Exhibit 99.1
UNAUDITED PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information is based on the separate historical financial statements of South State Corporation (“South State”) and CenterState Bank Corporation (“CenterState”) after giving effect to the merger (the “merger”) of CenterState with and into South State pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of January 25, 2020, by and between CenterState and South State, and the issuance of South State common stock in connection therewith, and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial information. The unaudited pro forma combined condensed statements of income for the three months ended March 31, 2020 and the year ended December 31, 2019 combine the historical consolidated statements of income of South State and CenterState, giving effect to the merger as if it had been completed on January 1, 2019. The accompanying unaudited pro forma combined condensed balance sheet as of March 31, 2020 combines the historical consolidated balance sheets of South State and CenterState, giving effect to the merger as if it had been completed on March 31, 2020.
The following unaudited pro forma combined condensed financial information and related notes are based on and should be read in conjunction with (i) the audited historical consolidated financial statements of South State and the related notes included in South State’s Annual Report on Form 10-K for the year ended December 31, 2019 and the unaudited historical consolidated financial statements of South State and the related notes included in South State’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020, and (ii) the historical audited consolidated financial statements of CenterState and the related notes included in CenterState’s Annual Report on Form 10-K for the year ended December 31, 2019 and the unaudited historical consolidated financial statements of CenterState and the related notes included in CenterState’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020. The CenterState historical results reported in the unaudited pro forma combined condensed statement of income for the year ended December 31, 2019, have been adjusted to give effect to CenterState’s acquisition of National Commerce Corporation (“NCC”), which closed on April 1, 2019, as if it had occurred on January 1, 2019.
The historical consolidated financial information has been adjusted in the unaudited pro forma combined condensed financial information to give effect to the pro forma events that are (i) directly related to the merger, (ii) factually supportable and (iii) with respect to the unaudited pro forma combined condensed statement of income, expected to have a continuing effect on the results of the combined company. The unaudited pro forma combined condensed financial information contained herein does not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the merger. The following unaudited pro forma combined condensed financial information gives effect to the merger and includes adjustments for the following:
| • | certain reclassifications to conform historical financial statement presentations between the companies; |
| • | application of the acquisition method of accounting under the provisions of topic ASC 805, “Business Combinations,” to reflect merger consideration of approximately $2.2 billion in exchange for 100% of all outstanding shares of CenterState common stock; and |
| • | transaction costs in connection with the merger. |
Future results may differ materially from the results reflected because of various factors, including those appearing under the caption “Risk Factors” in South State’s and CenterState’s most recently filed Annual Reports on Form 10-K and in any subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K and in the joint proxy statement/prospectus filed by each of South State and CenterState in connection with the merger. Among other factors, the actual amounts recorded as of the completion of the merger may differ materially from the information presented in the unaudited pro forma combined condensed financial information as a result of:
| • | changes in the trading price for South State common stock; |
| • | net cash used or generated in South State’s or CenterState’s operations between the signing of the merger agreement and the completion of the merger; |
| • | the timing of the completion of the merger, changes in total merger-related expenses, and integration costs, including costs associated with systems implementation, severance, and other costs related to exit or disposal activities; |
| • | other changes in South State’s or CenterState’s net assets that occur prior to the completion of the merger, which could cause material differences in the information presented below; and |
| • | changes in the financial results of the combined company. |
The risk of such variance is particularly significant with respect to the preliminary purchase price allocation, because such allocation is based, in large part, on the closing price per share of South State common stock as of the closing date. The preliminary purchase price allocation reflected in the unaudited pro forma combined condensed financial information assumes a closing price per share of South State common stock of $58.73, the closing price of South State common stock on March 31, 2020. The financial markets have recently experienced extreme volatility, due in large part to the coronavirus pandemic and its widespread economic impacts. Such volatility has contributed to a significant drop in the trading price of South State common stock and CenterState common stock. Continued financial market volatility, and its effect on the trading prices of South State common stock and CenterState common stock, will largely depend on future developments, which South State and CenterState cannot accurately predict or control, including new information which may emerge concerning the severity of the coronavirus pandemic, the effectiveness or ineffectiveness of governmental and private actions taken to contain or treat the coronavirus pandemic, and reactions by companies, consumers, investors, governmental entities and financial markets to such actions. Particularly given this volatility and uncertainty, the unaudited pro forma combined condensed financial information may not be indicative of and does not purport to represent the combined company’s actual financial condition or results of operations as of the closing date or any future or other date or period.
For the sole purpose of illustrating the effect of various trading prices of South State common stock on certain items of the unaudited pro forma combined condensed financial information of the combined company, the below “Hypothetical Illustration of South State Common Stock Trading Price Impact on Selected March 31, 2020 Pro Forma Financial Information” table sets out the hypothetical value of the total merger consideration per share of CenterState common stock, goodwill, and shareholders’ equity, based on various hypothetical trading prices of South State common stock. This illustration is intended to show the effect on those measures if the trading price of South State’s common stock as of March 31, 2020 had differed from $58.73 (the actual trading price of South State common stock as of March 31, 2020 and the trading price used to calculate the pro forma purchase price of the merger), with all other information used to create the unaudited pro forma combined condensed financial information included herein. This illustration does not show how the pro forma presentation would have changed if loan, deposit, investment, and other values had been re-assessed as of any other date. Variation in loan, deposit, investment, and other values over time can significantly affect the pro forma presentation, and, as such, the calculations of goodwill and shareholders’ equity at the applicable trading prices set forth below are not necessarily indicative of, and may materially vary from, the combined company’s actual goodwill and shareholders’ equity as of the closing date.
