SOUTH STATE Corp (Form: 8-K, Received: 06/08/2020 07:16:45)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 8, 2020 (June 3, 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.)

1101 First Street South
Winter Haven, Florida	33880
(Address of principal executive offices)	(Zip Code)

(863) 293-4710

(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:

¨	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. ¨

Introduction.

This Current Report on Form 8-K is being filed in connection with the completion on June 7, 2020 (the “Closing Date”) of the previously announced merger of equals between South State Corporation, a South Carolina corporation (“South State” or the “Company”), and CenterState Bank Corporation, a Florida corporation (“CenterState”), pursuant to the Agreement and Plan of Merger, dated as of January 25, 2020 (the “Merger Agreement”), by and between South State and CenterState.

Pursuant to the Merger Agreement, (i) CenterState merged with and into South State, with South State continuing as the surviving corporation (the “Merger”), and (ii) immediately following the Merger, South State Bank, a South Carolina banking corporation and wholly owned bank subsidiary of South State (“South State Bank”), merged with and into CenterState Bank, N.A., a national banking association and wholly owned bank subsidiary of CenterState (“CenterState Bank”), with CenterState Bank continuing as the surviving bank (the “Bank Merger”). In connection with the Bank Merger, CenterState Bank changed its name to “South State Bank, National Association” (hereinafter referred to as the “Bank”).

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of CenterState (“CenterState Common Stock”) issued and outstanding immediately prior to the Effective Time, other than certain shares held by South State and CenterState, was converted into the right to receive 0.3001 shares (the “Exchange Ratio”) of common stock, par value $2.50, of South State (“South State Common Stock”). Each holder of CenterState Common Stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of South State Common Stock (after taking into account all shares held by such holder) will instead receive cash (without interest) in lieu of such fractional share in accordance with the terms of the Merger Agreement.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding CenterState equity award granted under CenterState’s equity compensation plans and each outstanding CenterState warrant was converted into a corresponding award or warrant with respect to South State Common Stock, with the number of shares underlying each such award or warrant (and, in the case of stock options and warrants, the applicable exercise price) adjusted based on the Exchange Ratio. Each such converted South State equity award or warrant will continue to be subject to the same terms and conditions (including vesting and exercisability or payment terms) as applied to the corresponding CenterState equity award or warrant, except that (i) each CenterState stock option will vest and be converted into a vested South State stock option, (ii) each South State stock option or warrant will remain exercisable through the remainder of the original term of the corresponding CenterState stock option or warrant and (iii) each South State time-vesting restricted stock unit award issued in respect of a CenterState performance-vesting restricted stock unit award will continue to vest based solely on continued service following the Effective Time, with the number of shares underlying such South State time-vesting restricted stock unit award determined based on actual performance levels in the case of awards granted in 2017 and 2019 and target performance levels in the case of awards granted in 2018, as of immediately prior to the Effective Time and adjusted based on the Exchange Ratio. In addition, following the Effective Time, each South State equity award issued in respect of a converted CenterState equity award will vest on a “double-trigger” basis upon a termination of employment by South State without “cause” or by the holder of such award for “good reason” (as such terms are defined in the applicable award agreement) within three years following the Effective Time.

Further, pursuant to the Merger Agreement, (i) at the Effective Time, each South State equity award granted under South State’s equity compensation plans that was outstanding as of January 25, 2020 and that remained outstanding and unvested as of the Effective Time vested in full, with any applicable performance goals deemed satisfied based on target performance levels as of immediately prior to the Effective Time, and with each South State stock option to remain exercisable through the remainder of its original term, and (ii) each outstanding and unvested South State equity award that was granted following January 25, 2020 will remain outstanding and eligible to vest in accordance with its terms following the Effective Time, except that any such awards described in this clause (ii) will vest on a “double-trigger” basis upon a termination of employment by South State without “cause” or by the holder of such award for “good reason” (as such terms are defined in the applicable award agreement) within three years following the Effective Time.

The foregoing description of the Merger, the Bank Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed hereto as Exhibit 2.1 and incorporated herein by reference.

The total aggregate consideration payable in the Merger was approximately 37.3 million shares of South State Common Stock. The issuance of shares of South State Common Stock in connection with the Merger was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a registration statement on Form S-4 (File No. 333-237214) filed by the Company with the Securities and Exchange Commission (the “Commission”) and declared effective on April 20, 2020 (the “Registration Statement”). The joint proxy statement/prospectus included in the Registration Statement (the “Joint Proxy Statement/Prospectus”) contains additional information about the Merger Agreement and the transactions contemplated thereby.

Item 1.01. Entry into a Material Definitive Agreement.

The information set forth in Item 2.03 with respect to the 2030 Notes (as defined in Item 2.03) is incorporated herein by reference.

Item 2.01. Completion of Acquisition or Disposition of Assets.

The information set forth in the Introduction is incorporated herein by reference.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

In connection with the Merger, on the Closing Date, the Company assumed CenterState’s obligations as required by the indentures and certain related agreements with respect to CenterState’s outstanding trust preferred securities (the “Trust Preferred Securities”), which have an aggregate principal amount of $38.5 million (in each case before related acquisition accounting fair market value adjustments). In connection with the Merger, on the Closing Date, South State also assumed all of CenterState’s obligations with respect to: (i) $25.0 million in aggregate principal amount of 6.00% fixed-to-floating rate subordinated notes due 2026 (the “2026 Notes”) that were originally issued by National Commerce Corporation (“NCC”) and were assumed by CenterState in connection with CenterState’s acquisition of NCC effective April 1, 2019; (ii) $13.0 million in aggregate principal amount of 6.50% fixed-to-floating rate subordinated notes due 2027 (the “2027 Notes”) that were originally issued by Landmark Bancshares, Inc. and were assumed by NCC in connection with NCC’s acquisition of Landmark Bancshares, Inc. effective August 1, 2018 and subsequently assumed by CenterState in connection with CenterState’s acquisition of NCC effective April 1, 2019; (iii) $11.0 million of 5.00% rate subordinated notes due 2021 (the “2021 Notes”) that were originally issued by Sunshine Bancorp, Inc. and were assumed by CenterState in connection with CenterState’s acquisition of Sunshine Bancorp, Inc. effective January 1, 2018; and (iv) $200.0 million in aggregate principal amount of 5.750% fixed-to-floating rate subordinated notes due 2030 (the “2030 Notes”) that were issued by CenterState on May 29, 2020.

