SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 1, 2014
CENTERSTATE BANKS, INC.
(Exact name of registrant as specified in its charter)
| | | | |
| Florida | | 000-32017 | | 59-3606741 |
| (State or other jurisdiction | | (Commission | | (IRS employer |
| of incorporation) | | file number) | | identification no.) |
| | |
| 42745 U.S. Highway 27, Davenport, FL | | 33837 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (863) 419-7750
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On June 2, 2014, CenterState Banks, Inc. (the “Company”, “CSFL” or “CenterState”) furnished a Current Report on Form 8-K to report the June 1, 2014 completion of its previously announced transaction as described in the Agreement and Plan of Merger dated January 29, 2014, as amended (the “Agreement”) with First Southern Bancorp, Inc. (“FSOF” or “First Southern”) whereby FSOF merged with and into the Company. Pursuant to and simultaneously with the merger of FSOF with and into the Company, FSOF’s subsidiary bank, First Southern Bank (“FSB”), merged with and into the Company’s wholly owned subsidiary bank, CenterState Bank of Florida, N.A. (the “Bank”).
This Current Report on Form 8-K/A amends and supplements the disclosures provided in Items 2.01 and 9.01 of the Current Report on Form 8-K furnished on June 2, 2014. Except as otherwise provided herein, the other disclosures made in the Current Report furnished on June 2, 2014 remain unchanged. The Company does not anticipate that it will further amend this Current Report.
Statements made in this amendment, other than those concerning historical financial information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements regarding the Company’s expectations concerning its financial condition, operating results, cash flows, liquidity and capital resources, including the effects of the FSOF and FSB acquisitions and the final determination of the assets and liabilities acquired and their respective valuations. A discussion of risks, uncertainties and other factors that could cause actual results to differ materially from management’s expectations is set forth under the captions “Business - Note about Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
| Item 2.01. | Completion of Acquisition of Assets |
On June 1, 2014 the Company completed its previously announced merger transaction as set forth in the Agreement with FSOF, whereby FSOF merged with and into the Company. Pursuant to and simultaneously with the merger of FSOF with and into the Company, FSOF’s subsidiary bank, FSB merged with and into the Bank.
Pursuant to the terms of the Agreement, the Company purchased approximately $630.3 million of loans. The estimated fair market value of the loans was approximately $599.5 million or 95% of their outstanding unpaid principal balance.
The Company acquired 17 branches from FSOF of which 8 are owned and 9 are leased. Of the 17 branches acquired, the Company intends to sell or consolidate and close a total of 10 branches. On June 4, 2014, the Company entered into an agreement to sell 5 branch offices acquired as part of the FSOF acquisition and approximately $200 million of deposits, which includes a sixth branch office that was leased, and will be closed by the Company. These six branch offices are included in the 10 branches referred to above. The sale of the branches is expected to close in September 2014. The consolidation and closing of the remaining 4 branch offices will occur on September 19, 2014, the date scheduled for conversion of FSOF’s core processing system into the Company’s core system.
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In summary, the Company purchased the real estate of the 8 branches owned by FSOF for approximately $8.6 million, the estimated fair value based on current appraisals or sales contract. Five of these branches have been sold as discussed above and are expected to close in September 2014. Two of these branches will be closed by the Company in September 2014 and have been classified as held-for-sale at estimated fair value less cost to sell, or approximately $0.8 million. The remaining branch previously owned by FSOB will continue to be operated as a CenterState branch.
Of the 9 branch offices that were leased by FSOF, 3 will be closed by the Company in September 2014 and the remaining 6 will be assumed by the Company and operated as CenterState branches. Management has determined that based on current rents for the related markets, the leases assumed by the Company approximate fair value as of the acquisition date. The following is a schedule of minimum future lease payments pursuant to the operating leases assumed by the Company for the 6 offices that will continue to be operated by the Company as of the June 1, 2014 acquisition date. Amounts are in thousands of dollars.
| | | | |
7 months ending December 31, 2014 | | $ | 626 | |
Year 2015 | | | 618 | |
Year 2016 | | | 498 | |
Year 2017 | | | 321 | |
Year 2018 | | | 104 | |
Thereafter | | | 26 | |
| | | | |
Total | | $ | 2,193 | |
| | | | |
The Company is in the process of negotiating a termination payment for each of the 3 leased branch offices that will be closed on September 19, 2014 and the two supporting operation centers that are expected to be closed between September and December 2014. The termination expense is expected to be recognized in the Company’s financial statements in the third and fourth quarter of 2014. The following table presents the minimum future contractual lease payments, of the leases expected to be terminated, as of the June 1, 2014 acquisition date. Amounts are in thousands of dollars.
| | | | |
7 months ending December 31, 2014 | | $ | 233 | |
Year 2015 | | | 298 | |
Year 2016 | | | 213 | |
Year 2017 | | | 108 | |
Year 2018 | | | 68 | |
Thereafter | | | 145 | |
| | | | |
Total | | $ | 1,065 | |
| | | | |
All of the deposits, estimated fair value of approximately $852.6 million at date of acquisition, were assumed by the Bank. The Company did not pay a premium for the deposits assumed. As previously discussed, the Company entered into an agreement to sell substantially all of the deposits from 6 branch offices. The transaction is expected to close in September 2014. At June 1, 2014 the aggregate deposit balances in the identified accounts totaled approximately $192.6 million. The buyer has agreed to purchase these deposits at a premium of 1.5% times the average daily balance of the assumed deposits over a 10 day period ending on the day prior to the closing date of the transaction, expected to be September 19, 2014. These deposits were transferred to deposits held for sale on the Company’s June 1, 2014 Consolidated Balance Sheet.
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The Company recognized goodwill on this acquisition of approximately $0.5 million. Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to acquisition date fair values becomes available. Fair values are preliminary estimates due to pending appraisals on loans and other real estate owned.
The foregoing summary is not complete and is qualified in its entirety by reference to the full text of the form of the Agreement, incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (File No. 333-194950) and amendments thereto.