Hypothetical Illustration of South State Common Stock Trading Price Impact on
Selected March 31, 2020 Pro Forma Financial Information
| | | | Total Merger | | | | | | | |
| South State | | | Consideration Per | | | | | | | |
| Common Stock | | | Share of CenterState | | | | | | Shareholders' | |
| Trading Price (a) | | | Common Stock | | | Goodwill | | | Equity | |
| $ | 65.00 | | | $ | 19.69 | | | $ | 1,593,799 | | | $ | 4,678,934 | |
| $ | 60.00 | | | $ | 18.18 | | | $ | 1,405,347 | | | $ | 4,490,481 | |
| $ | 55.00 | | | $ | 16.66 | | | $ | 1,216,894 | | | $ | 4,302,028 | |
| $ | 50.00 | | | $ | 15.14 | | | $ | 1,028,441 | | | $ | 4,113,575 | |
| $ | 45.00 | | | $ | 13.62 | | | $ | 1,002,899 | (b) | | $ | 4,250,945 | (b) |
| $ | 40.00 | | | $ | 12.10 | | | $ | 1,002,899 | (b) | | $ | 4,439,398 | (b) |
| (a) | Range of South State common stock trading prices is for illustrative purposes only and the actual South State common stock price as of the closing of the merger could fall outside the range set forth in this table. |
| (b) | At such price, hypothetical goodwill of the merger is less than zero resulting in a purchase accounting gain which is reflected as an increase in shareholders' equity. |
The following unaudited pro forma combined condensed financial information and related notes are being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the merger been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period. The preparation of the unaudited pro forma combined condensed financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined condensed financial statements should be read together with:
| • | the accompanying notes to the unaudited pro forma combined condensed financial statements; |
| • | South State’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2019, included in South State’s Annual Report on Form 10-K for the year ended December 31, 2019; |
| • | South State’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2020, included in South State’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020; |
| • | CenterState’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2019, included in CenterState’s Annual Report on Form 10-K for the year ended December 31, 2019; and |
| • | CenterState’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2020, included in CenterState’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020. |
SOUTH STATE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
| | | South State | | | CenterState | | | | | | | | |
| | | Corporation | | | Bank Corporation | | | Purchase Acct | | | | Pro Forma | |
| | | 3/31/2020 | | | 3/31/2020 | | | Adjustments & | | | | 3/31/2020 | |
| | | (as reported) | | | (as reported) | | | Reclassifications | | | | Combined | |
| ASSETS | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 259,775 | | | $ | 135,338 | | | | | | | | $ | 395,113 | |
| Interest-bearing deposits with banks | | | 1,003,061 | | | | 550,101 | | | | | | | | | 1,553,162 | |
| Federal funds sold and securities | | | | | | | | | | | | | | | | | |
| purchased under agreements to resell | | | -- | | | | 461,252 | | | | | | | | | 461,252 | |
| Total cash and cash equivalents | | | 1,262,836 | | | | 1,146,691 | | | | -- | | | | | 2,409,527 | |
| Investment securities: | | | | | | | | | | | | | | | | | |
| Trading securities, at fair value | | | -- | | | | 8,432 | | | | | | | | | 8,432 | |
| Securities held to maturity | | | -- | | | | 195,948 | | | | 9,510 | | (h) | | | 205,458 | |
| Securities available for sale, at fair value | | | 1,971,195 | | | | 2,138,442 | | | | | | | | | 4,109,637 | |
| Other investments | | | 62,994 | | | | 100,463 | | | | | | | | | 163,457 | |
| Total investment securities | | | 2,034,189 | | | | 2,443,285 | | | | 9,510 | | | | | 4,486,984 | |
| Loans held for sale | | | 71,719 | | | | 188,316 | | | | | | | | | 260,035 | |
| Loans: | | | | | | | | | | | | | | | | | |
| Loans | | | 11,506,890 | | | | 12,027,231 | | | | 139,596 | | (a) | | | 23,673,717 | |
| Less allowance for credit losses | | | (144,785 | ) | | | (158,733 | ) | | | | | (b) | | | (303,518 | ) |
| | | | | | | | | | | | | | | | | | |
| Loans, net | | | 11,362,105 | | | | 11,868,498 | | | | 139,596 | | | | | 23,370,199 | |
| Other real estate owned (OREO) | | | 12,844 | | | | 9,942 | | | | (1,273 | ) | (c) | | | 21,513 | |
| Premises and equipment, net | | | 312,151 | | | | 329,533 | | | | -- | | | | | 641,684 | |
| Goodwill | | | 1,002,899 | | | | 1,204,417 | | | | (1,204,417 | ) | (d) | | | 1,357,480 | |
| | | | | | | | | | | | 354,581 | | (d) | | | | |
| Bank-owned life insurance | | | 233,850 | | | | 331,713 | | | | | | | | | 565,563 | |
| Mortgage servicing rights (MSRs) | | | 26,365 | | | | 4,131 | | | | | | | | | 30,496 | |
| Other intangible assets | | | 46,809 | | | | 87,295 | | | | (87,295 | ) | (e) | | | 237,687 | |
| | | | | | | | | | | | 190,878 | | (e) | | | | |
