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South State Corporation Reports First Quarter 2019 Results and Declares Increase in Quarterly Cash Dividend

Published

5 years ago

on

Reading Time: 15 minutes

COLUMBIA, S.C.–(BUSINESS WIRE)–South State Corporation (NASDAQ: SSB) today released its unaudited
results of operations and other financial information for the
three-month period ended March 31, 2019. Highlights for the first
quarter of 2019 include the following:

  • GAAP diluted EPS improvement of 8.7% compared to last year
  • Adjusted diluted EPS declined by 9.4% compared to last year
  • Loan growth totaled $128.3 million, or 4.7% annualized for the quarter
  • Deposit growth totaled $272.0 million, or 9.5% annualized for the
    quarter, with 58% of the growth from noninterest bearing deposits
  • Noninterest expense decreased by $15.2 million, or 13.4%, compared to
    last year
  • Adjusted noninterest expense declined by $5.0 million, or 5.0%,
    compared to last year
  • Asset quality remains strong as net charge-offs on non-acquired loans
    totaled 2 basis points annualized, or $493,000, during the first
    quarter of 2019
  • Non-performing assets to total assets were 0.27%, and remain at
    historically low level
  • Repurchased 500,000 common shares in Q1 2019 for $33.3 million
  • Tangible book value per share improved 9% annualized to $37.15 per
    share, and the dividend increased $0.05 per share, or 15.2%, compared
    to last year

During the first quarter of 2019, South State positioned the balance
sheet for future growth, and took other actions to improve profitability
and include the following:

  • Secured longer-term funding of $500.0 million over 4 to 5 year period;
  • Increased on-hand liquidity by approximately $600.0 million in order
    to fund future loan / securities growth;
  • With the current environment, plan to continue the systematic
    repurchase of common shares of the Company; and
  • Identified annual cost saving initiatives of approximately $13.0
    million (pre-tax), and expect to recognize $10.0 million in 2019,
    which includes the previously announced branch consolidations of $2.5
    million annualized cost savings; allowing for limited growth in
    noninterest expense.

“The first quarter marked a positive start to the year,” said Robert R.
Hill, Jr., CEO of South State Corporation. “South State experienced
solid loan and deposit growth, exhibited good expense control, and
positioned the balance sheet to accommodate further loan growth. We also
continue to utilize our capital position to enhance shareholder value
through increased dividends and common stock repurchases. Additionally,
during the past few weeks we moved into a new headquarters in Richmond,
Virginia and opened the first of two new offices in Raleigh, North
Carolina. Both of these markets demonstrated strong results in the first
quarter. Finally, we added 13 new bankers to our sales team and
experienced further adoption of our digital platform.”

Quarterly Cash Dividend and Common Stock Repurchase Plan

The Board of Directors of South State Corporation declared a quarterly
cash dividend on April 25, 2019, of $0.40 per share payable on its
common stock. This per share amount is higher by $0.02 per share, or
5.3%, compared to last quarter and $0.06 per share, or 17.6%, higher
than the same quarter one year ago. The dividend will be payable on May
17, 2019 to shareholders of record as of May 10, 2019.

As previously announced, the Board of Directors of South State
Corporation announced the authorization for the repurchase of up to
1,000,000 common shares of the Company’s common stock (the “Repurchase
Program”). During the first quarter of 2019, the Company bought back
500,000 shares during the first week of February at an average price of
$66.53 per share, or $33.3 million. This results in an estimated
increase in diluted EPS annually of approximately $0.08 per share. The
Company intends to remain active in repurchasing shares and will seek
authorization for additional share repurchases given the current
environment and the Company’s capital strategy. The Company is not
obligated to repurchase any such shares under the Repurchase Program,
but any such purchases will be executed in open market transactions at
prevailing market prices, in privately negotiated transactions, or by
other means in accordance with federal securities laws. Repurchases
under any approved Repurchase Program must be executed within one year
or would require additional Federal Reserve approval.

In addition, as a part of the company’s capital strategy, the Company
intends to continue managing capital within the established long-term
range of 8% to 9% of tangible common equity to tangible assets; and the
dividend payout range for shareholders has been adjusted to 30% to 35%
annually, from the historical range of 25% to 30%.

Branch consolidation and other cost initiatives – 2019

In mid-January 2019, the Company scheduled the close of 13 branch
locations during 2019. Most are scheduled for the second quarter of
2019. In addition, certain cost reduction initiatives began during the
first quarter of 2019. The expected cost associated with these closures
and cost initiatives has been estimated to be approximately $3.2
million, and primarily includes personnel, facilities and equipment
cost. The annual savings of these closures and cost initiatives is
expected to be $13.0 million, and the impact on 2019 is anticipated to
be approximately $10.0 million.