| Item 9.01 | Financial Statements and Exhibits |
| (a) | Financial Statements of Business Acquired |
Discussion
As set forth in Item 2.01 above, on June 1, 2014, the Company acquired all of the assets and assumed all of the deposits and other liabilities of FSOF and FSB pursuant to the Agreement. A narrative description of the anticipated effects of the FSOF acquisition (the “Acquisition”) on the Company’s financial condition, liquidity, capital resources and operating results is presented below. This discussion should be read in conjunction with the historical financial statements and the related notes of the Company, which have been filed with the Securities and Exchange Commission which are listed below and the Report of Independent Registered Public Accounting Firm, the Consolidated Financial Statements of FSOF which comprise the Consolidated Balance Sheets as of December 31, 2013 and 2012, and the related Consolidated Statements of Operations, Comprehensive Loss, Changes in Stockholders’ Equity, and Cash Flows for each of the three years in the period ended December 31, 2013, and the related Notes to the Consolidated Financial Statements which are attached hereto as Exhibit 99.1
| | • | | Report of Independent Registered Public Accounting Firm, the Company’s audited Consolidated Balance Sheets as of December 31, 2013 and 2012, and the related Consolidated Statements of Operations and Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows for each of the three years ending December 31, 2013, 2012 and 2011, and the Notes to the Consolidated Financial Statements. Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ending December 31, 2013 filed on March 5, 2014. |
| | • | | The Company’s unaudited Condensed Consolidated Balance Sheet as of March 31, 2014, and the related Condensed Consolidated Statements of Earnings and Comprehensive Income, Changes in Stockholders’ Equity, and Cash Flows for the three month periods ending March 31, 2014 and 2013, and the related Notes to the Condensed Consolidated Financial Statements. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2014 filed on May 6, 2014. |
| | • | | The Company’s unaudited Condensed Consolidated Balance Sheet as of June 30, 2014, and the related Condensed Consolidated Statements of Earnings and Comprehensive Income for the six months and three months ending June 30, 2014 and 2013, Changes in Stockholders’ Equity, and Cash Flows for the six month period ending June 30, 2014 and 2013, and the related Notes to the Condensed Consolidated Financial Statements. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2014 filed on August 5, 2014. |
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The Company’s primary reasons for the transaction were to further solidify its market share in the southeast Florida market as well as in central and northeastern Florida and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 35% and 33%, respectively, as compared with the balances at March 31, 2014, and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. The ability of the Company to successfully collect interest and principal on the loans acquired will also impact cash flows and operating results.
The Company estimated the acquisition date fair value of the acquired assets and assumed liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (ASC Topic 805) and ASC Topic 820, Fair Value Measurements. However, the amount that the Company realizes on these assets may differ materially from these carrying values primarily as a result of changes in the timing and amount of collections on the acquired loans in future periods.
Calculation of Purchase Price
The Company acquired 100% of the outstanding common stock of First Southern. The purchase price consisted of both cash and stock. Each share of First Southern common stock was exchanged for $3.00 cash and 0.3 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on May 30, 2014, the resulting purchase price was $195.4 million. The table below summarizes the purchase price calculation. Dollar amounts are in thousands, except per share data.
| | | | |
Number of shares of FSOF common stock outstanding at May 30, 2014 | | | 31,539,698 | |
FSOF preferred shares that converted to FSOF common shares upon the change in control | | | 48,375 | |
| | | | |
Total FSOF common shares including conversion of preferred shares | | | 31,588,073 | |
Per share exchange ratio | | | 0.3 | |
| | | | |
Number of shares of CenterState common stock | | | 9,476,424 | |
Multiplied by CenterState common stock price per share on May 30, 2014 | | $ | 10.62 | |
| | | | |
Fair value of CenterState common stock issued | | $ | 100,639 | |
| | | | |
Total FSOF common shares including conversion of preferred shares | | | 31,588,073 | |
Multiplied by the cash consideration each FSOF share is entitled to receive | | $ | 3.00 | |
| | | | |
Total cash consideration | | $ | 94,765 | |
| | | | |
Total stock consideration | | $ | 100,639 | |
Total cash consideration | | | 94,765 | |
| | | | |
Total purchase price | | $ | 195,404 | |
| | | | |
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Financial Condition
The total purchase price as shown in the table above is allocated to First Southern’s tangible and intangible assets and liabilities as of June 1, 2014 based on fair values as follows. Amounts are in thousands of dollars.
| | | | |
Cash and cash equivalents | | $ | 148,257 | |
Loans, excluding purchased credit impaired loans | | | 477,841 | |
Purchased credit impaired loans | | | 121,684 | |
Investments | | | 204,723 | |
Interest receivable | | | 2,007 | |
Branch real estate | | | 1,594 | |
Furniture and fixtures | | | 1,282 | |
Bank property held for sale | | | 7,119 | |
Federal Reserve Bank and Federal Home Loan Bank stock | | | 5,576 | |
Bank owned life insurance | | | 2,555 | |
Other repossessed real estate owned covered by FDIC loss share agreements | | | 22,731 | |
Other repossessed real estate owned | | | 454 | |
Deferred tax asset | | | 43,889 | |
Other assets | | | 4,581 | |
Core deposit intangible | | | 7,396 | |
Goodwill | | | 541 | |
Deposits | | | (662,959 | ) |
Deposits held for sale | | | (189,674 | ) |
Other liabilities | | | (4,193 | ) |
| | | | |
Total preliminary estimated acquisition consideration | | $ | 195,404 | |
| | | | |
The list below summarizes the preliminary estimates of the fair value of the assets purchased, excluding goodwill, and liabilities assumed as of the June 1, 2014 purchase date. Amounts are in thousands of dollars.
| | | | |
Cash and cash equivalents | | $ | 148,257 | |
Loans, excluding purchased credit impaired loans | | | 477,841 | |
Purchased credit impaired loans | | | 121,684 | |
Investments | | | 204,723 | |
Interest receivable | | | 2,007 | |
Branch real estate | | | 1,594 | |
Furniture and fixtures | | | 1,282 | |
Bank property held for sale | | | 7,119 | |
Federal Reserve Bank and Federal Home Loan Bank stock | | | 5,576 | |
Bank owned life insurance | | | 2,555 | |
Other repossessed real estate owned covered by FDIC loss share agreements | | | 22,731 | |
Other repossessed real estate owned | | | 454 | |
Core deposit intangible | | | 7,396 | |
Deferred tax asset | | | 43,889 | |
Other assets | | | 4,581 | |
| | | | |
Total assets acquired | | $ | 1,051,689 | |
| | | | |
Liabilities: | | | | |
Deposits | | | 662,959 | |
Deposits held for sale | | | 189,674 | |
Other liabilities | | | 4,193 | |
| | | | |
Total liabilities assumed | | $ | 856,826 | |
| | | | |
Net assets acquired, excluding goodwill | | $ | 194,863 | |
| | | | |
In the acquisition, the Company purchased $599.5 million of loans at fair value, net of $30.8 million, or 4.9%, estimated discount to the outstanding principal balance, representing 33% of the Company’s total
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loans at March 31, 2014. Of the total loans acquired, management identified $121.7 million with credit deficiencies. All loans that were on non-accrual status, all TDRs, all impaired loans, all loans previously identified by FSOF with credit deficiencies and any other loan identified by the Company with a probable credit deficiency were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of June 1, 2014 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments. Amounts are in thousands of dollars.
| | | | |
Contractually required principal and interest | | $ | 180,960 | |
Non-accretable difference | | | (33,527 | ) |
| | | | |
Cash flows expected to be collected | | | 147,433 | |
Accretable yield | | | (25,749 | ) |
| | | | |
Total purchased credit-impaired loans acquired | | $ | 121,684 | |
| | | | |
The table below presents information with respect to the fair value of acquired loans and other interest earning assets, as well as their unpaid principal balance (“Book Balance”) at acquisition date, contractual term and average contractual yield as of the June 1, 2014 acquisition date. Amounts are in thousands of dollars.