| Deferred tax asset | | | 46,365 | | | | 37,687 | | | | (56,625 | ) | (f),(l) | | | 27,427 | |
| Interest rate swap derivatives, at fair value | | | - | | | | 831,891 | | | | -- | | | | | 831,891 | |
| Other assets | | | 230,779 | | | | 112,893 | | | | -- | | | | | 343,672 | |
| Total assets | | $ | 16,642,911 | | | $ | 18,596,292 | | | $ | (655,046 | ) | | | $ | 34,584,157 | |
| | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | | | | | |
| Noninterest-bearing | | $ | 3,367,422 | | | $ | 4,164,091 | | | $ | -- | | | | $ | 7,531,513 | |
| Interest-bearing | | | 8,977,125 | | | | 9,957,408 | | | | 25,232 | | (g) | | | 18,959,765 | |
| Total deposits | | | 12,344,547 | | | | 14,121,499 | | | | 25,232 | | | | | 26,491,278 | |
| Federal funds purchased and securities | | | | | | | | | | | | | | | | | |
| sold under agreements to repurchase | | | 325,723 | | | | 337,169 | | | | -- | | | | | 662,892 | |
| Advances from Federal Home Loan Bank | | | 1,000,101 | | | | 150,000 | | | | -- | | | | | 1,150,101 | |
| Other borrowings | | | 315,999 | | | | 132,356 | | | | -- | | | | | 448,355 | |
| Interest Rate Swap Derivatives, at fair value | | | 51,244 | | | | 842,451 | | | | -- | | | | | 893,695 | |
| Other liabilities | | | 284,254 | | | | 142,565 | | | | 89,416 | | (k) | | | 495,222 | |
| | | | | | | | | | | | (21,013 | ) | (k) | | | | |
| Total liabilities | | | 14,321,868 | | | | 15,726,040 | | | | 93,635 | | | | | 30,141,543 | |
| | | | | | | | | | | | | | | | | | |
| Shareholders’ equity: | | | | | | | | | | | | | | | | | |
| Preferred stock - $.01 par value; authorized 10,000,000 shares; | | | | | | | | | | | | | | | | | |
| no shares issued and outstanding | | | -- | | | | -- | | | | -- | | | | | -- | |
| Common stock | | | 83,611 | | | | 1,241 | | | | (1,241 | ) | (i) | | | 176,741 | |
| | | | | | | | | | | | 93,130 | | (j) | | | | |
| Surplus (APIC) | | | 1,584,322 | | | | 2,376,637 | | | | (2,376,637 | ) | (i) | | | 3,699,470 | |
| | | | | | | | -- | | | | 2,115,148 | | (j) | | | | |
| Retained earnings | | | 643,345 | | | | 435,984 | | | | (522,691 | ) | (i),(l) | | | 556,638 | |
| Accumulated other comprehensive | | | 9,765 | | | | 56,390 | | | | (56,390 | ) | (i) | | | 9,765 | |
| Total shareholders’ equity | | | 2,321,043 | | | | 2,870,252 | | | | (748,681 | ) | | | | 4,442,614 | |
| Total liabilities and shareholders’ equity | | $ | 16,642,911 | | | $ | 18,596,292 | | | $ | (655,046 | ) | | | $ | 34,584,157 | |
SOUTH STATE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
| | | South State | | | CenterState | | | | | | | | |
| | | Corporation | | | Bank Corporation | | | | | | | Pro Forma | |
| | | 3/31/2020 | | | 3/31/2020 | | | Pro Forma | | | | 3/31/2020 | |
| | | (as reported) | | | (as reported) | | | Adjustments | | | | Combined | |
| Interest income: | | | | | | | | | | | | | | | | | |
| Loans, including fees | | $ | 133,034 | | | $ | 160,675 | | | $ | (3,490 | ) | (2) | | $ | 290,219 | |
| Investment securities: | | | | | | | | | | | | | | | | | |
| Taxable | | | 11,584 | | | | 12,534 | | | | (713 | ) | (3) | | | 23,405 | |
| Tax-exempt | | | 1,399 | | | | 1,737 | | | | - | | | | | 3,136 | |
| Federal funds sold and securities | | | | | | | | | | | | | | | | | |
| purchased under agreements to resell | | | 1,783 | | | | 1,813 | | | | | | | | | 3,596 | |
| Total interest income | | | 147,800 | | | | 176,759 | | | | (4,203 | ) | | | | 320,356 | |
| Interest expense: | | | | | | | | | | | | | | | | | |
| Deposits | | | 14,437 | | | | 19,836 | | | | (1,397 | ) | (4) | | | 32,876 | |
| Federal funds purchased and securities | | | | | | | | | | | | | | | | | |
| sold under agreements to repurchase | | | 615 | | | | 2,573 | | | | | | | | | 3,188 | |
| Other borrowings | | | 4,735 | | | | 997 | | | | - | | | | | 5,732 | |
| Total interest expense | | | 19,787 | | | | 23,406 | | | | (1,397 | ) | | | | 41,796 | |
| Net interest income | | | 128,013 | | | | 153,353 | | | | (2,806 | ) | | | | 278,560 | |
| Provision for credit losses | | | 36,533 | | | | 44,914 | | | | | | | | | 81,447 | |
| Net interest income after provision for credit losses | | | 91,480 | | | | 108,439 | | | | (2,806 | ) | | | | 197,113 | |
| Noninterest income: | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 12,304 | | | | 7,522 | | | | | | | | | 19,826 | |
| Correspondent Banking capital markets revenue | | | - | | | | 27,808 | | | | | | | | | 27,808 | |
| Bankcard services income | | | 5,837 | | | | 3,667 | | | | | | | | | 9,504 | |
| Trust and investment services income | | | 7,389 | | | | 831 | | | | | | | | | 8,220 | |
| Mortgage banking income | | | 14,647 | | | | 10,973 | | | | | | | | | 25,620 | |
| Securities gains, net | | | - | | | | - | | | | | | | | | - | |
| Other | | | 3,955 | | | | 4,989 | | | | | | | | | 8,944 | |
| Total noninterest income | | | 44,132 | | | | 55,790 | | | | - | | | | | 99,922 | |
