ultimately meet these goals.

From a balance sheet perspective, we secured $500 million in longer-term funding. Of this amount, $150 million paid off on existing short-term advance. The remaining amount will be used to expand the size of the investment portfolio and support future loan growth. Increasing the size of the investment portfolio will obviously lower net interest margin, but will provide a nice increase and net interest income.

Our investment portfolio decreased from 11.3% of total assets at the end of the first quarter of 2018 to only 9.8% this quarter end and is largely comprised of an amortizing product. The size of the investment portfolio could easily be reduced during periods of stronger loan growth. We also utilize a gain on sale of VISA Class B stock to sell approximately $130 million in lower-yielding securities and repurchased about $100 million in similar securities with approximately 1% higher yields. From an expense perspective, we have identified a total of $13 million in pre-tax cost savings, which includes the previously announced branch consolidation saves.

Of the total, we estimate that we will realize roughly 75% in 2019 with the remaining being realized in the first quarter of 2020. These saves are a combination of personnel expense and internal and external efficiencies. We realized about $1 million of these cost saves in the first quarter. This should allow us to limit noninterest expense growth while still investing in future initiatives.

From a capital planning perspective, we have increased our dividend payout ratio target from 25% to 30% to 30% to 35%. As I mentioned earlier, we continue to be active in the repurchase of shares this quarter. The amount of in the timing of future repurchases will depend upon the careful evaluation of many factors, but in the near-term environment we expect to continue the systematic repurchase of shares. But the combination of more growth, a higher dividend payout ratio and continued share repurchase activity should have us moving closer to our longer-term target of 8% to 9% tangible common equity to tangible assets.

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

Robert Hill -- Chief Executive Officer

Thank you, John. We look forward to the rest of 2019. A strong core deposit base, solid capital position, excellent asset quality and a sizable presence in vibrant markets are significant advantages that South State enjoys. We remain focused on growing organically and making investments in people and systems that should position South State for improved operating leverage.

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

Questions and Answers:


[Operator instructions] And our first question comes from Catherine Mealor of KBW.

Catherine Mealor -- KBW -- Analyst

I thought we could start with the margin, a lot of moving parts here as always. But wanted to see if you could just kind of give us a big picture view on where you think the -- if we strip out accretable yield and just kind of look at the core margin, where you feel like some of the puts or takes -- puts and takes of that are, and if there is a scenario where we could see that core margin moving higher? I know we've got a mix of liquidity that's going to weigh on that coming into the next quarter, and then as we grow the securities book that, too, will weigh on the margin. But I guess really, I guess the crux of that is going to be on the deposit costs and where that goes moving forward. So just any commentary on that would be great.

John Pollok -- Chief Operating Officer

Sure, Catherine. This is John. I'm going to start. I think the answer, I'm going to start with the answer and then talk about some of the details.

Our margin kind of ex-accretable yield, I feel like you're clearly seeing some stability there. I think on the funding cost side, with the lack of rate hikes that we're seeing now, we're going to see some stability in funding. That doesn't mean there still won't be some catch up. As you know, we grew deposits 9.5%, so we're out chasing a lot of really good relationships.

And then ultimately I think you're going to begin to see our net interest income grow. So if you kind of go back to Slide No. 5, I think that's a really good place to start. And you look at the first quarter of '19, we had about $123 million of net interest income.

And as you know, the accretion made up a little bit over $9 million of that. If you go back to the first quarter of 2018, so if you kind of go to the left-hand side of the slide, we had $129 million of net interest income. But we had accretion of a little over $14 million. So if kind of you think about kind of the core, back to the beginning of your question is we're stand pretty good stability in kind of that core net interest income dollars.

So I feel really good about. As you know, we're chasing good deposits and clearly good deposits, with what we're doing in the middle market space, it's competitive, but clearly those lead to a lot of good loans. And so I think if you think about our strategy over the years, Catherine, is go after good deposits, continue to grow that, it clearly, clearly leads to good loans. As I mentioned earlier, the lack of the rate hikes, I do think brings stability to funding.

But as you know we're building this middle market commercial bank. We've built our treasury platform, we've kind of gotten past all those conversions. So we're kind of out generating a lot of business, so we want to be opportunistic clearly on the deposit side. If you shift to Slide No.