| | | | | | | | | | | | | | | | | | | | |
| | | book
balance | | | fair
value | | | weighted
average
months to
maturity | | | average
contractual
interest
rate | | | effective
interest
rate | |
Interest bearing deposits at Federal Reserve Bank | | $ | 144,966 | | | $ | 144,966 | | | | — | | | | 0.25 | % | | | 0.25 | % |
| | | | | |
Investments | | | 205,538 | | | | 204,723 | | | | 98 | | | | 2.41 | % | | | 2.41 | % |
| | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | |
Single family residential real estate | | $ | 60,332 | | | $ | 57,693 | | | | 321 | | | | 3.38 | % | | | 3.71 | % |
Commercial real estate | | | 387,589 | | | | 382,162 | | | | 73 | | | | 4.62 | % | | | 5.10 | % |
Construction/development/land | | | 17,238 | | | | 15,942 | | | | 77 | | | | 4.14 | % | | | 5.70 | % |
Commercial loans | | | 20,267 | | | | 19,906 | | | | 58 | | | | 4.81 | % | | | 4.96 | % |
Consumer and other loans | | | 2,496 | | | | 2,138 | | | | 4 | | | | 5.23 | % | | | 4.83 | % |
Purchased credit-impaired | | | 142,414 | | | | 121,684 | | | | 50 | | | | 5.27 | % | | | 7.11 | % |
| | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 630,336 | | | $ | 599,525 | | | | 91 | | | | 4.64 | % | | | 5.38 | % |
| | | | | | | | | | | | | | | | | | | | |
Total earning assets | | $ | 980,840 | | | $ | 949,214 | | | | 79 | | | | 3.53 | % | | | 3.96 | % |
| | | | | | | | | | | | | | | | | | | | |
Investments acquired pursuant to the acquisition of FSOF were sold in June 2014. The Company did not recognize an accounting gain or loss on the subsequent sale of these investments.
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The following table reflects the scheduled maturities of the acquired loans at fair value at the June 1, 2014 acquisition date. Amounts are in thousands of dollars.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | single family
residential
real estate | | | commercial
real estate | | | construction,
dev., & land | | | commercial
& industrial | | | consumer | | | total
loans | |
Contractual maturities: | | | | | | | | | | | | | | | | | | | | | | | | |
1 year or less | | $ | 11,050 | | | $ | 100,377 | | | $ | 9,056 | | | $ | 8,984 | | | $ | 1,933 | | | $ | 131,400 | |
1 - 5 years | | | 1,242 | | | | 173,142 | | | | 5,996 | | | | 7,709 | | | | 205 | | | | 188,294 | |
After 5 years | | | 54,639 | | | | 205,256 | | | | 13,902 | | | | 6,034 | | | | — | | | | 279,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 66,931 | | | $ | 478,775 | | | $ | 28,954 | | | $ | 22,727 | | | $ | 2,138 | | | $ | 599,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Rate sensitivity: | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed | | $ | 11,332 | | | $ | 226,295 | | | $ | 9,418 | | | $ | 11,513 | | | $ | 502 | | | $ | 259,060 | |
Variable | | | 55,599 | | | | 252,480 | | | | 19,536 | | | | 11,214 | | | | 1,636 | | | | 340,465 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 66,931 | | | $ | 478,775 | | | $ | 28,954 | | | $ | 22,727 | | | $ | 2,138 | | | $ | 599,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
In the acquisition, the Company assumed $852.6 million in deposits at estimated fair value. Of this amount, $189.7 million is under a purchase and assumption agreement, as discussed previously. The transaction is expected to close in September 2014. The amount of deposits acquired and not under agreement to sell, approximately $663.0 million, represents approximately 26% of the Company’s total deposits of $2,558.7 million at March 31, 2014. Non-interest bearing deposits comprise about 18%, money market accounts comprise about 42%, and time deposits comprise about 18% of the assumed deposits not held for sale. The remainder is in interest bearing accounts and regular savings accounts. A schedule of the deposits not held for sale assumed at June 1, 2014 at fair value is listed in the table below. Amounts are in thousands of dollars.
| | | | | | | | |
| | | fair value
at June 1,
2014 | | | weighted
average
interest
rate | |
Non-interest bearing deposits | | $ | 121,623 | | | | — | % |
Interest bearing deposits: | | | | | | | | |
Interest bearing demand deposits | | | 46,830 | | | | 0.08 | % |
Savings deposits | | | 94,818 | | | | 0.01 | % |
Money market deposits | | | 279,459 | | | | 0.39 | % |
Time deposits less than $100,000 | | | 59,797 | | | | 0.92 | % |
Time deposits of $100,000 or greater | | | 60,432 | | | | 0.89 | % |
| | | | | | | | |
Total deposits assumed | | $ | 662,959 | | | | 0.26 | % |
| | | | | | | | |
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The following table presents the amount of time deposits, excluding time deposits held for sale, assumed at June 1, 2014, maturing during the periods reflected below. Amounts are in thousands of dollars.
| | | | |
| | | Amount | |
June 1, 2014 thru May 31, 2015 | | $ | 69,935 | |
June 1, 2015 thru May 31, 2016 | | | 27,162 | |
June 1, 2016 thru May 31, 2017 | | | 7,674 | |
June 1, 2017 thru May 31, 2018 | | | 10,784 | |
June 1, 2018 thru May 31, 2019 | | | 4,629 | |
Thereafter | | | 45 | |
| | | | |
Total | | $ | 120,229 | |
| | | | |
In its assumption of the deposit liabilities, the Company believed that these deposits have an intangible value. The Company applied ASC Topic 805 which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $7.4 million, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. The table below presents the estimated amortization expense for each of the next ten years. Amounts are in thousands of dollars.
| | | | | | | | | | | | |
year 1 | | $ | 1,109 | | | | | year 6 | | $ | 643 | |
year 2 | | | 943 | | | | | year 7 | | | 643 | |
year 3 | | | 802 | | | | | year 8 | | | 643 | |
year 4 | | | 681 | | | | | year 9 | | | 643 | |
year 5 | | | 643 | | | | | year 10 | | | 646 | |
| | | | | | | | | | | | |
| | | | | | | | Total | | $ | 7,396 | |
| | | | | | | | | | | | |
Future amortization of this core deposit intangible asset over the estimated life will decrease results of operations, net of any potential tax effect. Since amortization is a non cash item, it will have no effect upon future liquidity and cash flows. For the calculation of regulatory capital, core deposit intangible asset is disallowed and is a reduction to equity capital. The Company expects that disallowing this intangible asset should not materially adversely affect the Company’s regulatory capital ratios.
The core deposit intangible asset is subject to significant estimates by management related to the value and the life of the asset. These estimates could change over time. The Company will review the valuation of this asset periodically to ensure that no impairment has occurred. If any impairment is subsequently determined, the Company will record the impairment as an expense in its consolidated statement of operations.
Non performing loans
At the acquisition date, First Southern had total non-accrual loans of $32.2 million and no loans that were past due 90 days or more and still accruing. All loans that were on non-accrual status, TDRs, or identified as impaired as of the acquisition date were considered by CenterState’s management to be credit impaired and will be accounted for pursuant to ASC Topic 310-30. Loans identified as such had an aggregate principal balance of $142.4 million and an estimated fair value, as of the acquisition date, equal to $121.7 million.