| Noninterest expense: | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | | 60,978 | | | | 77,077 | | | | | | | | | 138,055 | |
| Net occupancy expense | | | 8,170 | | | | 7,346 | | | | | | | | | 15,516 | |
| OREO expense and loan related | | | 587 | | | | 2,002 | | | | | | | | | 2,589 | |
| Information services expense | | | 9,306 | | | | 5,617 | | | | | | | | | 14,923 | |
| Furniture and equipment expense | | | 4,117 | | | | 4,045 | | | | | | | | | 8,162 | |
| Bankcard expense | | | 525 | | | | 1,598 | | | | | | | | | 2,123 | |
| FDIC assessment and other regulatory charges | | | 2,058 | | | | 1,807 | | | | | | | | | 3,865 | |
| Advertising and marketing | | | 814 | | | | 2,158 | | | | | | | | | 2,972 | |
| Amortization of intangibles | | | 3,007 | | | | 4,535 | | | | 3,274 | | (5) | | | 10,816 | |
| Supplies, printing and postage expense | | | 1,505 | | | | 2,021 | | | | | | | | | 3,526 | |
| Professional fees | | | 2,494 | | | | 2,682 | | | | | | | | | 5,176 | |
| Merger and branch consolidation related expenses | | | 4,129 | | | | 3,051 | | | | | | | | | 7,180 | |
| Other | | | 9,557 | | | | 8,833 | | | | | | | | | 18,390 | |
| Total noninterest expense | | | 107,247 | | | | 122,772 | | | | 3,274 | | | | | 233,293 | |
| Earnings: | | | | | | | | | | | | | | | | | |
| Income before provision for income taxes | | | 28,365 | | | | 41,457 | | | | (6,079 | ) | | | | 63,743 | |
| Provision for income taxes | | | 4,255 | | | | 6,025 | | | | (1,337 | ) | (8) | | | 8,943 | |
| Net income | | | 24,110 | | | | 35,432 | | | | (4,742 | ) | | | | 54,800 | |
| Earnings attributable to noncontrolling interest | | | - | | | | - | | | | | | | | | - | |
| Earnings allocated to participating securities | | | | | | | 8 | | | | | | | | | 8 | |
| Net income attributable to SSB/CSFL | | | 24,110 | | | | 35,424 | | | | (4,742 | ) | | | | 54,792 | |
| Earnings per common share: | | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.72 | | | $ | 0.28 | | | | | | | | $ | 0.77 | |
| Diluted | | | 0.71 | | | | 0.28 | | | | | | | | | 0.77 | |
| | | | | | | | | | | | | | | | | | |
| Dividends per common share | | $ | 0.47 | | | $ | 0.14 | | | | | | | | $ | 0.47 | |
| Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | | |
| Basic | | | 33,566 | | | | 124,799 | | | | (87,347 | ) | (9) | | | 71,018 | |
| Diluted | | | 33,805 | | | | 125,341 | | | | (87,726 | ) | (9) | | | 71,420 | |
SOUTH STATE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
| | | | | | | | | | | | National | | | | | | | | | | | | |
| | | South State | | | CenterState | | | National | | | Commerce | | | | CenterState | | | | | | | | |
| | | Corporation | | | Bank Corporation | | | Commerce | | | Corporation | | | | Bank Corporation | | | | | | | Pro Forma | |
| | | 12/31/2019 | | | 12/31/2019 | | | Corporation | | | Pro Forma | | | | 12/31/2019 | | | Pro Forma | | | | 12/31/2019 | |
| | | (as reported) | | | (as reported) | | | 3/31/2019(1) | | | Adjustments (10) | | | | (Pro Forma) | | | Adjustments | | | | Combined | |
| Interest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans, including fees | | $ | 534,790 | | | $ | 618,125 | | | $ | 49,569 | | | $ | 3,528 | | (a) | | $ | 671,222 | | | $ | (13,960 | ) | (2) | | $ | 1,192,052 | |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Taxable | | | 39,949 | | | | 48,432 | | | | 1,791 | | | | | | | | | 50,223 | | | | (2,380 | ) | (3) | | | 87,792 | |
| Tax-exempt | | | 6,186 | | | | 6,899 | | | | 165 | | | | | | | | | 7,064 | | | | - | | | | | 13,250 | |
| Federal funds sold and securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| purchased under agreements to resell | | | 9,902 | | | | 11,876 | | | | 842 | | | | | | | | | 12,718 | | | | | | | | | 22,620 | |
| Total interest income | | | 590,827 | | | | 685,332 | | | | 52,367 | | | | 3,528 | | | | | 741,227 | | | | (16,340 | ) | | | | 1,315,714 | |
| Interest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | 65,920 | | | | 83,099 | | | | 7,513 | | | | (436 | ) | (b) | | | 90,176 | | | | (1,703 | ) | (4) | | | 154,393 | |
| Federal funds purchased and securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| sold under agreements to repurchase | | | 2,627 | | | | 12,130 | | | | 79 | | | | | | | | | 12,209 | | | | | | | | | 14,836 | |
| Other borrowings | | | 18,005 | | | | 4,375 | | | | 689 | | | | (75 | ) | (d) | | | 4,989 | | | | - | | | | | 22,994 | |
| Total interest expense | | | 86,552 | | | | 99,604 | | | | 8,281 | | | | (511 | ) | | | | 107,374 | | | | (1,703 | ) | | | | 192,223 | |
| Net interest income | | | 504,275 | | | | 585,728 | | | | 44,086 | | | | 4,039 | | | | | 633,853 | | | | (14,637 | ) | | | | 1,123,491 | |
| Provision for credit losses | | | 12,777 | | | | 10,585 | | | | 34 | | | | | | | | | 10,619 | | | | | | | | | 23,396 | |