 

First Quarter 2019 Financial Performance

    Three Months Ended
(Dollars in thousands, except per share data) Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
INCOME STATEMENT 2019 2018 2018 2018 2018
Interest income
Loans, including fees (8) $ 131,834 $ 132,541 $ 132,043 $ 129,852 $ 127,041

Investment securities, federal funds sold and securities purchased
under agreements to resell

  11,556     11,327     11,517     11,880     11,007  
Total interest income 143,390 143,868 143,560 141,732 138,048
Interest expense
Deposits 16,645 15,310 13,220 10,009 6,913

Federal funds purchased, securities sold under agreements to
repurchase, and other borrowings

  3,478     2,166     2,051     2,161     2,162  
Total interest expense   20,123     17,476     15,271     12,170     9,075  
Net interest income 123,267 126,392 128,289 129,562 128,973
Provision for loan losses   1,488     3,734     3,117     4,478     2,454  
Net interest income after provision for loan losses   121,779     122,658     125,172     125,084     126,519  
Noninterest income*   32,058     35,642     32,027     37,525     40,555  
Pre-tax operating expense* 97,125 96,664 95,818 96,410 102,167
Branch consolid./acquisition and merger expense   1,114     —     4,476     14,096     11,296  
Total noninterest expense   98,239     96,664     100,294     110,506     113,463  
Income before provision for income taxes 55,598 61,636 56,905 52,103 53,611
Provision for income taxes, includes deferred tax revaluation   11,231     12,632     9,823     11,644     11,285  
Net income $ 44,367   $ 49,004   $ 47,082   $ 40,459   $ 42,326  
 
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 44,367 $ 49,004 $ 47,082 $ 40,459 $ 42,326
Securities losses (gains), net of tax (432 ) 2 9 505 —
Provision for income taxes, deferred tax revaluation — — (1,602 ) 613 —
FHLB prepayment penalty 107 — — — —
Branch consolid./acquisition and merger expense, net of tax   782     –     3,577     11,112     8,918  
Adjusted net income (non-GAAP) $ 44,824   $ 49,006   $ 49,066   $ 52,689   $ 51,244  
 
Basic earnings per common share $ 1.25 $ 1.36 $ 1.28 $ 1.10 $ 1.15
Diluted earnings per common share $ 1.25 $ 1.35 $ 1.28 $ 1.09 $ 1.15
Adjusted net income per common share – Basic (non-GAAP) (3) $ 1.26 $ 1.36 $ 1.34 $ 1.44 $ 1.40
Adjusted net income per common share – Diluted (non-GAAP) (3) $ 1.26 $ 1.35 $ 1.33 $ 1.43 $ 1.39
Dividends per common share $ 0.38 $ 0.36 $ 0.35 $ 0.34 $ 0.33
Basic weighted-average common shares outstanding 35,445,087 36,154,922 36,645,181 36,676,887 36,646,198
Diluted weighted-average common shares outstanding 35,618,705 36,364,873 36,893,496 36,928,981 36,899,068
Effective tax rate 20.20 % 20.49 % 17.26 % 22.35 % 21.05 %
 

* These lines include a reclassification of network costs
directly related to interchange and debit card transaction fees.
ASU 2014-09 – Revenue recognition requires netting of these
expenses with the related revenue. All periods have been adjusted
for this reclassification, and there was no impact to net income
or capital for any period presented.

 
 

The Company reported consolidated net income of $44.4 million, or $1.25
per diluted common share for the three-months ended March 31, 2019, a
$4.6 million decrease, or $0.10 per share decline in EPS compared to the
fourth quarter of 2018. Compared to the first quarter of 2018, net
income totaled $42.3 million, or $1.15 per diluted common share.
Weighted average diluted shares declined by 746,000, from the fourth
quarter of 2018, due to the continuation of the Company buying back
shares under the Repurchase Program, which improved first quarter
diluted EPS by $0.03 per diluted share. Net interest income was down
$3.1 million compared to the fourth quarter of 2018 on $478,000 lower
interest income and $2.6 million higher interest expense. The interest
income decline was primarily the result of acquired loan interest income
declining more than the increase in non-acquired loan interest income.
Overall acquired loan accretion declined by $525,000 in the first
quarter of 2019 compared to the fourth quarter of 2018. The increase in
interest expense was due to the continued competition within our markets
for deposits and an increase in borrowings from the FHLB. The Company’s
cost of interest-bearing liabilities was 0.89% for the first quarter of
2019, an increase of 0.11% from the fourth quarter of 2018. Compared to
the first quarter of 2018, cost of funds increased by 0.48% which was
primarily the result of rising interest rates and competition within our
markets. The total provision for loan losses decreased $2.2 million
compared to the fourth quarter of 2018. Valuation allowance impairment
(release) related to acquired loans was $13,000 compared to $710,000
impairment in the fourth quarter of 2018. Several pools, in the fourth
quarter of 2018, within the acquired credit impaired loan portfolio
resulted in declining estimated cash flows and larger impairment. The
provision for loan losses related to acquired non-credit impaired loans
was lower by $406,000 compared to the fourth quarter of 2018. The
provision for loan losses on non-acquired loans was $1.1 million lower
compared to the fourth quarter of 2018 due primarily to continuation of
strong asset quality indicators and low net charge offs. Noninterest
income decreased by $3.6 million resulting primarily from declines in
each revenue category, except for net securities gains totaling $541,000
in the first quarter of 2019. Noninterest expense was higher by $1.6
million due to $980,000 in branch consolidation and other cost
initiatives and $134,000 in an FHLB prepayment penalty (no merger and
conversion related charges incurred in 4Q 2018). Absent the branch
consolidation expense, cost initiative expense and the FHLB prepayment
penalty, our noninterest expense increased by $461,000, which can be
attributed to an increase in other expense related to passive investment
losses on tax advantaged investments. All other variances in noninterest
expense offset.