6, which is the next slide in the deck, I think that's the next place you have to go as you think about margin and the funding that you mentioned. So when you look at this and you go over to the right-hand side of the page, clearly, we've done some things. We took our short-term investments up about $475 million at period end. And if we keep these funds kind of more in the investment portfolio or not able to put them over in the loan side initially, that'll probably have about a 10 basis point impact on the core margin.

The other thing we've done, obviously is we've been very participatory in buybacks. Clearly that has, from a cash need, we've needed more cash. I think as we mentioned in the release, we continue to see systematic repurchases in the future. If you also kind of shift and think about, all right, well, look at the loan growth.

As Robert mentioned, we had right below 5% loan growth. That was a pretty solid quarter, I think for the first part of the year and you typically see some seasonality. But I think our long-term view has always been after a period of M&A, first we've got to get the balance sheet the way we want. We got to get back to mid-single digit loan growth, and as you know in our longer-term targets, we would like that to grow higher.

We're out of integration mode, so we're really focused on the customer, and I feel really good about the loan pipeline. We had a lot of discussion last year about the remix of the balance sheet. Well, the remixing is done. We've done all of that.

That doesn't mean we don't have some larger construction and CRE payouts. I think you're seeing that throughout the industry. So you continue to see that. And as you know we're chasing bigger relationships, and that surely has created a little bit more volatility, both on the loan and the deposit side.

And then finally, I think you got to look at the interest rate environment. And clearly, I guess I was fooled four years in a row thinking the 10-year was going to stay above 3%. It didn't happen again. And so we saw a very unusual opportunity in the quarter with the inverted yield curve to kind of really harvest some of the optionality from our balance sheet.

We went out and borrowed this $500 million and put a synthetic hedge on it and really were able to lock in what I would say, kind of shorter-term funding costs out a little bit further, four, five years. And so our focus right now is to get that deployed, some in the investment portfolio in the short term. But clearly, we've got tremendous amount of loan opportunities. In fact, Catherine, if rates kind of stay where they are today, once we've deployed this, I could see us going in and doing another one of these transactions to kind of boost liquidity.

So I feel really good where we are. I think that we kind of bottomed out on the margin, and so I really feel good about the increase. And then the last thing I would mention is if you turn to Slide No. 7, as Robert mentioned in his comments, just the accretable yield.

The Accretable yield as a percentage of total interest income has come down significantly. We continue to see that. I think the caveat there is, is once you get into the CECL world, our belief is you're going to see an increase in accretable yield on the front end, so it might put a few more dollars into that bucket. But, Catherine, I feel really good where we're positioned.

I feel really good about some of the balance sheet optionality we've used for the quarter, and we're really excited about what we're seeing in our markets on the loan side.

Catherine Mealor -- KBW -- Analyst

That was really helpful. And maybe one follow-up on the accretable yield comment you just made. I know you and I have talked about this, but can you dig into a little bit as to why you think accretable yield will increase on the front end as we go into 2020 versus fall off in 2020?

John Pollok -- Chief Operating Officer

Sure. So I know there's a lot of views out there in CECL today. Our view today, when you look at our credible yield, as you know, the majority of that comes from our acquired credit impaired bucket. And today the way we look at that acquired credit impaired bucket is we remeasure the cash flows every quarter.

And so our weighted average life is typically on that book of business about 3 years. So as you do renewals, you reset those loans up, you have a tendency to extend the weighted average life, which pushes the accretion out. Our view today in the CECL world is, it's going to work more like a FAS 91 instrument is you're not going to be remeasuring cash flows every quarter to decide what the weighted average life is, you really go to the maturity of that credit. So you're not going to have the accretable yield continue to extend out at the beginning of time, it's going to more accrete more into the income stream like a normal loan where you're not having to predict what the life is.

So you've really kind of shortened up the time frame.


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

Stephen Scouten -- Sandler O'Neill -- Analyst

To just maybe follow up on that last line of questioning there. I mean, I think what we've been hearing from some of the other banks is that there's a belief that this PCI accretion will go away in 2020, and for you guys I guess maybe that was $5.9 million. So what, I guess what portion of that $5.9 million is like a credit mark versus an interest rate mark, if you have that? And is that accurate as you guys view it, that PCI accretion will predominately move into the loan loss reserve in 2020?