| Net interest income after provision for credit losses | | | 491,498 | | | | 575,143 | | | | 44,052 | | | | 4,039 | | | | | 623,234 | | | | (14,637 | ) | | | | 1,100,095 | |
| Noninterest income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service charges on deposit accounts | | | 51,931 | | | | 30,168 | | | | 1,151 | | | | | | | | | 31,319 | | | | | | | | | 83,250 | |
| Correspondent Banking capital markets revenue | | | - | | | | 64,898 | | | | | | | | | | | | | 64,898 | | | | | | | | | 64,898 | |
| Bankcard services income | | | 23,504 | | | | 18,399 | | | | 1,096 | | | | | | | | | 19,495 | | | | | | | | | 42,999 | |
| Trust and investment services income | | | 29,244 | | | | 3,161 | | | | 29 | | | | | | | | | 3,190 | | | | | | | | | 32,434 | |
| Mortgage banking income | | | 17,564 | | | | 29,553 | | | | 1,929 | | | | | | | | | 31,482 | | | | | | | | | 49,046 | |
| Securities gains, net | | | 2,711 | | | | 25 | | | | (9 | ) | | | | | | | | 16 | | | | | | | | | 2,727 | |
| Other | | | 18,611 | | | | 19,856 | | | | (301 | ) | | | | | | | | 19,555 | | | | | | | | | 38,166 | |
| Total noninterest income | | | 143,565 | | | | 166,060 | | | | 3,895 | | | | - | | | | | 169,955 | | | | - | | | | | 313,520 | |
| Noninterest expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | | 234,747 | | | | 260,234 | | | | 18,687 | | | | | | | | | 278,921 | | | | | | | | | 513,668 | |
| Net occupancy expense | | | 31,158 | | | | 28,350 | | | | 2,801 | | | | | | | | | 31,151 | | | | | | | | | 62,309 | |
| OREO expense and loan related | | | 3,242 | | | | 4,899 | | | | 14 | | | | | | | | | 4,913 | | | | | | | | | 8,155 | |
| Information services expense | | | 35,477 | | | | 19,605 | | | | 1,738 | | | | | | | | | 21,343 | | | | | | | | | 56,820 | |
| Furniture and equipment expense | | | 16,299 | | | | 14,438 | | | | - | | | | | | | | | 14,438 | | | | | | | | | 30,737 | |
| Pension plan termination expense | | | 9,526 | | | | - | | | | - | | | | | | | | | - | | | | | | | | | 9,526 | |
| Bankcard expense | | | 2,331 | | | | 5,501 | | | | 439 | | | | | | | | | 5,940 | | | | | | | | | 8,271 | |
| FDIC assessment and other regulatory charges | | | 4,545 | | | | 5,048 | | | | 642 | | | | | | | | | 5,690 | | | | | | | | | 10,235 | |
| Advertising and marketing | | | 4,309 | | | | 7,540 | | | | 76 | | | | | | | | | 7,616 | | | | | | | | | 11,925 | |
| Amortization of intangibles | | | 13,084 | | | | 16,030 | | | | 1,363 | | | | 1,496 | | (c) | | | 18,889 | | | | 15,729 | | (5) | | | 47,702 | |
| Supplies, printing and postage expense | | | 5,881 | | | | 7,201 | | | | | | | | | | | | | 7,201 | | | | | | | | | 13,082 | |
| Professional fees | | | 10,325 | | | | 8,870 | | | | 428 | | | | | | | | | 9,298 | | | | 15,500 | | (6) | | | 35,123 | |
| Merger and branch consolidation related expenses | | | 4,552 | | | | 39,257 | | | | 25,773 | | | | (58,867 | ) | (e) | | | 6,163 | | | | - | | (7) | | | 10,715 | |
| Other | | | 29,162 | | | | 29,934 | | | | 3,161 | | | | | | | | | 33,095 | | | | - | | | | | 62,257 | |
| Total noninterest expense | | | 404,638 | | | | 446,907 | | | | 55,122 | | | | (57,371 | ) | | | | 444,658 | | | | 31,229 | | | | | 880,525 | |
| Earnings: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income before provision for income taxes | | | 230,425 | | | | 294,296 | | | | (7,175 | ) | | | 61,410 | | | | | 348,531 | | | | (45,866 | ) | | | | 533,090 | |
| Provision for income taxes | | | 43,942 | | | | 67,698 | | | | (2,239 | ) | | | 14,126 | | (f) | | | 79,585 | | | | (10,090 | ) | (8) | | | 113,437 | |
| Net income | | | 186,483 | | | | 226,598 | | | | (4,936 | ) | | | 47,284 | | | | | 268,946 | | | | (35,775 | ) | | | | 419,654 | |
| Earnings attributable to noncontrolling interest | | | - | | | | 1,202 | | | | 466 | | | | - | | | | | 1,668 | | | | | | | | | 1,668 | |
| Earnings allocated to participating securities | | | | | | | 88 | | | | | | | | | | | | | 88 | | | | | | | | | 88 | |
| Net income attributable to SSB/CSFL | | $ | 186,483 | | | $ | 225,308 | | | $ | (5,402 | ) | | $ | 47,284 | | | | $ | 267,190 | | | $ | (35,775 | ) | | | $ | 417,898 | |
| Earnings per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 5.40 | | | $ | 1.88 | | | $ | (0.26 | ) | | | | | | | $ | 2.08 | | | | | | | | $ | 5.72 | |
| Diluted | | | 5.36 | | | | 1.87 | | | | (0.26 | ) | | | | | | | | 2.07 | | | | | | | | | 5.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends per common share | | $ | 1.67 | | | $ | 0.44 | | | $ | - | | | | | | | | $ | 0.44 | | | | | | | | $ | 1.67 | |
| Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 34,561 | | | | 119,747 | | | | 20,800 | | | | (12,338 | ) | | | | 128,209 | | | | (89,734 | ) | (9) | | | 73,037 | |
| Diluted | | | 34,797 | | | | 120,604 | | | | 21,159 | | | | (12,550 | ) | | | | 129,213 | | | | (90,436 | ) | (9) | | | 73,574 | |
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of pro forma presentation