Income Tax Expense

During the first quarter of 2019, our effective income tax rate declined
to 20.20% from 20.49% in the fourth quarter of 2018 and from 21.05% in
the first quarter of 2018. The primary factor in the lower effective tax
rate compared to the fourth quarter of 2018 was due to a reduction in
pre-tax book income, while the reduction in the rate compared to the
first quarter of 2018 was due primarily to an increase in federal tax
credits available, offset partially by an increase in pre-tax book
income.

 

Balance Sheet and Capital

(dollars in thousands, except per share and share data)         Ending Balance
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
BALANCE SHEET 2019 2018 2018 2018 2018
Assets
Cash and cash equivalents $ 949,591   $ 408,983   $ 307,309   $ 396,849   $ 644,504  
Investment securities:
Securities held to maturity – – 500 499 1,274
Securities available for sale, at fair value 1,466,249 1,517,067 1,551,281 1,577,999 1,640,837
Other investments   40,624     25,604     19,229     19,229     23,479  
Total investment securities   1,506,873     1,542,671     1,571,010     1,597,727     1,665,590  
Loans held for sale   33,297     22,925     33,752     36,968     42,690  
Loans:
Acquired credit impaired 452,258 485,119 512,633 551,979 597,274
Acquired non-credit impaired 2,378,737 2,594,826 2,786,102 3,076,424 3,274,938
Non-acquired 8,310,613 7,933,286 7,606,478 7,197,539 6,762,512
Less allowance for non-acquired loan losses   (52,008 )   (51,194 )   (49,869 )   (47,874 )   (45,203 )
Loans, net   11,089,600     10,962,037     10,855,344     10,778,068     10,589,521  
Other real estate owned (“OREO”) 11,297 11,410 12,119 17,222 11,073
Premises and equipment, net 322,553 241,076 241,909 245,288 253,605
Bank owned life insurance 230,629 230,105 229,075 227,588 226,222
Deferred tax asset 31,884 37,128 47,943 48,853 46,736
Mortgage servicing rights 32,415 34,727 36,056 35,107 34,196
Core deposit and other intangibles 59,619 62,900 66,437 69,975 70,376
Goodwill 1,002,900 1,002,900 1,002,900 1,002,722 999,592
Other assets   136,229     119,466     118,361     110,121     105,004  
Total assets $ 15,406,887   $ 14,676,328   $ 14,522,215   $ 14,566,488   $ 14,689,109  
 
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing $ 3,219,864 $ 3,061,769 $ 3,157,478 $ 3,152,828 $ 3,120,818
Interest-bearing   8,699,107     8,585,164     8,456,397     8,485,461     8,542,280  
Total deposits   11,918,971     11,646,933     11,613,875     11,638,289     11,663,098  

Federal funds purchased and securities sold under agreements to
repurchase

276,891 270,649 279,698 331,969 357,574
Other borrowings 616,250 266,084 115,919 115,754 215,589
Other liabilities   218,298     126,366     144,584     132,109     130,269  
Total liabilities   13,030,410     12,310,032     12,154,076     12,218,121     12,366,530  
 
Shareholders’ equity:
Preferred stock – $.01 par value; authorized 10,000,000 shares — — — — —
Common stock – $2.50 par value; authorized 80,000,000 shares 88,421 89,574 91,808 92,064 91,958
Surplus 1,719,396 1,750,495 1,805,685 1,811,446 1,807,989
Retained earnings 582,034 551,108 515,155 480,928 452,982
Accumulated other comprehensive loss   (13,374 )   (24,881 )   (44,509 )   (36,071 )   (30,350 )
Total shareholders’ equity   2,376,477     2,366,296     2,368,139     2,348,367     2,322,579  
Total liabilities and shareholders’ equity $ 15,406,887   $ 14,676,328   $ 14,522,215   $ 14,566,488   $ 14,689,109  
 
Common shares issued and outstanding 35,368,521 35,829,549 36,723,238 36,825,556 36,783,438
 
 

At March 31, 2019, the Company’s total assets were $15.4 billion, an
increase of $730.6 million, from December 31, 2018, and an increase of
$717.8 million, or 4.9%, from March 31, 2018. During the first quarter
of 2019, changes in the balance sheet include the following:

  1. Net loan growth totaled $128.3 million, or 4.7% annualized.
    Non-acquired loans increased by $377.3 million or 19.3% annualized and
    acquired loans decreased by $249.0 million, or 32.7% annualized.
  2. Sold 25,000 shares of Class B VISA common stock recognizing a gain of
    $3.5 million (11,500 shares remain).
  3. Sold $134.5 million of investment securities with an average yield of
    2.10%; and purchased $122.8 million of investment securities with an
    average yield of 3.14%. The sold securities resulted in a loss
    totaling approximately $3.0 million.
  4. Executed two 90-day FHLB advances of $350.0 million and $150.0 million
    each with a cash flow hedge, effectively locking in four and five year
    funding, respectively, at 2.44% and 2.21%. $150.0 million of the
    proceeds from the advances retired an existing FHLB advance, and the
    remainder will be utilized to increase the size of the investment
    portfolio and support future loan growth.
  5. Deposit growth totaled $272.0 million, or 9.5% annualized.
  6. Repurchased 500,000 common shares totaling $33.3 million under current
    Repurchase Program.
  7. These actions resulted in cash and cash equivalents increasing by
    $540.6 million from December 31, 2018.