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Other real estate owned
As part of the acquisition, the Company acquired OREO with a fair value less estimated selling expenses of $23.2 million that First Southern obtained through foreclosure and repossession. Fair value was based on current appraisals (appraisals less than one year old). Of the $24.3 million of OREO acquired, $22.7 million is covered by FDIC loss share agreements. OREO is further delineated below. Amounts are in thousands of dollars.
| | | | |
Description of other real estate owned | | fair value at
June 1, 2014 | |
13 single family homes | | $ | 2,141 | |
15 commercial buildings | | | 12,403 | |
Land / various acreages | | | 8,641 | |
| | | | |
Total | | $ | 23,185 | |
FDIC loss sharing agreements
FSOF’s loss share agreements with the FDIC have been transferred to the Company as part of the acquisition. The loss share agreements with the FDIC have provisions by which the FDIC is required to reimburse the Company for certain losses including up to 90 days of accrued but unpaid interest and direct expenses related to the resolution of assets for which a loss has been incurred. Generally, the agreements carry terms of five years from the date of acquisition for non-single family or commercial assets and ten years from the date of acquisition for single family assets. The following table summarizes the loss-share tranches with their respective loss coverage percentage limits. Amounts are in thousands of dollars.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Haven Trust Bank of Florida | |
| | | Single Family Residential Loans | | | Non-Single Family Residential Loans | |
| | | range of losses | | | loss share
percentage | | | range of losses | | | loss share
percentage | |
1st Tranche | | $ | 0 | | | | — | | | $ | 1,292 | | | | 70 | % | | $ | 0 | | | | — | | | $ | 28,574 | | | | 70 | % |
2nd Tranche | | $ | 1,293 | | | | — | | | $ | 1,878 | | | | 0 | % | | $ | 28,575 | | | | — | | | $ | 38,169 | | | | 0 | % |
3rd Tranche | | $ | 1,879 | | | | — | | | | unlimited | | | | 70 | % | | $ | 38,170 | | | | — | | | | unlimited | | | | 70 | % |
| |
| | | First Commercial Bank of Florida | |
| | | Single Family Residential Loans | | | Non-Single Family Residential Loans | |
| | | range of losses | | | loss share
percentage | | | range of losses | | | loss share
percentage | |
1st Tranche | | $ | 0 | | | | — | | | $ | 5,905 | | | | 70 | % | | $ | 0 | | | | — | | | $ | 95,792 | | | | 70 | % |
2nd Tranche | | $ | 5,906 | | | | — | | | $ | 9,902 | | | | 30 | % | | $ | 95,793 | | | | — | | | $ | 160,396 | | | | 30 | % |
3rd Tranche | | $ | 9,903 | | | | — | | | | unlimited | | | | 75 | % | | $ | 160,397 | | | | — | | | | unlimited | | | | 75 | % |
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As of the last loss certificate filed, the Company is in the following loss share Tranche:
| | | | | | | | |
| | | Haven Trust Bank of Florida | | First Commercial Bank of Florida |
| | | Current Tranche (1) | | Remaining (2) | | Current Tranche (1) | | Remaining (2) |
Single Family Residential Loans | | 1st Tranche (70%) | | $500 | | 3rd Tranche (75%) | | unlimited |
Non-Single Family Residential Loans | | 2nd Tranche (0%) | | $8,900 | | 2nd Tranche (30%) | | $29,000 |
| note 1: | The current Tranche as of the last loss share certificate filed with the FDIC and the related loss share percentage. |
| note 2: | The approximate amount of losses eligible for reimbursement remaining in the current Tranche. |
The FDIC indemnification asset represents the estimated amounts due from the FDIC pursuant to the respective loss share agreement. The FDIC indemnification asset related to the loss share agreements assumed from FSOF as discussed above is equal to approximately $2.6 million at the June 1, 2014 acquisition date.
The FDIC loss share agreements allow for the recovery of some payments made for loss share reimbursements under certain conditions based on the actual performance of the portfolios acquired. The true-up payment is estimated and accrued for as part of the overall FDIC indemnification asset analysis and is reflected as a separate liability. The true-up liability related to the loss share agreements acquired pursuant to the FSOF acquisition was approximately $0.7 million at the June 1, 2014 acquisition date and is included in other liabilities.
Operating results and cash flows
Management has from time to time become aware of acquisition opportunities and has performed various levels of review related to potential acquisitions in the past. The FSOF acquisition was attractive to the Company for a variety of reasons including the following:
| | • | | attractiveness in the pricing of the acquired loans; |
| | • | | ability to increase the Company’s market share in southeast, central and northeast Florida; |
| | • | | attractiveness of core deposit customer relationships; and, |
| | • | | opportunities to enhance income and efficiency due to duplications of effort and decentralized processes as the Company expects to enhance income by centralizing some duties and removing duplications of effort. |
Based on these and other factors, the Company believes that the FSOF acquisition will have a positive impact on its earnings after the 10 branches are closed in September 2014, the two operations centers are closed, the system conversion scheduled for September 19, 2014 occurs, and the reduction in branch and support staff occurs, which is expected to occur during the third and fourth quarter of 2014.
The total assets acquired, approximately $1.052 billion, excluding goodwill, represented approximately 35% of the Company’s $3.006 billion of total assets as of March 31, 2014, and total deposits assumed, approximately $853 million, represented approximately 33% of the Company’s $2.559 billion of total deposits reported as of March 31, 2014. The Company believes that the transaction will improve net interest income, as the Company earns more from interest earned on its loans and investments than it pays in interest on deposits.
11
Liquidity and capital resources
The FSOF acquisition enhanced the liquidity position of the Company. The Company acquired $148 million of cash and cash equivalents. This addition to the Company’s balance sheet represents additional support for the Company’s liquidity needs.
Deposits, excluding deposits held for sale, with an estimated fair value of $663 million were also assumed. Of this amount approximately 18% is in noninterest bearing deposits, 42% is in money market accounts, 18% in time deposits and the remainder is in checking accounts and regular savings accounts.
At March 31, 2014, the Company and the Bank were considered “well-capitalized” based on calculations of relevant regulatory ratios. The Company, the Bank, FSOF and FSB had the following capital ratios at March 31, 2014.
| | | | | | | | | | | | | | | | | | |
| | | regulatory
guideline amounts
to be considered | | Actual at March 31, 2014 | |
| | | well capitalized | | Company | | | Bank | | | FSOF | | | FSB | |
Tier 1 leverage ratio | | 5.0% | | | 10.0 | % | | | 8.7 | % | | | 17.0 | % | | | 13.4 | % |
Tier 1 risk base ratio | | 6.0% | | | 14.8 | % | | | 12.8 | % | | | 24.9 | % | | | 19.1 | % |
Total risk based ratio | | 10.0% | | | 15.8 | % | | | 13.9 | % | | | 26.2 | % | | | 20.4 | % |
The acquisition of FSOF did not have a material adverse effect on the Company’s regulatory capital ratios. The Company and Bank remain “well-capitalized” after taking into consideration the results of the FSOF transaction.