The accompanying unaudited pro forma combined condensed financial statements and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma combined condensed statement of income for the three months ended March 31, 2020 and for year ended December 31, 2019 combine the historical consolidated statements of income of South State and CenterState, giving effect to the merger as if it had been completed on January 1, 2019. The accompanying unaudited pro forma combined condensed balance sheet as of March 31, 2020 combines the historical consolidated balance sheets of South State and CenterState, giving effect to the merger as if it had been completed on March 31, 2020.
South State’s and CenterState’s historical financial statements were prepared in accordance with GAAP. As discussed in Note 3 and Note 4, certain reclassifications were made to align South State’s and CenterState’s financial statement presentation. South State has not identified all adjustments necessary to conform CenterState’s accounting policies to South State’s accounting policies. Upon completion of the merger, or as more information becomes available, the combined company will perform a more detailed review of CenterState’s accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when combined, could have a material impact on the combined company’s financial information.
The accompanying unaudited pro forma combined condensed financial statements and related notes were prepared using the acquisition method of accounting under the provisions of ASC 805, with South State considered to be the acquirer of CenterState. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma combined condensed balance sheet, the purchase consideration has been allocated to the assets acquired and liabilities assumed of CenterState based upon management’s preliminary estimate of their fair values as of March 31, 2020. South State has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair value of CenterState assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and certain financial assets and financial liabilities. Accordingly, apart from the aforementioned, certain CenterState assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values. Any differences between the fair value of the consideration transferred and the fair value of the assets acquired and liabilities assumed will be recorded as goodwill. Accordingly, the purchase price allocation and related adjustments reflected in these unaudited pro forma combined condensed financial statements are preliminary and subject to revision based on final determination of fair value.
All dollar amounts presented within these Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements are in thousands of dollars, except per share data, unless otherwise indicated.
Note 2: Preliminary purchase price allocation
The following table summarizes the preliminary purchase price allocation to the estimated fair value of assets and liabilities of CenterState Bank Corporation (in thousands, except per share data):
| | | Note | | Amount | |
| Shares of CenterState common stock outstanding | | (i) | | | 124,131,401 | |
| Converted price per share of CenterState common stock | | (i) | | $ | 17.6249 | |
| Total pro forma purchase price from common stock | | | | $ | 2,187,800 | |
| Stock options converted to South State options | | | | | 2,932 | |
| Performance based equity awards | | | | | 9,299 | |
| Restricted stock awards | | | | | 8,247 | |
| Total pro forma purchase price | | | | $ | 2,208,278 | |
| (i) | Under the terms of the merger agreement, holders of CenterState common stock have the right to receive a fixed exchange ratio of 0.3001 shares of South State common stock for each share of CenterState common stock. For purposes of the unaudited pro forma combined condensed balance sheet, the estimated merger consideration is based on the total number of shares of CenterState common stock issued and outstanding as of March 31, 2020 and the closing price per share of South State common stock of $58.73 on March 31, 2020. |
The preliminary estimated merger consideration as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed of CenterState based on their preliminary estimated fair values. As mentioned above in Note 1, South State has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the CenterState assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and certain financial assets and financial liabilities. Accordingly, apart from the aforementioned, certain assets acquired and liabilities assumed are presented at their respective carrying amounts and should be treated as preliminary values. The fair value assessments are preliminary and are based upon available information and certain assumptions, which South State believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the unaudited pro forma combined condensed financial statements.