John Pollok -- Chief Operating Officer

Well, I think there's two pieces there. Whatever has turned from non-accretable to accretable is going to stay in the discount. Whatever has not -- whatever is still there from the credit mark is actually going to stay with those credit. So if you had credit improvement in the future, you would not see that roll over into the accretive yield bucket, Stephen.

That would come back, basically, just come back through the provision through the income statement. So I think that's kind of the big piece. The second piece of that is on your acquired non-credit impaired book, you're going to have to put a credit mark up. And so as you think about that book, remember it's paying down.

You're not putting new loans into that book. So we're going to have to put a credit mark on that piece. And as you know charge-offs continue to be extremely low. So you're going to set up what I'd call another reserve, it won't be accretion, but I think our view is a lot of that money will begin to come back into the income stream.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. And if I'm looking at the detail y'all give in the release, the kind of $107 million remaining accretable balance, is that, the $46 million versus the $60 million, is that credit mark versus the interest rate mark, is that the right way to think about it? Or is that -- am I way off base there?

John Pollok -- Chief Operating Officer

Well, when you look at that $107 million, you got you got two pieces on that. That $46 million is principal that, it's kind of the credit release is in that bucket. And then the $60 million piece that's going to come back, what you had to remember there, today that depends on how long you think that life of the loan is. So if you were to extend that out, you'd actually add more interest into that category.

Stephen Scouten -- Sandler O'Neill -- Analyst

OK. Perfect, perfect. OK. And then just thinking about maybe new loan yields in the quarter, obviously the average I think went up on non-acquired to 430 from 421.

Could we see any natural lift on that with new loan yields? Or are they coming on kind of close to that 430 average?

John Pollok -- Chief Operating Officer

No. Stephen, this is John again. Our new loan average is kind of starting to push up in the high fours now. So you in that 470 to 480 range is what we're seeing new loan yields come on at.

Stephen Scouten -- Sandler O'Neill -- Analyst

Perfect. Perfect. And then maybe just last one for me. On the investments into securities with this liquidity, can you give us an idea of how much of that maybe $450 million that's kind of allocated today would be truly put into investment securities here in the second quarter? And is the 314 kind of average yield that you saw this quarter, is that a kind of good proxy for what the new investments might look like as well?

John Pollok -- Chief Operating Officer

Well, we're not totally sure how it'll all be deployed by the end of the quarter. The 314 is a little high from where it is today, but it's a little hard to tell exactly how we'll have it all deployed. We're trying to be opportunistic. Again if we feel like there's some good opportunities there we can get it out, we're going to go ahead and invest that.

I think, as you know, we have a lot of amortizing product in our investment portfolio. So we're throwing up about $35 million a month in cash flow. So I think it's just going to depend some, Stephen, I think we got to work through that. But I think in this environment our view is deploy and maybe they'll get a little bit more, if we're kind of still where we are.


Our next question comes from Jennifer Demba of SunTrust.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

You hired 13 bankers during the quarter. Could you give us a sense of where those hires were and in what capacities? And what's your budget for new hires in the year '19 and '20, given I'm sure there's a lot of disruption opportunities out there?

Robert Hill -- Chief Executive Officer

So Jennifer, this is Robert. As we build a company over the last couple decades, I mean, recruiting of new people has always been a standard part of what we do. Last year, I can't remember the exact number, but it seems like it was 25 to 30 new revenue producers that came on. Q1 was 13.

A lot of those new hires are a result of relationships that we've been building and getting people over a long period of time. It's pretty spread out. I'd say the concentrated areas are Richmond, Raleigh, Charlotte would be the 3 primary, but they're Charleston, Augusta, they're many across the franchise. But the three where they were the heaviest was Richmond, Raleigh, Charlotte.

In terms of a budget or estimate, we're pretty selective on who we hire. We just don't take all comers, and so the recruiting process can sometimes take a very long period of time. We don't always know when that window is going to open for us. So I'd say it's just a constant pursuit.

In some quarters there'll be more or less. We don't just specifically have a number that we're shooting for every quarter, it's just more getting the quality bankers where we have an opportunity to move bankers and therefore move business. We did have, I will say this, we did have some rebuilding to do in Richmond and Charlotte. And as you know, Park Sterling was more CRE focused, we had to shift focus.

We had to make some changes on talent. Today, man, those teams are in really good shape. I was in Richmond a couple weeks ago. Unbelievable how that team has come together really in all four lines of business.