The supplemental indentures pursuant to which the Company assumed the Trust Preferred Securities and the 2026 Notes, as well as the original indentures pursuant to which the Trust Preferred Securities, the 2026 Notes, the 2027 Notes and the 2021 Notes were issued, have not been filed herewith pursuant to Item 601(b)(4)(v) of Regulation S-K under the Securities Act. The Company agrees to furnish a copy of such indentures to the Commission upon request.

The foregoing description of South State’s assumption of the 2030 Notes is qualified in its entirety by reference to the full text of the base indenture, as amended and supplemented by the first supplemental indenture and the second supplemental indenture, copies of which are filed hereto as Exhibits 4.1, 4.2 and 4.3 and incorporated herein by reference.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Board of Directors

In accordance with the terms of the Merger Agreement and the Bylaws Amendment (as defined under Item 5.03 below), the size of the board of directors of the Company (the “Board”) as of the Effective Time was increased to consist of a total of 16 directors, including eight directors designated by South State and eight directors designated by CenterState.

Resignation of Directors

In connection with the transactions contemplated by the Merger Agreement, Paula H. Bethea, James C. Cherry, Thomas J. Johnson, Grey B. Murray, James W. Roquemore and Thomas E. Suggs tendered their respective resignations as members of the Board and from all committees of the Board on which they formerly served, in each case effective as of the Effective Time. Such resignations were not the result, in whole or in part, of any disagreement with the Company or the Company’s management.

Continued Service of Directors; Election of Directors

The eight directors designated by South State pursuant to the Merger Agreement and the Bylaws Amendment, each of whom previously served, and continues to serve, as a member of the Board, in each case effective from and after the Effective Time, are as follows: Robert R. Hill, Jr., Martin B. Davis, Jean E. Davis, Robert H. Demere, Jr., Cynthia A. Hartley, Robert R. Horger, John C. Pollok and Kevin P. Walker.

The eight directors designated by CenterState pursuant to the Merger Agreement and the Bylaws Amendment, each of whom previously served as a member of the board of directors of CenterState and was appointed by the Board to fill the vacancies resulting from the resignations referred to above and the increase in the size of the Board referred to above, in each case effective as of the Effective Time, are as follows: John C. Corbett, John H. Holcomb, III, Charles W. McPherson, G. Ruffner Page, Jr., Ernest S. Pinner, William K. Pou, Jr., David G. Salyers and Joshua A. Snively (collectively, the “New Directors”). The Board continues to be divided into three classes, with Messrs. Holcomb, McPherson and Pinner appointed to the class of directors expiring at the annual meeting to be held in 2020; Messrs. Corbett, Pou and Salyers appointed to the class of directors expiring at the annual meeting to be held in 2021; and Messrs. Page and Snively appointed to the class of directors expiring at the annual meeting to be held in 2022.

Other than the Merger Agreement, there are no arrangements between the New Directors and any other person pursuant to which the New Directors were selected as directors. There are no transactions in which any New Director has an interest requiring disclosure under Item 404(a) of Regulation S-K. Non-employee members of the Board will be compensated for such service in accordance with South State’s non-employee director compensation policies. In addition, as previously described in the Joint Proxy Statement/Prospectus, Mr. Pinner is eligible for a pay to integrate award, which provides for a cash payment of $450,000 within 30 days following the successful completion of the systems conversion of South State and CenterState. Biographies of the New Directors can be found in the definitive proxy statement (File No. 000-32017) filed by CenterState in connection with its 2020 annual meeting of shareholders on March 10, 2020.

Executive Officers

Pursuant to the Merger Agreement, effective as of the Effective Time, (i) Robert R. Hill, Jr., the Chief Executive Officer of South State prior to the Effective Time, was appointed to serve as the Executive Chairman of the Company, (ii) John C. Corbett, the Chief Executive Officer of CenterState prior to the Effective Time, was appointed to serve as the Chief Executive Officer of the Company, (iii) Richard Murray, IV, the Chief Executive Officer of CenterState Bank prior to the Effective Time, was appointed to serve as the President of the Company, (iv) Greg A. Lapointe, the President of South State Bank prior to the Effective Time, was appointed to serve as the Chief Banking Officer of the Company, (v) William E. Matthews, V, the Chief Financial Officer of CenterState prior to the Effective Time, was appointed to serve as the Chief Financial Officer of the Company, and (vi) Stephen D. Young, the Chief Operating Officer of CenterState prior to the Effective Time, was appointed to serve as Senior Executive Vice President and Chief Strategy Officer of the Company. In addition, effective as of the Effective Time, John C. Pollok, the Chief Financial Officer of South State prior to the Effective Time, ceased serving in such capacity and was appointed to serve as Senior Executive Vice President of the Company. Renee R. Brooks, the Chief Operating Officer of South State prior to the Effective Time, continues to serve as Chief Operating Officer of the Company.

There are no family relationships between any of Messrs. Corbett, Murray, Matthews or Young and any of the Company’s directors or executive officers, except that Mr. Corbett and Mr. Young are brothers-in-law. The Company has not entered into any transactions with the foregoing individuals that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.

Employment Agreements

As previously described in the Joint Proxy Statement/Prospectus, each of Messrs. Hill, Pollok, Lapointe and John S. Goettee and Ms. Brooks has entered into an employment agreement with South State setting forth the terms of his or her employment with South State following the Effective Time (collectively, the “Employment Agreements”). For a description of the Employment Agreements and additional information about the arrangements and transactions with respect to South State’s named executive officers in connection with the Merger, see the section in the Joint Proxy Statement/Prospectus entitled “The Merger—Interests of South State’s Directors and Executive Officers in the Merger.” Such description is incorporated herein by reference.

In addition, in connection with the Merger, Messrs. Corbett and Young entered into retention letters with CenterState (collectively, the “Retention Letters”), which amend certain terms of their existing employment agreements with CenterState (the terms of which are as previously described in the section of the definitive proxy statement (File No. 000-32017) filed by CenterState with the Commission on March 10, 2020 entitled “Compensation Discussion and Analysis—Compensation Components—Employment Agreements” and which description is incorporated herein by reference) and memorialize the terms of their continuing employment with South State following the Effective Time. For a description of the Retention Letters and additional information about the arrangements and transactions with respect to CenterState’s named executive officers in connection with the Merger, see the section in the Joint Proxy Statement/Prospectus entitled “The Merger—Interests of CenterState’s Directors and Executive Officers in the Merger.” Such description is incorporated herein by reference.