12
Financial Statements
Attached hereto as Exhibit 99.1 and incorporated by reference into this Item 901(a) are FSOF audited consolidated financial statements as of December 31, 2013 and 2012 and the years then ended.
| (b) | Pro Forma Financial Statements |
Balance Sheets
The pro forma condensed consolidated balance sheet presented below assumes the transaction occurred at March 31, 2014. Adjusting entries are explained below. Amounts are in thousands of dollars.
| | | | | | | | | | | | | | | | |
| | | CenterState
Mar 31, 2014
as reported | | | FSOF
Mar 31, 2014
as reported | | | Pro Forma
adjustments | | | Pro Forma
Mar 31, 2014
combined | |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 220,261 | | | $ | 164,643 | | | | ($94,764 | ) a | | $ | 290,140 | |
Investment securities, at fair value | | | 617,143 | | | | 214,509 | | | | (814 | ) c | | | 830,838 | |
| | | | |
Loans | | | 1,815,634 | �� | | | 630,916 | | | | (30,811 | ) d | | | 2,415,739 | |
Allowance for loan losses | | | (20,096 | ) | | | (11,077 | ) | | | 11,077 | e | | | (20,096 | ) |
| | | | | | | | | | | | | | | | |
Net loans | | | 1,795,538 | | | | 619,839 | | | | | | | | 2,395,643 | |
| | | | |
OREO | | | 23,787 | | | | 31,297 | | | | (3,561 | ) h | | | 51,523 | |
Bank premises and equipment, net | | | 95,103 | | | | 13,193 | | | | (684 | ) g | | | 107,612 | |
Goodwill | | | 76,440 | | | | 23,713 | | | | (23,713 | ) i | | | 76,440 | |
Other intangibles | | | 9,913 | | | | 557 | | | | 6,839 | j,k | | | 17,309 | |
Bank owned life insurance | | | 54,574 | | | | 2,545 | | | | | | | | 57,119 | |
FDIC indemnification asset | | | 64,719 | | | | 5,332 | | | | (2,502 | ) l | | | 67,549 | |
Prepaid and other assets | | | 48,219 | | | | 9,787 | | | | 42,333 | f,m,p | | | 100,339 | |
| | | | | | | | | | | | | | | | |
Total Assets | | $ | 3,005,697 | | | $ | 1,085,415 | | | | | | | $ | 3,994,512 | |
| | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity: | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Deposits | | $ | 2,558,704 | | | $ | 881,402 | | | | ($1,594 | ) n | | $ | 3,438,512 | |
Other borrowings | | | 71,299 | | | | — | | | | | | | | 71,299 | |
Corporate debentures | | | 23,785 | | | | — | | | | | | | | 23,785 | |
Payables and other liabilities | | | 18,745 | | | | 2,954 | | | | 569 | o | | | 22,268 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | 2,672,533 | | | | 884,356 | | | | | | | | 3,555,864 | |
| | | | |
Stockholders’ Equity: | | | | | | | | | | | | | | | | |
Common Stock | | | 355 | | | | 318 | | | | (223 | ) b,r | | | 450 | |
Additional paid in capital | | | 287,449 | | | | 272,049 | | | | (168,661 | ) b,r | | | 390,837 | |
Treasury shares | | | — | | | | (2,866 | ) | | | 2,866 | r | | | — | |
Retained earnings (deficit) | | | 48,716 | | | | (63,910 | ) | | | 65,911 | q,r | | | 50,717 | |
Accumulated other comprehensive loss | | | (3,356 | ) | | | (4,532 | ) | | | 4,532 | r | | | (3,356 | ) |
| | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 333,164 | | | | 201,059 | | | | | | | | 438,648 | |
| | | | | | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 3,005,697 | | | $ | 1,085,415 | | | | | | | $ | 3,994,512 | |
| | | | | | | | | | | | | | | | |
13
Balance sheet – pro forma adjustments
| | | | | | | | | | |
| | | | | debit | | | credit | |
a | | Cash | | | | | | $ | 94,764 | |
b | | Common stock | | | | | | | 95 | |
b | | Additional paid in capital, common | | | | | | | 103,388 | |
c | | Investment securities | | | | | | | 814 | |
d | | Loans | | | | | | | 30,811 | |
e | | Allowance for loan losses | | $ | 11,077 | | | | | |
f | | Interest receivable | | | | | | | 18 | |
g | | Property and equipment, net | | | | | | | 684 | |
h | | Other real estate owned | | | | | | | 3,561 | |
i | | Goodwill (existing goodwill) | | | | | | | 23,713 | |
j | | Remove existing CDI | | | | | | | 557 | |
k | | New CDI | | | 7,396 | | | | | |
l | | FDIC indemnification asset | | | | | | | 2,502 | |
m | | Deferred tax asset | | | 28,060 | | | | | |
n | | Deposits | | | 1,594 | | | | | |
o | | FDIC clawback liability | | | | | | | 569 | |
p | | Deferred tax | | | 14,291 | | | | | |
q | | Preliminary bargain purchase gain | | | | | | | 2,001 | |
r | | Common Stock | | | 318 | | | | | |
r | | Additional paid in capital, common | | | 272,049 | | | | | |
r | | Treasury shares | | | | | | | 2,866 | |
r | | Retained earnings (deficit) | | | | | | | 63,910 | |
r | | Accumulated other comprehensive loss | | | | | | | 4,532 | |
| a. | Pro-forma payment of the cash consideration component of total merger consideration to First Southern shareholders. |
| b. | CenterState common shares issued to First Southern shareholders representing the stock consideration component of the total merger consideration. For the purpose of this pro-forma presentation, the value of a share of CenterState common stock was assumed to equal its closing price on March 31, 2014, the pro forma date, as reported by NASDAQ ($10.92 per share). |
| c. | Adjustment to investment securities to reflect the preliminary estimated fair value at acquisition date. |
| d. | Adjustment to loans to reflect the preliminary estimated fair value at acquisition date. |
| e. | Adjustment to allowance for loan losses to reflect the reversal of First Southern’s allowance for loan and lease losses. |
| f. | Adjustment to other assets to reflect the reversal of accrued interest receivable on purchase credit impaired loans at acquisition date. |
| g. | Adjustment to bank property and equipment at First Southern to reflect the preliminary estimated fair value at acquisition date. |
| h. | Adjustment to other real estate owned to reflect preliminary estimated fair value at acquisition date. |
| i. | Adjustment to goodwill to reflect the reversal of First Southern’s goodwill. |
| j. | Adjustment to intangible assets to reflect the reversal of First Southern’s existing core deposit intangible (“CDI”). |
| k. | Adjustment to intangible assets to reflect the preliminary estimate of the core deposit intangible (“CDI”) at the acquisition date. |
| l. | Adjustment to FDIC indemnification asset to reflect estimated receivables from FDIC loss share agreements at acquisition date. |
| m. | Adjustment to deferred tax asset to reflect the reversal of First Southern’s deferred tax asset valuation. |
| n. | Adjustment to deposits to reflect preliminary estimated fair value at the acquisition date. |
| o. | Adjustment to other liabilities to reflect the preliminary estimated fair value of FDIC clawback liability at acquisition date. |
| p. | Adjustments to other assets to reflect the effect on deferred tax for fair value adjustments, change in federal tax rate, and bargain purchase gain calculated assuming the transaction closed on March 31, 2014. Seenote 1 below for further explanation of the effect on the net deferred tax asset and a discussion relating to the bargain purchase gain. |
| q. | Preliminary bargain purchase gain, net of deferred tax, calculated as if the net assets were acquired on March 31, 2014. |
| r. | Adjustment to reflect the reversal of First Southern’s common equity. |
14
Note 1, as referenced in adjustment “p” above.