The Company’s book value per common share increased to $67.19 per share
at March 31, 2019, compared to $66.04 at December 31, 2018 and $63.14 at
March 31, 2018. Total equity (capital) increased by $10.2 million due to
the improvement in the unrealized loss position of available for sale
securities at March 31, 2019. The shares of common stock repurchased
under the Repurchase Program and the dividend paid to the shareholders
was offset by the net income recorded during the first quarter of 2019.
Tangible book value (“TBV”) per common share increased by $0.85 per
share to $37.15 at March 31, 2019, compared to $36.30 at December 31,
2018, and increased by $3.10 per share, or 9.1%, from $34.05 at March
31, 2018. The quarterly increase of $0.85 per share in tangible book
value was the result of (1) earnings per share, excluding amortization
of intangibles, of $1.32, offset by the dividend paid to shareholders of
$0.38 per share; (2) an increase from the change in AOCI of $0.33 per
share; (3) the increase from the impact of share-based compensation and
employee stock purchases of $0.03 per share; and (4) a net decrease of
$0.45 per share due primarily to the buyback of 500,000 shares of common
stock.

“The Company took advantage of the balance sheet optionality and
increased liquidity to allow for both loan and securities growth,” said
John C. Pollok, Chief Financial Officer. “In addition, we will continue
to (1) focus on our capital management opportunities, and (2) focus on
expense management initiatives identified that should allow for limited
expense growth.”

 

Performance and Capital Ratios

        Three Months Ended
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
PERFORMANCE RATIOS 2019 2018 2018 2018 2018
Return on average assets (annualized) 1.21 % 1.33 % 1.28 % 1.12 % 1.19 %
Adjusted return on average assets (annualized) (non-GAAP) (3) 1.23 % 1.33 % 1.33 % 1.45 % 1.44 %
Return on average equity (annualized) 7.61 % 8.24 % 7.89 % 6.96 % 7.41 %
Adjusted return on average equity (annualized) (non-GAAP) (3) 7.69 % 8.24 % 8.23 % 9.06 % 8.98 %
Return on average tangible common equity (annualized) (non-GAAP) (7) 14.66 % 15.91 % 15.29 % 13.79 % 14.69 %
Adjusted return on average tangible common equity (annualized)
(non-GAAP) (3) (7) 		14.80 % 15.91 % 15.90 % 17.68 % 17.60 %
Efficiency ratio (tax equivalent) 63.24 % 59.43 % 62.31 % 65.63 % 66.67 %
Adjusted efficiency ratio (non-GAAP) (9) 62.52 % 59.43 % 59.53 % 57.26 % 60.04 %
Dividend payout ratio (2) 30.29 % 26.63 % 27.30 % 30.93 % 28.68 %
Book value per common share $ 67.19 $ 66.04 $ 64.49 $ 63.77 $ 63.14
Tangible common equity per common share (non-GAAP) (7) $ 37.15 $ 36.30 $ 35.37 $ 34.64 $ 34.05
 
CAPITAL RATIOS
Equity-to-assets 15.42 % 16.12 % 16.31 % 16.12 % 15.81 %
Tangible equity-to-tangible assets (non-GAAP) (7) 9.16 % 9.56 % 9.65 % 9.45 % 9.20 %
Tier 1 common equity (6) 11.8 % 12.1 % 12.3 % 12.0 % 11.8 %
Tier 1 leverage (6) 10.5 % 10.6 % 10.8 % 10.6 % 10.5 %
Tier 1 risk-based capital (6) 12.8 % 13.1 % 13.3 % 13.0 % 12.8 %
Total risk-based capital (6) 13.3 % 13.6 % 13.8 % 13.5 % 13.3 %
 
OTHER DATA
Number of branches 168 168 168 169 179
Number of employees (full-time equivalent basis) 2,589 2,602 2,640 2,654 2,700
 
 
 
 

Asset Quality

        Ending Balance
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
(Dollars in thousands) 2019 2018 2018 2018 2018
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans $ 15,910 $ 15,018 $ 15,315 $ 14,870 $ 14,307
Non-acquired OREO and other nonperforming assets   4,070     4,037     3,229     8,179     2,363  
Total non-acquired nonperforming assets   19,980     19,055     18,544     23,049     16,670  
Acquired
Acquired nonperforming loans 14,558 13,651 10,800 9,590 8,233
Acquired OREO and other nonperforming assets   7,782     7,755     9,302     9,527     9,139  
Total acquired nonperforming assets   22,340     21,406     20,102     19,117     17,372  
Total nonperforming assets $ 42,320   $ 40,461   $ 38,646   $ 42,166   $ 34,042  
 
 
Three Months Ended
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2019 2018 2018 2018 2018
ASSET QUALITY RATIOS:

Allowance for non-acquired loan losses as a percentage of
non-acquired loans (1)

0.63 % 0.65 % 0.66 % 0.67 % 0.67 %

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

326.89 % 340.88 % 325.62 % 321.95 % 315.95 %

Net charge-offs on non-acquired loans as a percentage of average
non-acquired loans (annualized) (1)

0.02 % 0.06 % 0.07 % 0.01 % 0.02 %

Net charge-offs on acquired non-credit impaired loans as a
percentage of average acquired non-credit impaired loans
(annualized) (1)