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

In connection with the completion of the Merger and in accordance with the Merger Agreement, the Company’s articles of incorporation were amended to increase the number of authorized shares of South State Common Stock from 80,000,000 shares to 160,000,000 shares (the “Articles Amendment”), effective as of the Effective Time.

The foregoing summary of the Articles Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Articles Amendment, a copy of which is filed hereto as Exhibit 3.1 and incorporated herein by reference.

In addition, in connection with the completion of the Merger and in accordance with the Merger Agreement, the bylaws of the Company were amended to reflect certain governance arrangements for the combined company (such amendment, the “Bylaws Amendment,” and the Company’s bylaws, as amended and restated in accordance with the Bylaws Amendment, the “Amended and Restated Bylaws”), effective as of the Effective Time.

The Bylaws Amendment provides that from and after the Effective Time and until the 36 month anniversary of the Effective Time (the “Specified Period”), the number of directors that comprises the entire Board will be 16 and any vacancy on the Board created by the cessation of service for any reason by (i) a Legacy South State Director will be filled by the Board with a nominee selected by a committee of the Board comprised of all of the Legacy South State Directors who satisfy certain independence and other requirements (the “Legacy South State Directors Nominating Committee”) and (ii) a Legacy CenterState Director will be filled by the Board with a nominee selected by a committee of the Board comprised of all of the Legacy CenterState Directors who satisfy certain independence and other requirements (the “Legacy CenterState Directors Nominating Committee”). “Legacy South State Directors” and “Legacy CenterState Directors” refer to, respectively, the directors of South State and CenterState who were selected to be directors of the Company by South State or CenterState, as the case may be, as of the Effective Time, pursuant to the Merger Agreement (as described under Item 5.02 above), and any directors of the Company who are subsequently nominated and elected to fill a vacancy created by the cessation of service of a Legacy South State Director or Legacy CenterState Director, respectively, pursuant to the Bylaws Amendment.

The Bylaws Amendment further provides that the Board will have and maintain as standing committees an Audit Committee, a Compensation Committee, a Governance Committee and a Risk Committee. The Board may by resolution (which, during the Specified Period, will require the affirmative vote of at least 75% of the entire Board) establish any committees not expressly contemplated by the Company’s bylaws composed of directors as they may determine to be necessary or appropriate for the conduct of business of the Company.

Pursuant to the Bylaws Amendment, during the Specified Period, (i) each committee of the Board (other than the Legacy South State Directors Nominating Committee and the Legacy CenterState Directors Nominating Committee) will (A) have at least four members and (B) be composed of 50% Legacy South State Directors and 50% Legacy CenterState Directors and (ii) the chairman of the Audit Committee and Risk Committee will be a Legacy South State Director and the chairman of the Governance Committee and Compensation Committee will be a Legacy CenterState Director, in each case subject to compliance with certain independence and other requirements. The Bylaws Amendment provides that, at any time during the Specified Period in which an Executive Committee is in existence, the chairman of the Executive Committee will be Robert R. Hill, Jr. and John C. Corbett will serve as a member of the Executive Committee.

The Bylaws Amendment also provides that, during the Specified Period, any removal of Mr. Hill in his capacity as the Executive Chairman of the Board and the Company, Mr. Corbett in his capacity as the Chief Executive Officer of the Company or Mr. McPherson as Lead Independent Director of the Board, and certain amendments or modifications to any employment agreements with or reporting relationships of any of them, will, in each case, require the affirmative vote of at least 75% of the entire Board.

In accordance with the Bylaws Amendment, the headquarters and principal office of the Company will be located in Winter Haven, Florida and the Bank will have its main office in Winter Haven, Florida.

During the Specified Period, any amendment to the provisions of the Bylaws Amendment implementing the governance arrangements described above, and any other provision of the Company’s bylaws that sets forth the authority and responsibility of the Executive Chairman, the Chief Executive Officer or the President, will require the affirmative vote of at least 75% of the entire Board.

The foregoing summary of the Bylaws Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which is filed hereto as Exhibit 3.2 and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited consolidated financial statements of CenterState as of December 31, 2019 and 2018 and for each of the fiscal years ended December 31, 2019, 2018 and 2017 are filed hereto as Exhibit 99.1 and incorporated herein by reference.

The unaudited interim financial statements of CenterState as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are filed hereto as Exhibit 99.2 and incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma combined condensed consolidated financial statements of South State and CenterState, including (a) the unaudited pro forma combined condensed consolidated statements of income of South State and CenterState for the three months ended March 31, 2020 and for the year ended December 31, 2019, in each case giving effect to the Merger as if it had occurred on January 1, 2019, and (b) the unaudited pro forma combined condensed consolidated balance sheet of South State and CenterState as of March 31, 2020, giving effect to the Merger as if it had occurred on March 31, 2020, are filed hereto as Exhibit 99.3 and incorporated herein by reference.

(d) Exhibits.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of January 25, 2020, by and between CenterState Bank Corporation and South State Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 29, 2020)
3.1	Amendment to Amended and Restated Articles of Incorporation of South State Corporation
3.2	Amended and Restated Bylaws of South State Corporation
4.1	Indenture, dated as of May 29, 2020, by and between CenterState Bank Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to CenterState Bank Corporation’s Current Report on Form 8-K, filed with the Commission on May 29, 2020)
4.2	First Supplemental Indenture, dated as of May 29, 2020, by and between CenterState Bank Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to CenterState Bank Corporation’s Current Report on Form 8-K, filed with the Commission on May 29, 2020)
4.3	Second Supplemental Indenture, dated as of June 7, 2020, by and between South State Corporation and U.S. Bank National Association, as trustee
23.1	Consent of Crowe LLP, Independent Registered Public Accounting Firm of CenterState Bank Corporation
99.1	Audited consolidated financial statements of CenterState Bank Corporation as of December 31, 2019 and 2018 and for the fiscal years ended December 31, 2019, 2018 and 2017
99.2	Unaudited interim financial statements of CenterState Bank Corporation as of March 31, 2020 and for the three months ended March 31, 2020 and 2019
99.3	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 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, as amended, filed with the Commission on May 8, 2020)
104	Cover Page Interactive Data File (formatted as inline XBRL document)

SIGNATURES

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/ William E. Matthews, V
		William E. Matthews, V
		Executive Vice President and Chief Financial Officer

Dated: June 8, 2020

Exhibit 3.1

STATE OF SOUTH CAROLINA
SECRETARY OF STATE

ARTICLES OF AMENDMENT

Pursuant to Section 33-10-106 of the 1976 South Carolina Code of Laws, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation:

The name of the corporation is South State Corporation.