The components of the adjustment to the net deferred tax asset (“DTA”) are as follows (amounts are in thousands of dollars):
| | | | | | |
| | $17,277 | | | dr. | | net deferred tax effect on purchase accounting adjustments (adjusting the assets and liabilities to estimated fair value ) |
| | (1,723) | | | cr. | | net effect of adjusting FSOF’s DTA inventory for a change in tax rates (37.63% to 38.575%) |
| | (1,263) | | | cr. | | tax effect on the estimated bargain purchase gain assuming the transaction closed on March 31, 2014 |
| | | | | | |
| | $14,291 | | | dr. | | net adjustment as presented in adjustment “p” above |
The difference between the estimated bargain purchase gain of $3.273 million ($2.010 million after tax) calculated on a pro forma basis as if the transaction closed on March 31, 2014 and the preliminary goodwill calculation as of the actual June 1, 2014 transaction date ($0.541 million) is primarily due to the merger related expenses incurred by FSOF subsequent to March 31, 2014 and prior to June 1, 2014. These fees were primarily change in control and related compensation fees, legal fees and investment banking fees incurred by FSOF prior to the acquisition date.
Income Statements
The pro forma condensed consolidated income statement for the three month period ending March 31, 2014 assumes the FSOF transaction closed on January 1, 2013. On January 17, 2014, the Company completed its acquisition of Gulfstream Bancshares, Inc. (“Gulfstream”). Gulfstream is included in the Company’s operating results for the three month period ending March 31, 2014 and as such Gulfstream is not assumed to be closed on January 1, 2013 for the purposes of the three month pro forma income statements ending March 31, 2014 presented below.
The pro forma consolidated condensed income statement for the year ending December 31, 2013, also presented below, assumes both the FSOF and Gulfstream transactions closed on January 1, 2013. Adjusting entries are explained below. Amounts for shares outstanding and dollars presented are in thousands.
15
| | | | | | | | | | | | | | | | |
For the 3 months ending March 31, 2014: | | CenterState
as reported | | | FSOF as
reported | | | Pro Forma
adjustments | | | Pro Forma
combined | |
Interest income: | | | | | | | | | | | | | | | | |
Loans | | $ | 25,729 | | | $ | 8,042 | | | $ | 1,013 | e | | $ | 34,784 | |
Investment securities available for sale | | | | | | | | | | | | | | | | |
Taxable | | | 3,478 | | | | 1,261 | | | | | | | $ | 4,739 | |
Tax-exempt | | | 336 | | | | — | | | | | | | $ | 336 | |
Federal funds sold and other | | | 239 | | | | 151 | | | | | | | | 390 | |
| | | | | | | | | | | | | | | | |
Total interest income | | | 29,782 | | | | 9,454 | | | | | | | | 40,249 | |
| | | | |
Interest expense: | | | | | | | | | | | | | | | | |
Deposits | | | 1,337 | | | | 962 | | | | (108 | ) d | | | 2,191 | |
Other borrowings | | | 252 | | | | — | | | | (11 | ) c | | | 241 | |
| | | | | | | | | | | | | | | | |
Total interest expense | | | 1,589 | | | | 962 | | | | | | | | 2,432 | |
| | | | |
Net interest income | | | 28,193 | | | | 8,492 | | | | | | | | 37,817 | |
Negative provision for loan losses | | | (41 | ) | | | (1,965 | ) | | | | | | | (2,006 | ) |
| | | | | | | | | | | | | | | | |
Net interest income after loan loss provision | | | 28,234 | | | | 10,457 | | | | | | | | 39,823 | |
| | | | |
Non interest income: | | | | | | | | | | | | | | | | |
Income from correspondent banking and bond sales division | | | 3,136 | | | | — | | | | | | | | 3,136 | |
Other correspondent banking revenue | | | 795 | | | | — | | | | | | | | 795 | |
Service charges on deposit accounts | | | 2,262 | | | | 124 | | | | | | | | 2,386 | |
Debit, prepaid, ATM and merchant card related fees | | | 1,506 | | | | 94 | | | | | | | | 1,600 | |
Wealth management related revenue | | | 1,217 | | | | — | | | | | | | | 1,217 | |
FDIC indemnification income | | | 1,268 | | | | — | | | | | | | | 1,268 | |
FDIC indemnification asset amortization | | | (5,185 | ) | | | 22 | | | | | | | | (5,163 | ) |
Bank owned life insurance income | | | 352 | | | | 16 | | | | | | | | 368 | |
Other service charges and fees | | | 409 | | | | 64 | | | | | | | | 473 | |
| | | | | | | | | | | | | | | | |
Total non interest income | | | 5,760 | | | | 320 | | | | | | | | 6,080 | |
| | | | |
Non interest expense: | | | | | | | | | | | | | | | | |
Salary, wages and employee benefits | | | 15,681 | | | | 4,313 | | | | | | | | 19,994 | |
Occupancy expense | | | 3,438 | | | | 1,032 | | | | | | | | 4,470 | |
Data processing expense | | | 1,039 | | | | 475 | | | | | | | | 1,514 | |
Professional fees | | | 775 | | | | 597 | | | | | | | | 1,372 | |
Bank regulatory expenses | | | 631 | | | | 265 | | | | | | | | 896 | |
Credit related expenses | | | 1,824 | | | | 675 | | | | | | | | 2,499 | |
Marketing expenses | | | 620 | | | | 58 | | | | | | | | 678 | |
Merger and acquisition related expenses | | | 2,347 | | | | 437 | | | | (712 | ) i | | | 2,072 | |
Branch closure and efficiency initiatives | | | 3,158 | | | | — | | | | | | | | 3,158 | |
All other expenses | | | 2,890 | | | | 1,206 | | | | 199 | a,b | | | 4,295 | |
| | | | | | | | | | | | | | | | |
Total non interest expense | | | 32,403 | | | | 9,058 | | | | | | | | 40,948 | |
Income before provision for income taxes | | | 1,591 | | | | 1,719 | | | | | | | | 4,956 | |
Provision for income taxes | | | 538 | | | | — | | | | 1,182 | f | | | 1,720 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 1,053 | | | $ | 1,719 | | | | | | | $ | 3,235 | |
| | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 0.03 | | | $ | 0.06 | | | | | | | $ | 0.07 | |
| | | | |
Diluted earnings per common share | | $ | 0.03 | | | $ | 0.06 | | | | | | | $ | 0.07 | |
Weighted average common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 34,465 | | | | 26,887 | | | | | | | | 43,941 | |
Diluted | | | 34,863 | | | | 26,887 | | | | | | | | 44,339 | |
16
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ending Dec 31, 2013: | | CenterState
as reported | | | Gulfstream
as reported | | | reclass | | | Pro Forma
adjustments | | | CenterState
Gulfstream
Pro Form | | | FSOF
as reported | | | reclass | | Pro Forma
adjustments | | | Pro Forma
combined | |
Interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans | | $ | 88,274 | | | $ | 18,778 | | | | | | | $ | 2,107 | e | | $ | 109,159 | | | $ | 31,981 | | | | | $ | 6,099 | e | | $ | 147,239 | |
Investment securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 9,889 | | | | 841 | | | | | | | | | | | | 10,730 | | | | 4,110 | | | | | | | | | | 14,840 | |