We've really rebuilt the focus and efforts of our Charlotte team. Charlotte now, as I said earlier, has the largest pipeline in our company. So if you look at North Carolina, roughly, a little less than 40% of our pipe, our commercial pipeline comes out of South Carolina and North Carolina's about 33%. A year ago they weren't even close to that number.

So you're just seeing North Carolina really ramp up with quality business and quality bankers. And Richmond, Richmond led the company this quarter in terms of overall growth. So those investments are paying off, and we'll continue to look for opportunistic hires across the franchise.


[Operator instructions] And our next question will come from Tyler Stafford of Stephens.

Andrew Terrell -- Stephens Inc. -- Analyst

This is actually Andrew Terrell on for Tyler this morning. Sorry Tyler couldn't make it, he's traveling on a flight right now, but just a couple of questions for me. First just on the expenses, how should we be thinking about this incremental $10.5 million, just relative to your expense growth target of 0% to 3%? Does this essentially allow you guys to stay at the bottom end of that target in 2019 before normalizing toward just an inflationary type of expense growth in 2020?

John Pollok -- Chief Operating Officer

This is John. I think that's a fair assessment. I think our view of it is, especially with the long-term targets is, we tend to do better over time if over a long period of time we can manage our expenses kind of that 0 to 3%. So yes, you're going to have a little bit of noise of when you get the expense saves.

Do we find some opportunistic hires that we make, but ultimately, Andrew, we want to be -- over the long period of time, we want to be in that 0 to 3%. So clearly it helps some there. I will tell you, though, that we're not done on that side. We're continuing to work on efficiencies.

We'll have more announcements next quarter on a number of things that we're working.

Andrew Terrell -- Stephens Inc. -- Analyst

All right. That's great color. Maybe just to dig in more, I think the 13 branch closures were originally estimated to be a $2.5 million expense reduction.

John Pollok -- Chief Operating Officer


Andrew Terrell -- Stephens Inc. -- Analyst

Just wondering where you guys are, I guess, I know you noted personnel and equipment costs, but hoping you can provide just some more color on what you've identified is going to drive the incremental savings from here and just where the fallouts would be.

John Pollok -- Chief Operating Officer

The incremental savings over and above the branch saves? Is that your question?

Andrew Terrell -- Stephens Inc. -- Analyst

Correct, yes.

John Pollok -- Chief Operating Officer

Yes. So I think as you know, as you try to drive to a 0% to 3% expense base, you come off all the growth that we've had is, we've been very internally focused. So I'd say number one, just in general we got better expense management, so overall, we're just doing a better job. This is a small thing, got more video conferencing and less people traveling.

We've done a very good job in our vendor management area. We've continued to look at contracts, we've renegotiated a number of those contracts. I think as we've mentioned before we've -- as the mortgage business begin to change, we've clearly gotten much more efficient in the mortgage business. So there's bits and pieces kind of all over the company that we've been able to do that.

The branch piece, obviously, is just kind of easier to see. We're closing majority of those branches that we announced last quarter this quarter. But it's really kind of sprinkled through throughout the different line items within the company. But overall, Andrew, to be able not, if you think back a year ago, we were focused on integration, could we get the cost saves, how much do we have in merger expense, clearly taking the merger expense out of our numbers is just creating more capital, right.

But just a bigger expense focus throughout the company.


Our next question comes from Christopher Marinac of FIG Partners.

Christopher Marinac -- FIG Partners -- Analyst

Robert, the risk weighted assets have grown a lot slower than the total up balance sheet, as you know, and I'm curious to what extent that gives you flexibility on buybacks and does that enter into your thresholds for how low you could take the share count this next couple quarters.

John Pollok -- Chief Operating Officer

Yes, Chris, this is John. I'll start. Clearly our risk-weighted assets are down a lot because we've got a lot of cash, right. And so I think you'll begin to see that begin to kick back up, the percentage of risk-weighted assets.

But as you know, Chris, we're still generating a significant amount of capital. And we bought back 500,000 shares this quarter, we have another 500,000 shares left on our authorization. If the environment kind of stays where it is, we're going to continue to do buybacks. In fact, once we exercise this last 500,000 shares in authorization, our plan is to put up a 2 million share authorization after that.

So Chris, I would think in the next quarter or so, assuming everything kind of stays where it is, we're going to put up another authorization to continue to buy back shares. So I think our view is, we generated a lot of capital. Clearly, we had accretion generate a lot of capital. In a kind of less than 5% growth rate.