The following table sets forth a preliminary allocation of the estimated merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of CenterState using CenterState’s unaudited consolidated balance sheet as of March 31, 2020:
| Preliminary fair value of estimated total merger consideration | | $ | 2,208,278 | | | | | |
| | | | | | | | | |
| Fair value of assets acquired: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,146,691 | | | | | |
| Investment securities | | | 2,452,795 | | | | | |
| Loans, net | | | 12,312,074 | | | | | |
| Other real estate owned | | | 8,669 | | | | | |
| Premises & equipment | | | 329,533 | | | | | |
| Other intangible assets, CDI | | | 190,878 | | | | | |
| Bank owned life insurance | | | 331,713 | | | | | |
| Deferred tax asset, net | | | (47,896 | ) | | | | |
| Other assets | | | 948,915 | | | | | |
| Total assets | | | 17,673,372 | | | | | |
| Fair value of liabilities assumed: | | | | | | | | |
| Deposits | | | 14,146,731 | | | | | |
| Fed Funds purchased and securities sold under repurchase agreement | | | 337,169 | | | | | |
| Other borrowings | | | 282,356 | | | | | |
| Other liabilities | | | 1,053,419 | | | | | |
| Total liabilities | | | 15,819,675 | | | | | |
| Net assets acquired | | | | | | | 1,853,697 | |
| Preliminary Pro Forma Goodwill | | | | | | $ | 354,581 | |
Note 3: Adjustments to the unaudited pro forma combined condensed balance sheet Purchase Accounting Adjustments:
| (a) | Adjustment reflects the fair value adjustments based on data as of March 31, 2020 as reflected in CenterState’s 10-Q. Any subsequent changes in the economy, interest rates and in economic forecasts will cause these figures to change significantly. |
| (b) | The current allowance for credit losses ("ACL") at CenterState approximates the ACL South State will record for the acquired loans. Approximately $43.0 million of the ACL is attributable to loans identified as Purchased Credit Deteriorated (“PCD”) based on a preliminary analysis and recorded as an adjustment to goodwill. The remaining $115.7 million of ACL is attributable to non-PCD loans and is recorded as provision for credit losses with a deferred tax adjustment of $28.9 million, resulting in a net impact to retained earnings of $86.7 million. This adjustment assumes data as of March 31, 2020 as reflected in CenterState’s 10-Q. Any subsequent changes in the economy, interest rates and in economic forecasts will cause these figures to change significantly. |
| (c) | Adjustment reflects the fair value adjustments to OREO based on South State’s evaluation of the acquired OREO portfolio. |
| (d) | Adjustment reflects the reversal of CenterState’s existing goodwill and recording the goodwill generated as a result of the consideration paid being greater than the fair value of net assets acquired. |
| (e) | Adjustment reflects the reversal of CenterState’s existing core deposit intangible asset and recording of the core deposit intangible of $190.9 million on the acquired core deposit accounts. |
| (f) | Adjustment reflects the recording of the deferred tax asset generated by the net fair value adjustments (at a rate equal to 25.0352%). |
| (g) | Adjustment reflects the fair value adjustment on deposits. |
| (h) | Adjustment reflects the fair value adjustment of the securities portfolio. |
| (i) | Adjustment reflects the reversal of CenterState’s March 31, 2020 retained earnings, common stock, surplus and AOCI. |
| (j) | Adjustment reflects the difference in par value of common stock from $0.01 at CenterState to $2.50 at South State and the exchange ratio of 0.3001. |
| (k) | Adjustment reflects the accrual for CenterState’s estimated direct transaction cost of $89.4 million and the related income tax effect of $21.0 million incurred at closing, including, but not limited to, investment banker, legal fees, personnel costs and system conversion costs. |
| (l) | Adjustments reflect a deferred tax adjustment of $28.9 million and a net impact to retained earnings of $86.7 million, attributable to the $115.7 million of ACL South State will record for the acquired non-PCD loans. |
Note 4: Adjustments to the unaudited pro forma combined condensed statements of income Pro Forma Adjustments:
| (1) | On April 1, 2019, CenterState completed its acquisition of NCC. The pro forma adjustments for CenterState’s acquisition of NCC in the unaudited pro forma combined condensed statement of income are necessary to adjust CenterState’s historical results to assume that the transaction had been completed on January 1, 2019. |
| (2) | Adjusted loan interest income for purchased loans using level yield methodology over the estimated lives of the acquired loan portfolios. |
| (3) | Adjustment reflects amortization of premium on the fair value mark on held to maturity securities. |
| (4) | Adjustment reflects the amortization of CD premium based upon the scheduled maturities of the related deposits less amortization previously recorded by CenterState. |
| (5) | Adjustment reflects the annual amortization of intangibles using sum of years digits over ten (10) years for CDI less amortization recorded by CenterState. |
| (6) | Adjustment reflects South State’s direct transaction costs. |
| (7) | South State expects to incur significant merger charges related to contract cancellations, severance, change in control and other merger related charges, however, these are not reflected in these pro forma income statements. |
| (8) | Adjustment reflects 22.0% assumed effective tax rate on net pro forma adjustments. |
| (9) | Adjustment reflects exchange ratio of 0.3001 multiplied by the number of outstanding shares of CenterState common stock. |
| Pro Forma Adjusting Entries (Income Statements) (dollars are in thousands): | | NCC | |
| (a) Preliminary estimate of loan interest accretion | | $ | 21,822 | |
| (a) Remove existing loan accretion of fair value adjustment | | | (18,294 | ) |
| (b) Remove existing time deposit amortization of fair value adjustment | | | 3,077 | |
| (b) Time deposits amortization of fair value adjustment at acquisition date | | | (3,513 | ) |
| (c) Remove amortization of existing CDI | | | (4,489 | ) |
| (c) Amortization of new CDI | | | 5,985 | |
| (d) Remove amortization of existing amortization for other borrowings | | | 225 | |
| (d) Amortization of new fair value adjustment on other borrowings | | | (300 | ) |
| (e) Remove merger related fees | | | (58,867 | ) |
| (f) Income tax expense of pro-forma adjustments | | | 14,126 | |
Financial Accounting Standards Board issued Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”):
Beginning on January 1, 2020, both South State and CenterState adopted ASU No. 2016-13, or Current Expected Credit Loss (“CECL”), as required. The standard also requires enhanced disclosures. The CECL model is expected to result in earlier recognition of credit losses for loans, investment securities, and purchased financial assets with credit deterioration. For more information on the impact of the adoption of CECL for South State and CenterState, see each of their respective historical consolidated financial statements of each of South State and CenterState filed on their respective Form 10-Q for the three months ended March 31, 2020. Because ASU No. 2016-13 was not in effect in 2019, the unaudited pro forma combined condensed consolidated statements of income for year ending 2019 was not prepared to reflect the accounting under the new standard and therefore the two income statement periods are not comparable. In addition, the provision for loan losses for year ending 2019 would have been different under ASU No. 2016-13.
