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.

(10)

 

 

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.