Clearly, we need to give some of that -- or put some of that back to our shareholders. So if you look at our total payout ratio for the quarter between dividends and buybacks, our net income covered about 95% of that. So I think we're going to continue to be active. We're not going out and retiring capital that we're going to need for future growth.

But incrementally, I think in the environment that we're in, we're going to continue to be active in that market.


Our next question comes from Nancy Bush of NAB Research.

Nancy Bush -- NAB Research -- Analyst

The 4.7% annualized loan growth, how do you view that? Is that a sustainable rate? And if you can give us some color from both a product and geographic perspective, that would be helpful.

Robert Hill -- Chief Executive Officer

Nancy, this is Robert. Overall felt pretty good about where we landed for Q1. Q1 typically is a little seasonally slower loan growth quarter for us, and we saw more of the growth on the back end of the quarter than the front of the quarter. But the pipelines across the board have continued to build over the last three or four quarters.

I think some of that is a result of the new talent that we've brought on. And a lot of it goes back to just focus. I mean, we've now not announced a merger in two years, and we've been past $10 billion now for two years. And so it's really redirected the focus of the company.

And I think you're seeing that in our own loan growth. So felt really good around the 5% number. Obviously, you said our long-term targets is 5% to 10%. We'd like to see that number move higher.

We think we certainly have the potential to do that. Geographically, I think the nice thing is a year ago, I felt like we were hitting on about two of four cylinders and now on I feel like we're almost hitting on all four. South Carolina was up around 8% loan growth, which really felt good. Georgia, especially Augusta had a really strong quarter.

They were up -- Georgia was up around 8%, Virginia was up 19%. The Richmond expansion and addition to the team have really been very effective. North Carolina is really the only one that in Q1 did not have the level of loan growth that we saw across the company. I think that's mostly related to some large CRE deals because the part book just more CRE concentrated.

And you know that we've just had a little bit more churn there. But we've continued to add to that team. And as I mentioned to Jennifer a few minutes ago, the Charlotte pipeline now is the largest in the bank. So we feel like as the year progresses that that flattish growth that we've had in North Carolina really begins to pick up.

From a line of business standpoint, overall commercial is where the majority of our new loan production is coming from, about 60% of our new production. Our consumer business, though, has been very strong. The Park Sterling branches have now been engaged. About 10% of our new volume is now -- new consumer loan volumes is now done digitally.

I think that number can even move higher. But our mortgage loan growth was around 7% year over year, in consumer banking, a little bit less than that. But some of that is just some of the reduction in our overall equity loans during Q1. So really the geographic spread and the product line spread is pretty robust and pretty diverse.

Nancy Bush -- NAB Research -- Analyst

Yes. You mentioned Charlotte. If you could just speak to sort of the changing competitive environment, you're going to have a new bank headquarters there. Do you see opportunities there to pick up teams? I mean, how are you guys looking at this sort of mega shift that's going to be happening?

Robert Hill -- Chief Executive Officer

Well, we're No. 5 in market share with 22 offices and a great team, and all four lines of business working. And when we've got that, we tend to do better because it just all feeds on each other. I would say the thing that I'm most pleased with today is just overall the quality of the banker that joining our team.

Our culture is very different than the others in the market. We've got size and scale in the market. We're effective in all four lines of business. They enjoy working together and they're winning.

And so I think the -- just so unique in that market because obviously, it's dominated by very large banks and then you'll have another very large bank headquartered in that market. But we're able to compete in that middle market private banking mortgage consumer space very effectively. It's a market where John and I started our careers, it's been a part of our franchise now for 10 years. We just didn't have the scale until Park Sterling.

Now you take the Park Sterling platform with what they've done with capital markets with treasury, it's the whole reason we did that deal. So I think what's happening now in the marketplace with some of the larger banks and some the turbulence that they are going through or will go through, it only enhances that competitive position.


Our next question comes from Blair Brantley of Brean Capital.

Blair Brantley -- Brean Capital -- Analyst

A question on capital. Just given kind of your targeted ranges and your increased payout ratio on the dividend side, how does that impact your view on future external growth possibilities?

John Pollok -- Chief Operating Officer

Well, Blair, this is John. I think as I mentioned, I feel like we're retiring capital that we generated over the short run. I don't think we're -- I think as growth begins to pick back up more, our strategy could -- will adjust there some. But I think over time, we've kind of derisked the balance sheet, right.