Date of Incorporation: February 22, 1985

Agent’s Name and Address:

V. Nicole Comer

700 Gervais Street, Suite 400

Columbia, South Carolina 29201

On January 24, 2020, the Board of Directors of South State Corporation adopted the following Amendment(s) of its Articles of Incorporation: (Type or attach the complete text of each Amendment)

The first sentence of Article V of the South State Articles of Incorporation shall be amended and restated in its entirety to state:

The aggregate number of shares which the corporation shall have the authority to issue is (i) One Hundred and Sixty Million (160,000,000) shares of one class of Common Stock, par value $2.50 per share, and (ii) Ten Million (10,000,000) shares of preferred stock, par value $.01 per share (referred to herein as ‘‘preferred stock’’).

The manner, if not set forth in the Amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert “not applicable” or “NA”).

Not applicable.

Complete either “a” or “b,” whichever is applicable.

x Amendment(s) adopted by shareholder action. At the date of adoption of the Amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:

Voting Group		Number of Outstanding Shares⁽¹⁾				Number of Votes Entitled to be Cast⁽¹⁾				Number of Votes Represented at the Meeting				Total Number of Votes Cast FOR				Total Number of Votes Cast AGAINST
Common stock, par value $2.50 per share			33,464,420				33,464,420				26,383,056				26,057,306				243,774

*NOTE:

Pursuant to Section 33-10-106(6)(i) of the 1976 South Carolina Code of Laws, as amended, the corporation can alternatively state the total number of disputed shares cast for the amendment by each voting group together with a statement that the number of cast for the amendment by each voting group was sufficient for approval by that voting group.

⁽¹⁾ As of the close of business on April 14, 2020, the record date for the special meeting of South State Corporation’s shareholders.

[ ] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code of Laws, as amended, and shareholder action was not required.

Unless a delayed dated is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (See Section 33-1-230(b) of 1976 South Carolina Code of Laws, as amended).

These Articles of Amendment shall become effective at 11:59 p.m. Eastern Time on June 7, 2020.

Date: June 2, 2020

Name of the Surviving Corporation:		South State Corporation

Signature:	/s/ Robert R. Hill, Jr.

Print Name:	Robert R. Hill, Jr.

Office:	Chief Executive Officer

Exhibit 3.2

AMENDED AND RESTATED

BYLAWS OF

SOUTH STATE CORPORATION

(the “Corporation”)

(as amended through June 7, 2020)

Article I
MEETINGS OF SHAREHOLDERS

1. Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held annually on such day and at such time and place, either within or without South Carolina, as shall be fixed by the Board of Directors (sometimes referred to as the “Board”).

2. Special Meetings.

(a) Special meetings of the shareholders may be called by (i) the Chief Executive Officer, (ii) the Executive Chairman of the Board of Directors, (iii) a majority of the Board of Directors, or (iv) by the Secretary of the Corporation, following his or her receipt of one or more written demands to call a special meeting of the shareholders in accordance with, and subject to, this Article I, Section 2 from the holders (as of a record date fixed in accordance with Article I, Sections 2(b) and 2(c)) of not less than ten percent (10%) of all of the common shares entitled to vote at such meeting. The place of such meetings shall be designated by the Board of Directors. The notice of a special meeting shall state the purpose or purposes of the special meeting, and the business to be conducted at the special meeting shall be limited to the purpose or purposes stated in the notice. Except in accordance with this Article I, Section 2, shareholders shall not be permitted to propose business to be brought before a special meeting of the shareholders. Shareholders who nominate persons for election to the Board of Directors at a special meeting must also comply with the requirements set forth in Article I, Section 6.

(b) No shareholder may demand that the Secretary of the Corporation call a special meeting of the shareholders unless a shareholder of record has first submitted a request in writing that the Board of Directors fix a record date (a “Demand Record Date”) for the purpose of determining the shareholders entitled to demand that the Secretary of the Corporation call such special meeting, which request shall be in proper form and delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation. To be in proper form for purposes of this Article I, Section 2, a request by a shareholder for the Board of Directors to fix a Demand Record Date shall set forth:

(i) As to each Requesting Person (as defined below), the Shareholder Information (as defined in Article I, Section 6(a)(ii)(a));

(ii) As to the purpose or purposes of the special meeting, (a) a reasonably brief description of the purpose or purposes of the special meeting and the business proposed to be conducted at the special meeting, the reasons for conducting such business at the special meeting and any interest in such business of each Requesting Person, and (b) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Requesting Persons or (y) between or among any Requesting Person and any other person or entity (including their names) in connection with the request for the special meeting or the business proposed to be conducted at the special meeting; and

(iii) If directors are proposed to be elected at the special meeting, the Nominee Information (as defined in Article I, Section 6(a)(ii)(c)) and the director questionnaire (as required under Article I, Section 6(c)) for each person whom a Requesting Person expects to nominate for election as a director at the special meeting.

For purposes of this Article I, Section 2(b), the term “Requesting Person” shall mean (1) the shareholder making the request to fix a Demand Record Date for the purpose of determining the shareholders entitled to demand that the Secretary of the Corporation call a special meeting, (2) the beneficial owner or beneficial owners, if different, on whose behalf such request is made, and (3) any affiliate or associate of such shareholder or beneficial owner.

(c) Within ten (10) days after receipt of a request to fix a Demand Record Date in proper form and otherwise in compliance with this Article I, Section 2 from any shareholder of record, the Board of Directors may adopt a resolution fixing a Demand Record Date for the purpose of determining the shareholders entitled to demand that the Secretary of the Corporation call a special meeting, which date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. If no resolution fixing a Demand Record Date has been adopted by the Board of Directors within the ten (10) day period after the date on which such a request to fix a Demand Record Date was received, the Demand Record Date in respect thereof shall be deemed to be the twentieth (20th) day after the date on which such a request is received. Notwithstanding anything in this Article I, Section 2 to the contrary, no Demand Record Date shall be fixed if the Executive Chairman of the Board of Directors determines that the demand or demands that would otherwise be submitted following such Demand Record Date could not comply with the requirements set forth in clauses (ii), (iv), (v) or (vi) of Article I, Section 2(e).