0.03 % 0.09 % 0.01 % 0.14 % 0.02 %

Total nonperforming assets as a percentage of total assets

0.27 % 0.28 % 0.27 % 0.29 % 0.23 %
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1) 0.19 % 0.19 % 0.20 % 0.21 % 0.21 %

Total nonperforming assets as a percentage of total non-acquired
loans and repossessed assets (1) (4)

0.24 % 0.24 % 0.24 % 0.32 % 0.25 %

Total nonperforming assets as a percentage of total assets (5)

0.13 % 0.13 % 0.13 % 0.16 % 0.11 %
 
 

Total nonperforming assets increased by $1.9 million to $42.3 million,
representing 0.27% of total assets, a decrease of 1 basis point compared
to December 31, 2018. The decrease was the result of an increase in
total assets of $730.6 million during the quarter. Non-performing
acquired non-credit impaired loans increased $907,000, and total $14.6
million. Legacy non-performing loans increased by $892,000 during the
first quarter of 2019 to $15.9 million at March 31, 2019. The allowance
for loan losses as a percentage of non-acquired nonaccrual loans was
327% at March 31, 2019, down from 341% in the fourth quarter of 2018,
and up from 316% at March 31, 2018.

At March 31, 2019, the allowance for non-acquired loan losses was $52.0
million, or 0.63%, of non-acquired period-end loans and $51.2 million,
or 0.65%, at December 31, 2018, and $45.2 million, or 0.67% at March 31,
2018. Net charge-offs within the non-acquired portfolio were $493,000,
or 0.02% annualized, in the first quarter of 2019, compared to $1.1
million, or 0.06% annualized, in the fourth quarter of 2018. First
quarter 2018 net charge-offs totaled $367,000, or 0.02% annualized. Net
charge-offs (recoveries) related to the non-acquired loan portfolio were
($235,000) during the first quarter of 2019. The remaining net
charge-offs were from overdraft and ready reserve accounts and totaled
$728,000.

During the first quarter of 2019, the provision for loan losses totaled
$1.3 million for the non-acquired loan portfolio compared to $2.5
million in the fourth quarter of 2018, and $2.1 million in the first
quarter of 2018.

Net charge offs related to “acquired non-credit impaired loans” were
$168,000, or 0.03% annualized, in the first quarter of 2019; and the
Company recorded a provision for loan losses, accordingly. Net
charge-offs in the fourth quarter of 2018 totaled $574,000, or 0.09%
annualized, and in the first quarter of 2018, net charge-offs totaled
$169,000, or 0.02% annualized. The charge off level within the acquired
non-credit impaired portfolio remains as expected.

During the first quarter of 2019, the Company recorded a net impairment
of $13,000 within the acquired credit impaired loan pools compared to
$710,000 impairment in the fourth quarter of 2018. During the first
quarter of 2018, the Company recorded net impairment of $163,000.

Total OREO remained relatively consistent from the end of 2018 and
declined to $11.3 million at March 31, 2019, down from $11.4 million at
December 31, 2018.

 

Net Interest Income and Margin

        Three Months Ended
March 31, 2019     December 31, 2018     March 31, 2018
(Dollars in thousands) Average     Income/     Yield/ Average     Income/     Yield/ Average     Income/     Yield/
YIELD ANALYSIS Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-Earning Assets:
Federal funds sold, reverse repo, and time deposits $ 248,620 $ 1,463 2.39 % $ 172,849 $ 1,032 2.37 % $ 165,752 $ 660 1.61 %
Investment securities (taxable) 1,327,336 8,597 2.63 % 1,358,978 8,838 2.58 % 1,453,480 8,788 2.45 %
Investment securities (tax-exempt) 187,732 1,496 3.23 % 188,666 1,457 3.06 % 212,719 1,559 2.97 %
Loans held for sale 19,308 214 4.49 % 24,820 291 4.65 % 32,517 307 3.83 %
Loans   11,023,005   131,620 4.84 %   10,928,294   132,250 4.80 %   10,604,506   126,734 4.85 %
Total interest-earning assets 12,806,001 143,390 4.54 % 12,673,607 143,868 4.50 % 12,468,974 138,048 4.49 %
Noninterest-earning assets   2,006,898   1,924,666   1,960,659
Total Assets $ 14,812,899 $ 14,598,273 $ 14,429,633
 
Interest-Bearing Liabilities:
Transaction and money market accounts $ 5,429,375 $ 9,340 0.70 % $ 5,310,048 $ 8,498 0.63 % $ 5,221,974 $ 2,893 0.22 %
Savings deposits 1,379,688 1,256 0.37 % 1,416,227 1,324 0.37 % 1,443,868 674 0.19 %
Certificates and other time deposits 1,773,365 6,049 1.38 % 1,804,939 5,488 1.21 % 1,758,223 3,346 0.77 %
Federal funds purchased and repurchase agreements 284,350 753 1.07 % 273,994 660 0.96 % 343,974 454 0.54 %
Other borrowings   301,696   2,725 3.66 %   122,676   1,506 4.87 %   225,496   1,708 3.07 %
Total interest-bearing liabilities 9,168,474 20,123 0.89 % 8,927,884 17,476 0.78 % 8,993,535 9,075 0.41 %
Noninterest-bearing liabilities 3,280,126 3,310,416 3,120,746
Shareholders’ equity   2,364,299   2,359,973   2,315,352
Total Non-IBL and shareholders’ equity   5,644,425   5,670,389   5,436,098
Total liabilities and shareholders’ equity $ 14,812,899 $ 14,598,273 $ 14,429,633
Net interest income and margin (NON-TAX EQUIV.) $ 123,267 3.90 % $ 126,392 3.96 % $ 128,973 4.19 %
Net interest margin (TAX EQUIVALENT) 3.92 % 3.98 % 4.22 %
 