If you go back and look at how much we've brought down construction and land development from when we closed the Park Sterling transaction, we kind of delevered a lot of that risk out of there, and so feel really good where we are. But I think ultimately, we got a lot of options. If we begin to grow, I don't see us in the share buyback business forever, but over the next 18 months, I see us continuing to play in that market. And so I think as it begins to grow, as our loans begin to grow more, we're going to adjust our capital ratios there.

Being in that 8% to 9% range from a TC standpoint, I'm very comfortable with. Clearly, I think that range could adjust some depending on where all the CECL answer lands, right. You're going to put -- you're going to basically take capital and put it over in a loan loss reserve. My view, it's still capital.

So if I have to move some over for that acquired noncredit impaired, maybe I'll operate on a little bit lower end of that TC range. But I think that'll be the only other issue there. But we have a lot optionality around our capital position.

Robert Hill -- Chief Executive Officer

This is Robert. Just to add on, I think your question is one that we've discussed a lot with our board. And our company has always been opportunistic and always wanted to happen be in the position to be able to take advantage of an opportunity when it arises, and you don't always know when it arises. And obviously, having the capital to be able to execute on it is very important.

And so trying to strike that balance, but clearly we've been building excess capital now for a couple years. We're not just going to hoard excess capital, but we're also not going to put our company in position where we can't be opportunistic when the time's right.

Blair Brantley -- Brean Capital -- Analyst

Got it. And then as it -- talk about fee income here, kind of give me your -- what are your thoughts versus what you're seeing over the last few quarters versus kind of what maybe internal expectations are?

John Pollok -- Chief Operating Officer

This is John, I'll start. Clearly, I'd say the first thing that stands outright is a year ago, we didn't have Durbin impact. So when we get to the third quarter, everything will kind of marry back up again, right. We won't be able to see that impact.

I think on the mortgage banking side, not that we are where we were a couple of years ago, but we loved the momentum there. We had, like most companies, from an MSR perspective, we had a little bit of a hit there on the valuation of that asset. But I think that's timing. I think you're seeing that come back.

Our MSR asset is comprised of loans that we generated organically. We're not buying out a -- buying a lot of wholesale loans there. So I think that's going to rebound nicely. Recoveries on acquired lunges, it's kind of hit or miss, right.

That has a tendency to be fairly volatile. And we continue, I think to kind of go steady on the wealth management side. So clearly be glad to get back to the third quarter of this year. I think that'll give you a much better comparison.

Couple less days in the first quarter compared to the fourth. And so I think overall, I think you'll continue to see we do pretty well on the fee side.

Robert Hill -- Chief Executive Officer

Blair, this is Robert. Just to add on, this isn't just a comment around fee income, but just I guess profitability in general. It kind of goes back to our investor day and how we saw all our lines of business, being fee lines of business or margin lines of business is they just have to continue to transform and that's not one quarter or one year. I think it'll be a continuous transformation to drive more efficiency in these businesses and at the same time make investments that over time are going to give us good returns, and then manage our capital well.

I think fee income obviously is an important part of that, margin is an important part of that, expenses. But if you think philosophically how we view it, I think it's the efficiency piece, making investments that pay off and managing our capital.


This concludes our question-and-answer session. I will now turn the call back over to John Pollok.

John Pollok -- Chief Operating Officer

Thanks, everyone, for your time today. We will be participating in the SunTrust Robinson Humphrey Annual Financial Service Conference in New York beginning on May the 21st. We look forward to reporting to you again soon.


[Operator signoff]

Duration: 48 minutes

Call Participants:

Jim Mabry -- Executive Vice President

Robert Hill -- Chief Executive Officer

John Pollok -- Chief Operating Officer

Catherine Mealor -- KBW -- Analyst

Stephen Scouten -- Sandler O'Neill -- Analyst

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Andrew Terrell -- Stephens Inc. -- Analyst

Christopher Marinac -- FIG Partners -- Analyst

Nancy Bush -- NAB Research -- Analyst

Blair Brantley -- Brean Capital -- Analyst

More SSB analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than SCBT Financial
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and SCBT Financial wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Motley Fool Transcribing has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

South State Corporation Stock Quote
South State Corporation
$79.12 (-0.33%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.