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(d) Without qualification, a special meeting of the shareholders shall not be called pursuant to Article I, Section 2(a)(iv) unless shareholders of record as of the Demand Record Date who hold, in the aggregate, not less than ten percent (10%) of all of the common shares entitled to vote at such meeting (the “Requisite Percentage”) timely provide one or more demands to call such special meeting in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation. Only shareholders of record on the Demand Record Date shall be entitled to demand that the Secretary of the Corporation call a special meeting of the shareholders pursuant to Article I, Section 2(a)(iv). To be timely, a shareholder’s demand to call a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than the sixtieth (60th) day following the Demand Record Date. To be in proper form for purposes of this Article I, Section 2, a demand to call a special meeting shall set forth (i) the business proposed to be conducted at the special meeting or the proposed election of directors at the special meeting, as the case may be, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration), if applicable, and (iii) with respect to any shareholder or shareholders submitting a demand to call a special meeting (except for any shareholder that has provided such demand in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by way of a solicitation statement filed on Schedule 14A) (a “Solicited Shareholder”) the information required to be provided pursuant to this Article I, Section 2 of a Requesting Person. A shareholder may revoke a demand to call a special meeting by written revocation delivered to the Secretary at any time prior to the special meeting. If any such revocation(s) are received by the Secretary after the Secretary’s receipt of written demands from the holders of the Requisite Percentage of shareholders, and as a result of such revocation(s), there no longer are unrevoked demands from the Requisite Percentage of shareholders to call a special meeting, the Board of Directors shall have the discretion to determine whether or not to proceed with the special meeting (any such special meeting of the shareholders that has been called may be canceled by resolution of the Board of Directors upon public notice given prior to the time previously scheduled for such special meeting of shareholders).

(e) The Secretary shall not accept, and shall consider ineffective, a written demand from a shareholder to call a special meeting (i) that does not comply with this Article I, Section 2, (ii) that relates to an item of business to be transacted at such meeting that is not a proper subject for shareholder action under applicable law, (iii) that includes an item of business to be transacted at such meeting that did not appear on the written request that resulted in the determination of the Demand Record Date, (iv) that relates to an item of business (other than the election of directors) that is identical or substantially similar to an item of business (a “Similar Item”) for which a record date for notice of a shareholder meeting (other than the Demand Record Date) was previously fixed and such demand is delivered between the time beginning on the sixty-first (61st) day after such previous record date and ending on the one-year anniversary of such previous record date, (v) if a Similar Item will be submitted for shareholder approval at any shareholder meeting to be held on or before the ninetieth (90th) day after the Secretary receives such demand, or (vi) if a Similar Item has been presented at the most recent annual meeting or at any special meeting held within one year prior to receipt by the Secretary of such demand to call a special meeting.

(f) After receipt of demands in proper form and in accordance with this Article I, Section 2 from a shareholder or shareholders holding the Requisite Percentage, the Board of Directors shall direct the Secretary of the Corporation to duly call, and the Board of Directors shall determine the place, date and time of, a special meeting of shareholders for the purpose or purposes and to conduct the business specified in the demands received by the Corporation. Notwithstanding anything in these Bylaws to the contrary, the Board of Directors may submit its own proposal or proposals for consideration at such a special meeting. The record date for notice and voting for such a special meeting shall be fixed in accordance with Article I, Section 3 of these Bylaws. The Board of Directors shall direct the Corporation to provide written notice of such special meeting to the shareholders in accordance with Article I, Section 3.

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(g) In connection with a special meeting called in accordance with this Article I, Section 2, the shareholder or shareholders (except for any Solicited Shareholder) who requested that the Board of Directors fix a record date for notice and voting for the special meeting in accordance with this Article I, Section 2 or who delivered a demand to call a special meeting to the Secretary shall further update and supplement the information previously provided to the Corporation in connection with such request or demand, if necessary, so that the information provided or required to be provided in such request or demand pursuant to this Article I, Section 2 shall be true and correct as of the record date for notice of the special meeting and as of the date that is ten (10) business days prior to the special meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for notice of the special meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the special meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the special meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the special meeting or any adjournment or postponement thereof); provided, that this Article I, Section 2(g) shall not permit any such shareholder(s) to change any proposed business or nominee (or add any proposed business or nominee), as the case may be.

(h) Notwithstanding anything in these Bylaws to the contrary, the Secretary shall not be required to call a special meeting pursuant to this Article I, Section 2 except in accordance with this Article I, Section 2. If the Executive Chairman of the Board of Directors shall determine that any request to fix a record date for notice and voting for the special meeting or demand to call and hold a special meeting was not properly made in accordance with this Article I, Section 2, or shall determine that the shareholder or shareholders requesting that the Board of Directors fix such record date or submitting a demand to call the special meeting have not otherwise complied with this Article I, Section 2, then the Board of Directors shall not be required to fix such record date, the Secretary shall not be required to call the special meeting and the Corporation shall not be required to hold the special meeting. In addition to the requirements of this Article I, Section 2, each Requesting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any request to fix a record date for notice and voting for the special meeting or demand to call a special meeting.

3. Record Date for and Notice of Shareholder Meetings.

(a) The Board of Directors, the Executive Chairman of the Board or the Chief Executive Officer or the President of the Corporation may fix the record date to determine the shareholders entitled to notice of a shareholders’ meeting and to vote or take any other action thereat.

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(b) Written or printed notice stating the place, day, and hour of the meeting, and, such other notice as required by the provisions of the South Carolina Business Corporation Act, and in the case of a special meeting, the purpose or purposes for which the meeting is called and the person or persons calling the meeting, shall be communicated by the Corporation to each shareholder of record entitled to vote at the meeting, not less than ten (10) nor more than sixty (60) days before the date of the meeting. If such notice is mailed, it shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at the address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. If at any meeting Bylaws are to be altered, repealed, amended, or adopted, notices or waivers thereof shall so state. A shareholder may waive notice of any meeting, in writing, either before or after the meeting. Any previously scheduled meeting of the shareholders may be postponed, and (unless the Articles of Incorporation otherwise provides) any special meeting of the shareholders called pursuant to Article I, Section 2(a)(i)-(iii) may be canceled, by resolution of the Board of Directors upon public notice given prior to the time previously scheduled for such meeting of shareholders.

4. Quorum Requirements. Absent a provision in the Articles of Incorporation or the South Carolina Business Corporation Act stating otherwise, a majority of the shares entitled to vote shall constitute a quorum for the transaction of business. A meeting may be adjourned despite the absence of a quorum, and notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken and the adjournment is for a period of less than thirty (30) days. If the adjournment is for thirty (30) days or more, notice of the adjourned meeting shall be given pursuant to Article I, Section 3 of these Bylaws. When a quorum is present at any meeting, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the South Carolina Business Corporation Act requires a greater number of affirmative votes.