Overall Cost of Funds (including demand deposits) 0.67 % 0.57 % 0.31 %
 
 

Contacts

Media Contact:
Kellee McGahey (843) 529-5574

Analyst Contact:
Jim Mabry (843) 529-5593

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SCHWAZZE

Schwazze Announces First Quarter 2024 Financial Results

Published

4 days ago

on

May 15, 2024

By

schwazze-announces-first-quarter-2024-financial-results

Schwazze Management to Host Conference Call Today at 5:00 p.m. Eastern Time

DENVER, May 15, 2024 /PRNewswire/ — Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (Cboe CA: SHWZ) (“Schwazze” or the “Company”), today announced financial and operational results for the first quarter ended March 31, 2024.

“We delivered another period of revenue growth in Q1 as we further refined our retail strategy while contending with the prolonged competitive challenges in Colorado and New Mexico,” said Forrest Hoffmaster, Interim CEO of Schwazze. “Throughout the quarter, we continued to sharpen our pricing and promotional efforts while enhancing the in-store experience, widening assortment, improving in-stock position, and advancing our loyalty program to attract and retain new customers. We also strengthened our wholesale business with quarter-over-quarter growth, while surpassing 30% total door penetration across both states.”

“The Colorado market remains highly competitive with more than 680 active recreational licenses, underscoring the importance of delivering an exceptional customer experience and fully integrated retail support program. Although retail pricing has recently stabilized, Colorado sales in Q1 were down 10% year-over-year due to lower volumes. Nonetheless, we significantly outpaced the market as our sales were up 9%, demonstrating the effectiveness of our operating playbook to compete in challenging environments. We expect to continue driving improvements in customer acquisition, retention, and loyalty as we further increase market share in the state.”

“In New Mexico, the proliferation of new licenses continued to outpace state cannabis sales as store count in Q1 increased 31% year-over-year while the market grew only 13%. In addition to pricing and promotional efforts, we’ve focused on driving traffic into our stores by expanding assortment with high quality flower and delivering an elevated customer experience. The New Mexico regulatory body has also increased its license enforcement efforts in recent months, contributing to more than 70 store closures and a 33% sequential decrease in net new store openings in the first quarter. We will continue to support the New Mexico Cannabis Control Division as it develops its regulatory framework.”

“Over the past four years we have rapidly scaled our footprint through 13 acquisitions, building a leading retail presence in both Colorado and New Mexico. We are beginning to see positive momentum from our pricing and promotional strategy and will remain focused on driving operating efficiencies while further optimizing our assets as we consolidate cultivation facilities and eliminate underperforming stores that do not meet our high-margin thresholds. We believe these initiatives, coupled with our operating playbook and strict cost controls, will enable us to return to stronger levels of profitability moving forward.”

First Quarter 2024 Financial Summary

$ in Thousands USD

Q1 2024

Q4 2023

Q1 2023

Total Revenue

$41,601

$43,325

$40,001

Gross Profit

$17,934

$7,034[1]

$21,849

Operating Expenses

$20,643

$23,276

$16,199

Income (Loss) from Operations

$(2,709)

$(16,242)

$5,650

Adjusted EBITDA[2]

$7,341

$10,953

$14,525

Operating Cash Flow

$(3,700)

$3,452

$(880)

Recent Highlights

  • Announced the grand opening of a medical and recreational dispensary in March under the Everest Apothecary banner in Las Cruces, New Mexico, increasing the Company’s retail footprint to 34 stores across the state.
  • Increased wholesale penetration in the first quarter to more than 30% of total doors in Colorado and New Mexico.
  • Lowell Herb Co. pre-roll sales increased more than 3x quarter-over-quarter in Colorado, where it continues to be the #1 pre-roll in the state.
  • Wana gummy sales up more than 2x quarter-over-quarter in New Mexico.

First Quarter 2024 Financial Results

Total revenue in the first quarter of 2024 increased 4% to $41.6 million compared to $40.0 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period, partially offset by continued pricing pressure and the proliferation of new licenses in New Mexico.

Gross profit for the first quarter of 2024 was $17.9 million or 43.1% of total revenue, compared to $21.8 million or 54.6% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by the aforementioned pricing pressure in New Mexico, as well as higher medical sales mix in Colorado.

____________________________

1 Q4 2023 Gross Profit includes one-time, non-cash inventory adjustments of approximately $13.1 million comprised of $3.1 million of product consolidation, obsolescence, and shrinkage expenses, $4.3 million of net realizable value adjustments, and $5.8 million of fair value adjustments on acquired inventory in New Mexico in 2023. 
2  Adjusted EBITDA is a non-GAAP measure as defined by the SEC, and represents earnings before interest, taxes, depreciation, and amortization, adjusted for other income, non-cash share-based compensation, one-time transaction related expenses, or other non-operating costs. The Company uses Adjusted EBITDA as it believes it better explains the results of its core business. See “ADJUSTED EBITDA RECONCILIATION (NON-GAAP)” section herein for an explanation and reconciliations of non-GAAP measure used throughout this release.