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER COMMON SHARE DATA
The historical per share data for South State common stock and CenterState common stock below has been derived from the audited consolidated financial statements of each of South State and CenterState as of and for the year ended December 31, 2019 and the unaudited consolidated financial statements of each of South State and CenterState as of and for the three months ended March 31, 2020 included in each of South State's and CenterState’s respective Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the three months ended March 31, 2020.
The unaudited pro forma combined per share data set forth below gives effect to the merger and CenterState’s acquisition of NCC as if each had occurred on January 1, 2019, assuming that (x) each outstanding share of NCC common stock had been converted into shares of CenterState common stock based on the exchange ratio of 1.65 shares of CenterState common stock for each share of NCC common stock in CenterState’s acquisition of NCC and (y) each outstanding share of CenterState common stock had been converted into shares of South State common stock based on the exchange ratio of 0.3001 shares of South State common stock for each share of CenterState common stock in the merger. The unaudited pro forma combined per share data has been derived from the audited consolidated financial statements for each of South State and CenterState as of and for the year ended December 31, 2019 and the unaudited consolidated financial statements of each of South State and CenterState as of and for the three months ended March 31, 2020
The unaudited pro forma combined per share data has been derived assuming that the merger is accounted for using the acquisition method of accounting. See the section entitled “Unaudited Pro Forma Combined Condensed Consolidated Financial Information”. Accordingly, the pro forma adjustments reflect the assets and liabilities of the combined company at their preliminary estimated fair values. Differences between these preliminary estimates and the final values in acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma combined per share information set forth below.
The unaudited pro forma combined per share data does not purport to represent the actual results of operations that the combined company would have achieved had the merger been completed during the period presented or to project the future results of operations that the combined company may achieve after the merger.
The unaudited pro forma combined per share equivalent data set forth below shows the effect of the merger from the perspective of a holder of CenterState common stock. The information was calculated by multiplying the unaudited pro forma combined per share data by the exchange ratio of 0.3001.
You should read the information below in conjunction with (i) the audited historical consolidated financial statements of South State and the related notes included in South State’s Annual Report on Form 10-K for the year ended December 31, 2019 and the unaudited historical consolidated financial statements of South State and the related notes included in South State’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020, and (ii) the historical audited consolidated financial statements of CenterState and the related notes included in CenterState’s Annual Report on Form 10-K for the year ended December 31, 2019 and the unaudited historical consolidated financial statements of CenterState and the related notes included in CenterState’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020.
| | | | | | | | | | | | Equivalent | |
| | | | | | | | | | | | Pro Forma | |
| | | South State | | | CenterState | | | Pro Forma | | | Per Share of | |
| | | Historical | | | Historical | | | Combined | | | CenterState (a) | |
| Comparative per Share Data | | (Unaudited) | |
| Book Value per share | | | | | | | | | | | | | | | | |
| As of March 31, 2020 | | $ | 69.40 | | | $ | 23.12 | | | $ | 62.84 | | | $ | 18.86 | |
| As of December 31, 2019 | | $ | 70.32 | | | $ | 23.14 | | | $ | 64.62 | | | $ | 19.39 | |
| Cash dividends paid | | | | | | | | | | | | | | | | |
| For the three months ended March 31, 2020 | | $ | 0.47 | | | $ | 0.14 | | | $ | 0.47 | | | $ | 0.14 | |
| For the year ended December 31, 2019 | | $ | 1.67 | | | $ | 0.44 | | | $ | 1.67 | | | $ | 0.50 | |
| Basic Earnings | | | | | | | | | | | | | | | | |
| For the three months ended March 31, 2020 | | $ | 0.72 | | | $ | 0.28 | | | $ | 0.77 | | | $ | 0.23 | |
| For the year ended December 31, 2019 | | $ | 5.40 | | | $ | 1.88 | | | $ | 5.72 | | | $ | 1.72 | |
| Diluted Earnings | | | | | | | | | | | | | | | | |
| For the three months ended March 31, 2020 | | $ | 0.71 | | | $ | 0.28 | | | $ | 0.77 | | | $ | 0.23 | |
| For the year ended December 31, 2019 | | $ | 5.36 | | | $ | 1.87 | | | $ | 5.68 | | | $ | 1.70 | |
(a) The equivalent pro forma per share amounts of CenterState were calculated by multiplying the pro forma combined amounts by the fixed exchange ratio of 0.3001 shares of South State common stock for each share of CenterState common stock.