Tax-exempt | | | 1,430 | | | | — | | | | | | | | | | | | 1,430 | | | | — | | | | | | | | | | 1,430 | |
Federal funds sold and other | | | 785 | | | | 309 | | | | | | | | | | | | 1,094 | | | | 683 | | | | | | | | | | 1,777 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest income | | | 100,378 | | | | 19,928 | | | | | | | | | | | | 122,413 | | | | 36,774 | | | | | | | | | | 165,286 | |
Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits | | | 5,184 | | | | 1,778 | | | | | | | | (517 | ) d | | | 6,445 | | | | 4,326 | | | | | | (676 | ) d | | | 10,095 | |
Other borrowings | | | 701 | | | | 628 | | | | | | | | 150 | g | | | 1,479 | | | | 283 | | | | | | (281 | ) c | | | 1,481 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total interest expense | | | 5,885 | | | | 2,406 | | | | | | | | | | | | 7,924 | | | | 4,609 | | | | | | | | | | 11,576 | |
| | | | | | | | | |
Net interest income | | | 94,493 | | | | 17,522 | | | | | | | | | | | | 114,489 | | | | 32,165 | | | | | | | | | | 153,710 | |
| | | | | | | | | |
Provision for loan losses | | | (76 | ) | | | 168 | | | | | | | | | | | | 92 | | | | (5,296 | ) | | | | | | | | | (5,204 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income after loan loss provision | | | 94,569 | | | | 17,354 | | | | | | | | | | | | 114,397 | | | | 37,461 | | | | | | | | | | 158,914 | |
| | | | | | | | | |
Non interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Income from correspondent banking and bond sales division | | | 17,023 | | | | — | | | | | | | | | | | | 17,023 | | | | — | | | | | | | | | | 17,023 | |
Other correspondent banking revenue | | | 3,387 | | | | — | | | | | | | | | | | | 3,387 | | | | — | | | | | | | | | | 3,387 | |
Service charges on deposit accounts | | | 8,457 | | | | 509 | | | | | | | | | | | | 8,966 | | | | 942 | | | | | | | | | | 9,908 | |
Debit, prepaid, ATM and merchant card related fees | | | 5,420 | | | | — | | | | | | | | | | | | 5,420 | | | | — | | | | | | | | | | 5,420 | |
Wealth management related revenue | | | 4,551 | | | | 410 | | | | | | | | | | | | 4,961 | | | | — | | | | | | | | | | 4,961 | |
FDIC indemnification income | | | 5,542 | | | | — | | | | | | | | | | | | 5,542 | | | | — | | | | | | | | | | 5,542 | |
FDIC indemnification asset amortization | | | (13,807 | ) | | | — | | | | | | | | | | | | (13,807 | ) | | | 128 | | | | | | | | | | (13,679 | ) |
Bank owned life insurance income | | | 1,328 | | | | 170 | | | | | | | | | | | | 1,498 | | | | 66 | | | | | | | | | | 1,564 | |
| | | | | | | | | |
Net gain on sale of securities available for sale | | | 1,060 | | | | — | | | | | | | | | | | | 1,060 | | | | 57 | | | | | | | | | | 1,117 | |
Other service charges and fees | | | 985 | | | | 1,083 | | | | (137 | ) m | | | | | | | 1,931 | | | | 618 | | | | | | | | | | 2,549 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total non interest income | | | 33,946 | | | | 2,172 | | | | | | | | | | | | 35,981 | | | | 1,811 | | | | | | | | | | 37,792 | |
17
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ending Dec 31, 2013: | | CenterState
as reported | | | Gulfstream
as reported | | | reclass | | | Pro Forma
adjustments | | | CenterState
Gulfstream
Pro Forma | | | FSOF
as reported | | | reclass | | | Pro Forma
adjustments | | | Pro Forma
combined | |
Non interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Salary, wages and employee benefits | | | 60,369 | | | | 8,869 | | | | | | | | | | | | 69,238 | | | | 16,155 | | | | | | | | | | | | 85,393 | |
Occupancy expense | | | 13,578 | | | | 1,066 | | | | | | | | | | | | 14,644 | | | | 4,053 | | | | | | | | | | | | 18,697 | |
Data processing expense | | | 3,784 | | | | 604 | | | | | | | | | | | | 4,388 | | | | 2,112 | | | | | | | | | | | | 6,500 | |
Professional fees | | | 3,754 | | | | — | | | | 470 | k | | | | | | | 4,224 | | | | 2,304 | | | | 209 | k | | | | | | | 6,737 | |
Bank regulatory expenses | | | 2,369 | | | | — | | | | 396 | l | | | | | | | 2,765 | | | | 1,016 | | | | | | | | | | | | 3,781 | |
Credit related expenses | | | 12,730 | | | | 346 | | | | (137) | m | | | | | | | 12,939 | | | | 5,736 | | | | 2,539 | j | | | | | | | 21,214 | |
Marketing expenses | | | 2,517 | | | | 358 | | | | | | | | | | | | 2,875 | | | | 265 | | | | | | | | | | | | 3,140 | |
All other expenses | | | 11,661 | | | | 2,551 | | | | (866) | k,l | | | 626 | b | | | 13,972 | | | | 6,694 | | | | (2,748) | j,k | | | 872 | a,b | | | 18,790 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 110,762 | | | | 13,794 | | | | | | | | | | | | 125,045 | | | | 38,335 | | | | | | | | | | | | 164,252 | |
Other than temporary impairment on securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net impairment losses | | | — | | | | 53 | | | | | | | | | | | | 53 | | | | — | | | | | | | | | | | | 53 | |
| | | | | | | | | |
Income before provision for income taxes | | | 17,753 | | | | 5,679 | | | | | | | | | | | | 25,280 | | | | 937 | | | | | | | | | | | | 32,401 | |
Provision for income taxes | | | 5,510 | | | | 2,100 | | | | | | | | 713 | f | | | 8,323 | | | | — | | | | | | | | 2,676 | f | | | 10,999 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | 12,243 | | | | 3,579 | | | | | | | | | | | | 16,957 | | | | 937 | | | | | | | | | | | | 21,402 | |
| | | | | | | | | |
Preferred stock dividend requirements and accretion of preferred discount | | | — | | | | 331 | | | | | | | | (331 | ) h | | | — | | | | — | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income available to common shareholders | | $ | 12,243 | | | $ | 3,248 | | | | | | | | | | | $ | 16,957 | | | $ | 937 | | | | | | | | | | | $ | 21,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 0.41 | | | $ | 2.07 | | | | | | | | | | | $ | 0.48 | | | $ | 0.05 | | | | | | | | | | | $ | 0.48 | |
| | | | | | | | | |
Diluted earnings per common share | | $ | 0.41 | | | $ | 2.04 | | | | | | | | | | | $ | 0.48 | | | $ | 0.03 | | | | | | | | | | | $ | 0.47 | |
| | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 30,103 | | | | 1,566 | | | | | | | | | | | | 35,298 | | | | 19,865 | | | | | | | | | | | | 44,774 | |
Diluted | | | 30,220 | | | | 1,594 | | | | | | | | | | | | 35,606 | | | | 31,749 | | | | | | | | | | | | 45,082 | |
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Income Statements – reclassifications
The following reclassifications adjusted Gulfstream, where applicable, and First Southern’s historical income statements to conform to CenterState’s historical income statements.