Operating expenses for the first quarter of 2024 were $20.6 million compared to $16.2 million for the same quarter last year. The year-ago period benefitted from a payroll tax credit of $3.9M. The remaining increase was primarily driven by personnel expenses and four-wall SG&A costs associated with 21 additional stores in Colorado and New Mexico that are still ramping.

Loss from operations for the first quarter of 2024 was $2.7 million compared to income from operations of $5.6 million in the same quarter last year. Net loss was $16.1 million for the first quarter of 2024 compared to net income of $1.7 million for the same quarter last year.

Adjusted EBITDA for the first quarter of 2024 was $7.3 million compared to $14.5 million for the same quarter last year. The decrease in Adjusted EBITDA was primarily driven by lower gross margin and higher operating expenses associated with the 21 additional stores that are still ramping.

As of March 31, 2024, cash and cash equivalents were $13.2 million compared to $19.2 million on December 31, 2023. Total debt as of March 31, 2024, was $159.7 million compared to $156.8 million on December 31, 2023.

Conference Call

The Company will conduct a conference call today, May 15, 2024, at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2024.

Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing [email protected].

Date: Wednesday, May 15, 2024
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 84167910
Webcast: SHWZ Q1 2024 Earnings Call

The conference call will also be broadcast live and available for replay on the investor relations section of the Company’s website at https://ir.schwazze.com.

Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 167910

If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.

About Schwazze

Schwazze (OTCQX: SHWZ) (Cboe CA: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to explore taking its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.

Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company’s leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.

Medicine Man Technologies, Inc. was Schwazze’s former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit https://schwazze.com/.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include financial outlooks; any projections of net sales, earnings, or other financial items; any statements of the strategies, plans and objectives of our management team for future operations; expectations in connection with the Company’s previously announced business plans; any statements regarding future economic conditions or performance; and statements regarding the intent, belief or current expectations of our management team. Such statements may be preceded by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intends,” “plans,” “strategy,” “prospects,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. We have based our forward-looking statements on management’s current expectations and assumptions about future events and trends affecting our business and industry. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Therefore, forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (SEC), including the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.

Investor Relations Contact
Sean Mansouri, CFA or Aaron D’Souza
Elevate IR
(720) 330-2829
[email protected]

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
For the Periods Ended March 31, 2024 and December 31, 2023
Expressed in U.S. Dollars

 March 31,

December 31, 

2024

2023
 

ASSETS

 

Current Assets

Cash & Cash Equivalents

$

13,151,317

$

19,248,932

Accounts Receivable, net of Allowance for Doubtful Accounts

3,356,032

4,261,159

Inventory

26,382,184

25,787,793

Marketable Securities, net of Unrealized Loss of $347,516 and Loss of $1,816, respectively

108,583

456,099

Prepaid Expenses & Other Current Assets

3,502,310

3,914,064

Total Current Assets

46,500,426

53,668,047

Non-Current Assets

Fixed Assets, net Accumulated Depreciation of $10,061,700 and $8,741,782, respectively

31,326,000

31,113,630

Investments

2,000,000

2,000,000

Investments Held for Sale

–

202,111

Goodwill

67,492,705

67,499,199

Intangible Assets, net Accumulated Amortization of $36,483,160 and $32,706,765, respectively

162,391,482

166,167,877

Other Non-Current Assets

1,328,187

1,263,837

Operating Lease Right of Use Assets

34,575,832

34,233,142

Deferred Tax Assets, net

992,144

1,996,489

Total Non-Current Assets

300,106,350

304,476,285

Total Assets

$

346,606,776

$

358,144,332
 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

Current Liabilities

Accounts Payable

$

9,443,233

$

13,341,561

Accrued Expenses

8,106,618

7,774,691

Derivative Liabilities

1,319,845

638,020

Lease Liabilities – Current

5,186,316

4,922,724

Current Portion of Long Term Debt

29,579,713

3,547,011

Income Taxes Payable

28,235,039

25,232,782

Total Current Liabilities

81,870,764

55,456,789

Non-Current Liabilities

Long Term Debt, net of Debt Discount & Issuance Costs

130,120,753

153,262,203

Lease Liabilities – Non-Current

30,735,072

30,133,452

Total Non-Current Liabilities

160,855,825

183,395,655

Total Liabilities

$

242,726,589

$

238,852,444

Stockholders’ Equity

Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 82,185 Shares Issued and

82,185 Outstanding as of March 31, 2024 and 85,534 Shares Issued and 85,534 Outstanding as of

December 31, 2023.

82

86

Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 79,168,539 Shares Issued

and 78,248,389 Shares Outstanding as of March 31, 2024 and 74,888,392 Shares Issued

and 73,968,242 Shares Outstanding as of December 31, 2023.

79,169

74,888

Additional Paid-In Capital

202,677,665

202,040,968

Accumulated Deficit

(96,843,602)

(80,790,927)

Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of March 31, 2024 and

920,150 Shares Held as of December 31, 2023.

