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UNITED STATES

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): May 8, 2020

 

 

 

SOUTH STATE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Commission file number: 001-12669

   
South Carolina 57-0799315
(State of incorporation) (I.R.S. Employer Identification No.)
 
520 Gervais Street  
Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)

 

(800 )277-2175

(Registrant’s telephone number, including area code)

 

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:

 

x 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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:  Common Stock   Trading Symbol   Name of each exchange on which registered
$2.50 par value   SSB   Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 8-K/A amends the Current Report on Form 8-K dated May 8, 2020 (the “Original Filing”) filed by South State Corporation providing unaudited pro forma combined condensed financial information relating to the merger of South State Corporation with CenterState Bank Corporation. The sole purpose of this amendment is to correct a technical printer error in the hyperlink for Exhibit 99.1 filed with the Original Filing. The full text of the Original Filing is repeated herein for convenience, but has not been modified from the text of the Original Filing except solely to correct the hyperlink described above.

 

Item 8.01 Other Events

 

As previously reported, on January 27, 2020, South State Corporation (the “Company” or “South State”) and CenterState Bank Corporation (“CenterState”) announced the execution of an Agreement and Plan of Merger, dated as of January 25, 2020 (the “merger agreement”), providing for the merger of the Company and CenterState, subject to the terms and conditions set forth therein. The transaction is expected to close in the third quarter of 2020 subject to customary closing conditions, including receipt of required regulatory approvals and shareholder approval of each company.

 

 

The unaudited pro forma combined condensed financial information included with this filing updates and supplements the unaudited pro forma combined condensed financial information of South State and CenterState and related disclosures contained in South State’s registration statement on Form S-4, as amended, which contains a joint proxy statement of South State and CenterState that also constitutes a prospectus of South State. The registration statement was declared effective by the SEC on April 20, 2020, and South State and CenterState commenced mailing the joint proxy statement/prospectus to their respective shareholders on or about April 20, 2020. The updated unaudited pro forma financial information in this Form 8-K is incorporated by reference into the joint proxy statement/prospectus. To the extent that information in this Form 8-K differs from or updates information contained in the joint proxy statement/prospectus, the information in this Form 8-K shall supersede or supplement the information in the joint proxy statement/prospectus.

 

Item 9.01 Financial Statements and Exhibits  
     
  (d) Exhibits:
     
  Exhibit 99.1 Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet as of March 31, 2020 and unaudited Pro Forma Combined Condensed Consolidated Income Statement for the year ended December 31, 2019 and for the three months ended March 31, 2020, giving effect to the merger between CenterState and South State.
     
  Exhibit 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
       

Cautionary Statement Regarding Forward-Looking Statements

 

Some of the statements made in this report are “forward-looking statements” within the meaning of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

 

All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of South State or CenterState to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, among others, (1) the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (2) disruption to the parties’ businesses as a result of the announcement and pendency of the merger, (3) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (4) the risk that the integration of each party’s operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party’s businesses into the other’s businesses, (5) the failure to obtain the necessary approvals by the shareholders of South State or CenterState, (6) the amount of the costs, fees, expenses and charges related to the merger, (7) the ability by each of South State and CenterState to obtain required governmental approvals of the merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), (8) reputational risk and the reaction of each company’s customers, suppliers, employees or other business partners to the merger, (9) the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in closing the merger, (10) the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (11) the dilution caused by South State’s issuance of additional shares of its common stock in the merger, (12) a material adverse change in the financial condition of South State or CenterState, (13) general competitive, economic, political and market conditions, (14) major catastrophes such as earthquakes, floods or other natural or human disasters, including infectious disease outbreaks, including the recent outbreak of a novel strain of coronavirus, a respiratory illness, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on South State or CenterState and its customers and other constituencies, and (15) other factors that may affect future results of CenterState and South State including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms; and other factors discussed in our filings with the Securities and Exchange Commission under the Exchange Act.

 

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. Neither CenterState nor South State undertakes any obligation to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

 

 

 

Important Information About the Merger and Where to Find It

 

South State has filed a registration statement on Form S-4 and an amendment thereto with the SEC to register the shares of South State’s common stock that will be issued to CenterState’s shareholders in connection with the transaction. The registration statement contains a joint proxy statement of South State and CenterState that also constitutes a prospectus of South State. The registration statement on Form S-4, as amended, was declared effective by the SEC on April 20, 2020, and South State and CenterState commenced mailing the definitive joint proxy statement/prospectus to their respective shareholders on or about April 20, 2020. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS (AS WELL AS ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE INTO THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER AND RELATED MATTERS. Investors and security holders may obtain free copies of these documents and other documents filed with the SEC by South State or CenterState through the website maintained by the SEC at http://www.sec.gov or by contacting the investor relations department of South State or CenterState at:

 

South State Corporation CenterState Bank Corporation
520 Gervais Street 1101 First Street South, Suite 202
Columbia, SC 29201-3046 Winter Haven, FL 33880
Attention:  Investor Relations Attention:  Investor Relations
(800) 277-2175 (863) 293-4710

 

Participants in Solicitation

 

South State, CenterState and certain of their directors and executive officers may be deemed participants in the solicitation of proxies from the shareholders of each of South State and CenterState in connection with the merger. Information regarding the directors and executive officers of South State and CenterState and other persons who may be deemed participants in the solicitation of the shareholders of South State or of CenterState in connection with the merger is contained in the definitive joint proxy statement/prospectus related to the proposed merger. Information about the directors and executive officers of South State and their ownership of South State common stock can also be found in South State’s definitive proxy statement in connection with its 2019 annual meeting of shareholders, as filed with the SEC on March 6, 2019, and other documents subsequently filed by South State with the SEC, including, but not limited to, Amendment No. 1 to South State’s Annual Report on Form 10-K/A, as filed with the SEC on March 6, 2020. Information about the directors and executive officers of CenterState and their ownership of CenterState common stock can also be found in CenterState’s definitive proxy statement in connection with its 2020 annual meeting of shareholders, as filed with the SEC on March 10, 2020, and other documents subsequently filed by CenterState with the SEC. Additional information regarding the interests of such participants is included in the definitive joint proxy statement/prospectus and other relevant documents regarding the merger filed with the SEC.

 

 

 

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. 

 

  SOUTH STATE CORPORATION
 
  By: /s/ John C. Pollok
  Name: John C. Pollok
  Title: Senior Executive Vice President and
Chief Financial Officer

 

Date:  May 11, 2020 

 

 

 

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.