| | j. | Loan expenses related to the foreclosure process have been reclassed to credit related expenses to conform to CenterState’s historical income statement. |
| | k. | Professional fees included in Gulfstream and First Southern’s all other expenses have been reclassified to professional fees to conform to CenterState’s historical income statement. |
| | l. | Bank regulatory expenses included in Gulfstream’s other expenses have been reclassified to bank regulatory expenses to conform to CenterState’s historical income statement. |
| | m. | Credit related expenses include net gains and losses on OREO sales and valuation write-downs. Gulfstream’s net gain on sale of OREO, included in non-interest income, has been reclassified to credit related expenses and netted with net losses on OREO, included in non-interest expense. |
Income Statements – Pro Forma Adjustments
| | | | | | |
| | | Three months ending
March 31, 2014 | | Year ending
December 31, 2013 |
Pro Forma Adjusting entries (Income Statements): | | First Southern | | Gulfstream | | First Southern |
a Remove amortization of existing CDI | | $(37) | | na | | $(237) |
b Amortization of new CDI | | 236 | | $626 | | 1,109 |
c Remove TRUP interest expense | | (11) | | na | | (281) |
d Time Deposits amortization of fair value adjustment at acquisition date | | (108) | | (517) | | (676) |
e Preliminary estimate of loan interest accretion | | 1,013 | | 2,107 | | 6,099 |
f Income tax expense of pro-forma adjustments | | 1,182 | | 713 | | 2,676 |
g TRUPs amortization of fair value adjustment at acquisition date | | na | | 150 | | na |
h Effect of redeeming perpetual preferred stock, series D | | na | | (331) | | na |
i Remove merger related expenses for the First Southern acquisition | | (712) | | na | | na |
| | a. | Remove the amortization expense of First Southern’s existing core deposit intangible (“CDI”) asset. |
| | b. | The preliminary estimates of CDI related to CenterState’s acquisition of Gulfstream and First Southern are expected to approximate $4.2 million and $7.4 million, respectively, and will be amortized over a ten year period on an accelerated basis which is expected to produce approximately $626,000 and $1,109,000, respectively, of amortization expense during the first year of combined operations. Below is the preliminary estimated amortization schedule. |
| | | | | | | | | | | | | | | | | | | | |
year | | Gulf
stream | | | First
Southern | | | | | year | | Gulf
stream | | | First
Southern | |
1 | | $ | 626 | | | $ | 1,109 | | | | | 6 | | $ | 363 | | | $ | 643 | |
2 | | | 532 | | | | 943 | | | | | 7 | | | 363 | | | | 643 | |
3 | | | 452 | | | | 802 | | | | | 8 | | | 363 | | | | 643 | |
4 | | | 384 | | | | 681 | | | | | 9 | | | 363 | | | | 643 | |
5 | | | 363 | | | | 643 | | | | | 10 | | | 364 | | | | 646 | |
| | c. | Remove the interest expense of First Southern’s existing Corporate Debenture and the underlying Trust Preferred Security (“TRUP”) as First Southern is assumed to redeem the Corporate Debenture prior to the merger acquisition date. The debt instrument has been redeemed during the first quarter of 2014. |
| | d. | The time deposits acquired from Gulfstream and First Southern will be adjusted to fair value at the acquisition date. The preliminary estimate of the fair value adjustment at acquisition date is expected to approximate $783,000 and $1,294,000, respectively. This amount will be amortized as a decrease to interest expense on a pro rata basis based on the maturities of the underlying time deposits. The amortization is preliminarily estimated to approximate $517,000 and $676,000, respectively, during the first year of combined operations. |
| | e. | Represents the preliminary estimate of interest income accretion related to the preliminary estimate of the fair value adjustment of the loans acquired pursuant to the merger. |
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| | f. | Adjustment to reflect the income tax provision of the pro forma purchase accounting adjustments and an estimated pro forma income tax provision on FSOF’s pre-tax book income using CenterState’s effective tax rate for the related period. FSOF did not provide any income tax provision on its income statements for the year ending December 31, 2013 or the three month period ending March 31, 2014. |
| | g. | CenterState assumed Gulfstream’s $10 million of corporate debentures and the underlying trust preferred securities (“TRUPs”) pursuant to the merger. This debt instruments were adjusted to fair value at the acquisition date. The related fair value adjustment at acquisition is approximately $3,255,000. This amount will be amortized over the remaining life of the two debt instruments as an increase to interest expense. The amortization during the first year of combined operations is estimated to approximate $150,000. One of the debt securities ($7 million) matures on January 18, 2035 and the other ($3 million) matures on March 6, 2037. The amortization is on a straight line basis over their respective terms. |
| | h. | Adjustment to reflect Gulfstream’s redemption of the non-cumulative perpetual preferred stock, series D prior to the closing date of the merger. |
| | i. | Remove First Southern merger related expenses which were reflected in the historical financial statements of First Southern and CenterState. |
Of the seven banking offices that will continue to operate as CenterState branches, First Southern owned one and leases the other six. The banking office owned by First Southern was purchased at fair market value based on a current appraisal. Management has determined that based on current rents for the related markets, the leases assumed by the Company approximate fair value as of the acquisition date. As such, management did not record a fair value adjustment to these assets at the closing date of the merger and no adjustments have been made to the pro forma combined condensed financial statements presented in this document.
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| 2.1 | Agreement and Plan of Merger by and between CenterState Banks, Inc. and First Southern Bancorp, Inc., dated as of January 29, 2014. Incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on January 31, 2014. |
| 23.1 | Consent of Crowe Horwath LLP |
| 99.1 | Consolidated financial statements of First Southern Bancorp, Inc. which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013, and the related notes to the financial statements. |
| 99.2 | Condensed unaudited financial statements of First Southern Bancorp, Inc. which comprise the condensed consolidated balance sheets as of March 31, 2014 and December 31, 2013, and the related condensed consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the three month periods ending March 31, 2014 and 2013, and the related notes to the financial statements. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | |
| CENTERSTATE BANKS, INC. |
| |
| By: | | /s/ James J. Antal |
| | James J. Antal |
| | Senior Vice President and Chief Financial Officer |
Date: August 13, 2014
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