5. Voting and Proxies. Every shareholder entitled to vote at a meeting may do so either in person or by proxy. A shareholder or his agent or attorney in fact may appoint a proxy to vote or otherwise act for him, including giving waivers and consents, by signing an appointment form or by an electronic transmission of appointment. The electronic transmission must contain or be accompanied by sufficient information to determine that the transmission appointing the proxy is authorized. A proxy must have an effective date. If not dated by the person giving the proxy, the effective date of the proxy is the date on which it is received by the person appointed to serve as proxy, and that date must be noted by the appointee on the appointment form. An appointment of a proxy is effective when the appointment form or electronic transmission is received by the Secretary of the meeting or other officer or agent authorized to tabulate votes. Unless a time of expiration is otherwise specified, an appointment of a proxy is valid for eleven months (unless duly revoked earlier).

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6. Matters Considered at Shareholder Meetings.

(a) Annual Meetings of Shareholders.

(i) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or the Executive Chairman of the Board or (c) by any shareholder of the Corporation who (1) was a shareholder of record at the time of giving of notice provided for in this Article I, Section 6 and at the time of the annual meeting, (2) is entitled to vote at the meeting and (3) complies with the notice procedures set forth in this Article I, Section 6 (including, without limitation, by providing any updates or supplements at the times and in the forms required by Article I, Section 6(a)(ii)(e)) as to such business or nomination. The foregoing clause (c) shall be the exclusive means for a shareholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporation’s notice of meeting) before an annual meeting of shareholders.

(ii) Without qualification, for any nominations or any other business to be properly brought before an annual meeting by a shareholder pursuant to Article I, Section 6(a)(i)(c), the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day and not later than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to the date of such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, then the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a shareholder’s notice as described above.

To be in proper form, a shareholder’s notice (whether given pursuant to this Article I, Section 6(a)(ii) or Article I, Section 6(b)) to the Secretary must:

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(a) set forth, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such shareholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, (2) (A) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such shareholder and such beneficial owner, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such shareholder or such beneficial owner and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder or such beneficial owner has a right to vote any shares of any security of the Corporation, (D) any short interest in any security of the Corporation (for purposes of this Article I, Section 6(a)(ii) a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the Corporation owned beneficially by such shareholder or such beneficial owner that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder or such beneficial owner is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (G) any performance-related fees (other than an asset-based fee) that such shareholder or such beneficial owner is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such shareholder’s or such beneficial owner’s immediate family sharing the same household (which information shall be supplemented by such shareholder and beneficial owner, if any, not later than ten (10) days after the record date for the meeting to disclose such ownership as of the record date), (H) any pending or threatened legal proceeding in which such shareholder or such beneficial owner is a party or participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (I) any other material relationship between such shareholder or such beneficial owner, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand, and (J) to the extent known to such shareholder or such beneficial owner, the name(s) of any other shareholder(s) of the Corporation (whether holders of record of beneficial owners) that support the business that the shareholder proposes to bring before the meeting or the nominees whom the shareholder proposes to nominate for election or reelection to the Board of Directors, as applicable, (3) a representation of such shareholder and such beneficial owner, if any, that such person (or a qualified representative thereof) intends to appear in person at the meeting, and (4) any other information relating to such shareholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (the disclosures to be made pursuant to the foregoing clauses (1), (2), (3) and (4) are referred to herein as the “Shareholder Information”);

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(b) if the notice relates to any business other than a nomination of a director or directors that the shareholder proposes to bring before the meeting in addition to the information required by Article I, Section 6(a)(ii)(a), set forth (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such shareholder and beneficial owner, if any, in such business and (2) a description of all agreements, arrangements and understandings between such shareholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such shareholder;

(c) in addition to the information required by Article I, Section 6(a)(ii)(a), set forth, as to each person, if any, whom the shareholder proposes to nominate for election or reelection to the Board of Directors (1) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (2) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (1) and (2) are referred to herein as the “Nominee Information”);

(d) with respect to each nominee for election or reelection to the Board of Directors, include a completed and signed questionnaire, representation and agreement required by Article I, Section 6(c). The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such nominee; and

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(e) a shareholder giving the notice shall update and supplement its notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 6(a)(ii) shall be true and correct as of the record date for notice of the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof); provided, that this Article I, Section 6(a)(ii)(e) shall not permit any such shareholder(s) to change any proposed business or nominee (or add any proposed business or nominee), as the case may be.

(iii) Notwithstanding anything in the second sentence of Article I, Section 6(a)(ii) to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting of shareholders is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a shareholder’s notice required by this Article I, Section 6(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

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(b) Special Meetings of Shareholders.

(i) Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of the Board of Directors, or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who (1) is a shareholder of record at the time of giving of notice provided for in this Article I, Section 6(b) and at the time of the special meeting, (2) is entitled to vote at the meeting, and (3) complies with the notice procedures set forth in this Article I, Section 6(b) as to such nomination (including, without limitation, by providing all information required to be provided with respect to such nominating shareholder, including, without limitation, by providing any updates or supplements at the times and in the forms required by Article I, Section 6(a)(ii)(e)). In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareholder’s notice (in proper form) required by Article I, Section 6(a)(ii) with respect to any nomination (including, without limitation, the completed and signed questionnaire, representation and agreement required by Article I, Section 6(c) and the information with respect to such nominating shareholder required by Article I, Section 6(a)(ii)) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to the date of such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, then the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a shareholder’s notice as described above.

(i) To be eligible to be a nominee of a shareholders of the Corporation for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under this Article I, Section 6) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person: (a) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (b) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (c) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.

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(d) General.

(i) Only such persons who are nominated in accordance with the procedures set forth in this Article I, Section 6 shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article I, Section 6. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, the chairman of the meeting shall have the power to determine all matters relating to the conduct of the meeting, including, but not limited to, determining whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Article I, Section 6 and, if any proposed nomination or business is not in compliance with this Article I, Section 6, to declare that such defective proposal or nomination shall be disregarded.