(2,033,127)

(2,033,127)

Total Stockholders’ Equity

103,880,187

119,291,888

Total Liabilities & Stockholders’ Equity

$

346,606,776

$

358,144,332

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars

For the Three Months Ended

March 31,

2024

2023

(Unaudited)

(Unaudited)

Operating Revenues

Retail

$

37,633,252

$

35,820,111

Wholesale

3,898,320

4,058,925

Other

69,421

121,900

Total Revenue

41,600,993

40,000,936

Total Cost of Goods & Services

23,667,319

18,152,163

Gross Profit

17,933,674

21,848,773

Operating Expenses

Selling, General and Administrative Expenses

11,835,818

10,100,934

Professional Services

1,671,881

1,187,364

Salaries

6,880,988

4,695,971

Stock Based Compensation

253,916

214,544

Total Operating Expenses

20,642,603

16,198,813

Income from Operations

(2,708,929)

5,649,960

Other Income (Expense)

Interest Expense, net

(8,307,369)

(7,745,854)

Unrealized Gain (Loss) on Derivative Liabilities

(681,825)

8,501,685

Other Loss

10,500

–

Loss on Investment

(33,382)

–

Unrealized Gain on Investment

(347,516)

1,816

Total Other Income (Expense)

(9,359,592)

757,647

Pre-Tax Net Income (Loss)

(12,068,521)

6,407,607

Provision for Income Taxes

3,984,154

4,662,178

Net Income (Loss)

$

(16,052,675)

$

1,745,429

Less: Accumulated Preferred Stock Dividends for the Period

(2,155,259)

(2,029,394)

Net Income (Loss) Attributable to Common Stockholders

$

(18,207,934)

$

(283,965)

Earnings (Loss) per Share Attributable to Common Stockholders

Basic Earnings (Loss) per Share

$

(0.24)

$

(0.01)

Diluted Earnings (Loss) per Share

$

(0.24)

$

(0.06)

Weighted Average Number of Shares Outstanding – Basic

76,006,932

55,835,501

Weighted Average Number of Shares Outstanding – Diluted

76,006,932

101,608,278

Comprehensive Income (Loss)

$

(16,052,675)

$

1,745,429

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars

For the Three Months Ended

March 31,

2024

2023

(Unaudited)

(Unaudited)

Cash Flows from Operating Activities:

Net Income (Loss) for the Period

$

(16,052,675)

$

1,745,429

Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities

Depreciation & Amortization

5,096,314

6,151,395

Non-Cash Interest Expense

1,031,431

991,184

Non-Cash Lease Expense

2,871,226

2,251,459

Deferred Taxes

1,004,345

(637,225)

Loss on Investment

202,111

–

Change in Derivative Liabilities

681,825

(8,501,685)

Amortization of Debt Issuance Costs

421,512

421,513

Amortization of Debt Discount

2,303,246

1,999,933

(Gain) Loss on Investments, net

347,516

(1,816)

Stock Based Compensation

640,974

214,544

Changes in Operating Assets & Liabilities (net of Acquired Amounts):

Accounts Receivable

905,127

(118,181)

Inventory

(587,900)

(3,023,251)

Prepaid Expenses & Other Current Assets

411,754

(3,036,801)

Other Assets

(64,350)

360,674

Change in Operating Lease Liabilities

(2,348,703)

(1,531,765)

Accounts Payable & Other Liabilities

(3,566,401)

(3,464,671)

Income Taxes Payable

3,002,257

5,299,403

Net Cash Provided by (Used in) Operating Activities

(3,700,390)

(879,861)

Cash Flows from Investing Activities:

Collection of Notes Receivable

–

10,631

Purchase of Fixed Assets

(1,532,287)

(2,913,394)

Net Cash Provided by (Used in) Investing Activities

(1,532,287)

(2,902,763)

Cash Flows from Financing Activities:

Payment on Notes Payable

(864,938)

–

Net Cash Provided by (Used in) Financing Activities

(864,938)

–

Net (Decrease) in Cash & Cash Equivalents

(6,097,615)

(3,782,624)

Cash & Cash Equivalents at Beginning of Period

19,248,932

38,949,253

Cash & Cash Equivalents at End of Period

$

13,151,317

$

35,166,628

Supplemental Disclosure of Cash Flow Information:

Cash Paid for Interest

$

4,515,205

$

6,540,748

MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars

For the Three Months Ended

March 31,

2024

2023

Net Income (Loss)

$

(16,052,675)

$

1,745,429

Interest Expense, net

8,307,369

7,745,854

Provision for Income Taxes

3,984,154

4,662,178

Other (Income) Expense, net of Interest Expense

1,052,223

(8,503,501)

Depreciation & Amortization

5,618,834

6,612,814

Earnings Before Interest, Taxes, Depreciation and

Amortization (EBITDA) (non-GAAP)

$

2,909,905

$

12,262,774

Non-Cash Stock Compensation

253,916

214,544

Deal Related Expenses

637,761

1,195,802

Capital Raise Related Expenses

20,760

35,068

Severance

484,561

118,436

Retention Program Expenses

807,500

280,632

Pre-Operating & Dark Carry Expenses

1,053,837

391,917

One-Time Legal Settlements

417,653

–

Other Non-Recurring Items

754,751

25,707

Adjusted EBITDA (non-GAAP)

$

7,340,644

$

14,524,880

Revenue

41,600,993

40,000,936

Adjusted EBITDA Percent

17.6 %

36.3 %

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