(ii) For purposes of this Article I, Section 6, a “public announcement” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(iii) Notwithstanding the foregoing provisions of this Article I, Section 6, all director nominations are subject to any required regulatory approval(s) and to the director qualifications set forth in Article II, Section 2, and a proposed director will not be entitled to vote on any matter or otherwise take any action in the capacity of a director until all required regulatory approvals, if any, have been obtained. In addition, notwithstanding the foregoing provisions of this Article I, Section 6, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article I, Section 6; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Article I, Section 6(a)(i)(c) or Article I, Section 6(b). Nothing in Article I, Section 6 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

(iv) Unless otherwise required by law, if the shareholder (or a qualified representative of the shareholder) does not appear at the annual or special meeting of shareholders of the Corporation to present the nomination or proposal in compliance with the shareholder’s representation required by Article I, Section 6(a)(ii)(a)(3), such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes hereof, to be considered a qualified representative of the shareholder, a person must be a duly authorized officer, manager or partner of such shareholder or must be authorized by a writing complying with Article I, Section 5 to act for such shareholder as proxy at the meeting of shareholders, and such person must produce such writing, or a reliable reproduction thereof, at the meeting of shareholders.

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7. Conduct of Meetings.

(a) Meetings of shareholders shall be presided over by the Executive Chairman of the Board of Directors or, in his absence, by the Vice Chairman or another director or executive officer designated by the Board of Directors. Such person is referred to in these Bylaws as the presiding officer or as the chairman of the meeting. The presiding officer shall determine all questions of order or procedure (and the presiding officer’s rulings shall be final) and may, in his or her discretion, adjourn a meeting of shareholders regardless of whether a quorum is present.

(b) The Secretary of the Corporation, with the assistance of such agents as may be designated by the Secretary, shall make all determinations of the validity of proxies presented and ballots cast.

(c) In the event that any person or group other than the Board of Directors hold proxies for more than ten (10) other shareholders, any vote taken with respect to any contested matter, determined to be such by the presiding officer, shall be taken in the following manner:

(i) Shareholders wishing to vote in person shall obtain ballots from the Secretary and cast their votes. After a period determined to be reasonable by the presiding officer, no further voting in person shall be permitted.

(ii) Thereafter, persons holding proxies shall obtain a ballot from the Secretary which shall be in a form to permit the votes cast with respect to each appointment of proxy to be identified as such and shall fill out such ballot, and return it together with the original appointments of proxies to the Secretary. After a period determined to be reasonable by the presiding officer, the polls shall be closed and no further voting on the question shall be allowed.

(iii) If the number of proxies held by persons or groups other than the Board of Directors is high, the presiding officer may, after consultation with the Secretary, adjourn the meeting for up to seventy-two (72) hours, to permit the counting of the votes; provided, however, that the presiding officer may, in his discretion, permit other business, including the casting of other votes, to be transacted prior to any such adjournment.

Article II
BOARD OF DIRECTORS

1. Composition of Board of Directors. The Corporation shall have a Board of Directors consisting of active directors, whose qualifications, election, number, etc. are described and discussed in this Article II and throughout these Bylaws. Whenever the terms “director” or “Board of Directors” or “Board” are used herein or in other corporate documents, the terms shall include active directors only.

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2. Qualification and Election of Active Directors.

(a) Except for any directors as to whom such age requirement has been waived by the Board of Directors prior to the Effective Time or as set forth in this Section 2(a) of Article II, directors must be shareholders, not under twenty-five (25) years of age and not over seventy-two (72) years of age at the time of the shareholders’ meeting at which they are elected by the shareholders. In the event that a director attains age seventy-two (72) during his or her term of office, he or she shall serve until the end of his or her then-current term of office after his or her seventy-second (72nd) birthday. Notwithstanding the foregoing, (i) if the Board of Directors determines that it is in the best interests of the Corporation and its shareholders, the Board of Directors, upon the recommendation of the Governance Committee, may waive the foregoing requirements for one or more directors and (ii) such age requirement shall be deemed to be waived, as applicable, with respect to the initial appointment of the directors appointed to the Board of Directors pursuant to Section 6.12(a) of that certain Agreement and Plan of Merger, dated as of January 25, 2020, by and between CenterState Bank Corporation and South State Corporation, as it may have been amended, restated, supplemented or otherwise modified from time to time.

The terms of the initial Board of Directors elected by the shareholder(s) shall be set so as to implement staggered terms, i.e., the terms of one-third (or as near one-third as possible) of the directors shall be one year, the terms of one-third shall be two years and the terms of one-third shall be three years. Thereafter, one-third of the directors shall be elected by a majority of the common shareholder votes cast at each annual meeting of the shareholders, or by similar vote at any special meeting called for the purpose, to serve three year terms. Each director shall hold office until the expiration of the term for which he or she is elected and thereafter until his or her successor has been elected and qualified. Any vacancy occurring in the Board of Directors, including vacancies occurring in the Board by reason of removal with or without cause or increase in membership, shall be filled by appointment by the remaining directors, and any director so appointed shall serve until the next shareholders meeting wherein directors are elected.

(b) Nomination of Directors. The Board of Directors shall nominate, upon recommendation of the governance committee, the Board’s nominees for the Board of Directors to the shareholders. No other person shall be a nominee or be eligible to be a director of the Corporation unless that person shall have first been nominated by a record shareholder of the Corporation in accordance with Article I, Section 6 of these Bylaws.

3. Number. The maximum number of active directors is fixed by the Articles and may be altered only by amendment thereto, but shall never be less than the number required by law. Not less than sixty (60) days prior to the annual meeting of shareholders, the Board of Directors shall set the number of directors (not to exceed the maximum for the Corporation). The Board of Directors may, by a vote of the majority of the full Board, between annual meetings of the shareholders, increase the membership of the Board up to the maximum number set out in the Articles and by like vote appoint qualified persons to fill the vacancies created thereby.

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4. Meetings. The annual meeting of the Board of Directors shall be held immediately after the adjournment of the annual meeting of the shareholders, at which time the officers of the Corporation shall be elected. The Board may also designate more frequent intervals for regular meetings. Special meetings may be called at any time by any one director or any two officers of the Corporation in addition to those parties entitled to call such meetings under South Carolina law.

5. Notice of Directors’ Meetings. The annual and all regular Board meetings may be held without notice. Special meetings shall be held with not less than one hour notice of such meeting to be given to each director, which notice shall be given on a best efforts basis by those calling the meeting. Notice may be waived in writing before or after a meeting. If the meeting is one at which Bylaws are to be altered, repealed, or adopted both waivers and notices must so state. Notice of a special meeting may be called by the Executive Chairman, the Chief Executive Officer or any three (3) directors. If the notice of the meeting is not given in writing at least two (2) days prior to the meeting no action shall be taken at the meeting unless such action is approved by the affirmative vote of a majority of the entire Board of Directors.

6. Quorum and Vote. The presence of a majority of the directors shall constitute a quorum for the transaction of business. A meeting may be adjourned despite the absence of a quorum, and notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board, unless the vote of a greater number is required by the Articles, these Bylaws, or by the laws of South Carolina.

7. Appointment of Executive Chairman, Executive and Other Committees. The Executive Chairman of the Board of Directors of the Corporation shall also serve as an officer of the Corporation. There shall be a standing committee of the Corporation appointed by the Board of Directors to be known as the executive committee consisting of the Executive Chairman of the Board, the Chief Executive Officer and up to six (6) members of the Board of Directors. Nominations to the executive committee shall be made to the Board by the governance committee of the Board after considering the recommendation of the Executive Chairman. The executive committee may appoint senior officers to attend all meetings. Each member of the executive committee shall serve until his successor is appointed. The Executive Chairman shall serve as chairman of the executive committee. The Board of Directors of the Corporation may, by resolution adopted by a majority of its members, delegate to the executive committee the power to exercise all authority of the Board of Directors in the management of affairs of the Corporation and property of the Corporation. The Board of Directors, by resolution adopted by a majority of its members, may designate such other committees with designations of authority, as it deems appropriate. Nominations to such other committees shall be made to the Board by the governance committee of the Board after considering the recommendations of the Executive Chairman.

8. Powers. In addition to other powers specifically set out herein or that apply under South Carolina or other applicable law, the Board of Directors shall have the power to manage and administer the affairs of the Corporation and to do and perform all lawful acts with respect to the affairs of the Corporation except those that may be specifically reserved to the shareholders under South Carolina or other applicable law.

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9. Contracts with Interested Directors. No contract or other transaction between this Corporation and any other corporation shall be affected by the fact that any director of this Corporation is interested in, or is a director or officer of, such other corporation, and any director, individually or jointly, may be a party to, or may be interested in, any contract or transaction of this Corporation or in which this Corporation is interested; and no contract, or other transaction, of this Corporation with any person, firm, or corporation, shall be affected by the fact that any director of this Corporation is a party to, or is interested in, such contract, act, or transaction, or is in any way connected with such person, firm, or corporation, and every person who may become a director of this Corporation is hereby relieved from any liability that might otherwise exist from contracting with the Corporation for the benefit of himself or any firm, association, or corporation in which he may be in any way interested.

10. Special Considerations by Directors. The directors of this Corporation shall consider all factors they deem relevant in evaluating any proposed tender offer or exchange offer for the Corporation’s stock, any proposed merger or consolidation of the Corporation with or into another corporation and any proposal to purchase or otherwise acquire all of the assets of the Corporation. The directors shall evaluate whether the proposal is in the best interests of the Corporation by considering the best interests of the shareholders and other factors the directors determine to be relevant, including the social, legal and economic effects on employees, customers and the communities served by the Corporation and its subsidiary or subsidiaries. The directors shall evaluate the consideration being offered to the shareholders in relation to the then current market value of the Corporation, the then current market value of shares of the Corporation in a freely negotiated transaction, and the directors’ estimate of the future value of shares of the Corporation as an independent entity.

11. Election of Directors to Subsidiaries of the Corporation. The Board of Directors of the Corporation shall elect, upon nomination by the executive committee, directors of all wholly owned subsidiary corporations of the Corporation.

Article III
OFFICERS

1. Number. The Corporation shall have a Chief Executive Officer, a President, an Executive Chairman of the Board, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors shall from time to time deem necessary. Any two or more offices may be held by the same person. The Executive Chairman of the Board, and any Vice Chairman of the Board, may but need not be an employee of the Corporation.

2. Election and Term. The officers shall be elected by the Board at its annual meeting. Each officer shall serve until the expiration of the term for which he is elected, and thereafter until his successor has been elected and qualified.

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3. Duties. All officers shall have such authority and perform such duties in the management of the Corporation as are normally incident to their offices and as the Board of Directors may from time to time provide. The Chief Executive Officer of the Corporation shall report to the Board, and shall designate and assign the duties of the officers under his or her supervision, at the direction or with the approval of the Board.

Article IV
RESIGNATIONS, REMOVALS AND VACANCIES

1. Resignations. Any officer or director may resign at any time by giving written notice to the Executive Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary. Any such resignation shall take effect at the time specified therein, or, if no time is specified, then upon its acceptance by the Board of Directors.

2. Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in any office or directorship for any reason, including removal of an officer or director with or without cause, may be filled by the vote of a majority of the directors then in office, even if less than a quorum exists.

Article V
CAPITAL STOCK

1. Stock Certificates. Unless otherwise decided by the Board of Directors (or by the Chief Executive Officer, if the Board of Directors has authorized the issue of all of the Corporation’s shares without certificates as contemplated by Article V, Section 2 of these Bylaws), every shareholder shall be entitled to a certificate or certificates of capital stock of the Corporation in such form as may be prescribed by the Board of Directors. Unless otherwise decided by the Board of Directors, such certificates shall be signed by the Chief Executive Officer or President and by the Secretary or an Assistant Secretary of the Corporation. In the case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms as the Board of Directors or an officer of the Corporation shall prescribe.

2. Shares Without Certificates. The Board of Directors of the Corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates in accord with the provisions of Chapter 8 of Title 36 of the South Carolina Uniform Commercial Code. Within a reasonable time after the issue or transfer of shares without certificates, the Corporation or its designated transfer agent shall send the shareholder a written statement containing the following information: (a) the name of the Corporation and a statement that it is organized under the laws of South Carolina; (b) the name of the person to whom the shares are issued; (c) the number and class of shares and the designation of the series, if any, of the shares; (d) if at such time the Corporation is authorized to issue different classes of shares or different series within a class, a summary of the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series); and (e) if applicable, a conspicuous notation that the shares are subject to a restriction on their transfer.

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3. Registration of the Transfer of Shares. Registration of the transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation (which stock transfer books may be kept by the Corporation or the transfer agent designated by the Corporation to transfer the shares or other agent designated by the Corporation). If a share certificate in registered form is presented to the Corporation with a request to register a transfer of the shares, or an instruction is presented to the Corporation with a request to register the transfer of uncertificated shares, then, subject to applicable law, the Corporation shall register the transfer as requested if: (a) under the terms of the shares the person seeking registration of transfer is eligible to have the shares registered in their name; (b) the indorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person; (c) reasonable assurance is given that the indorsement or instruction is genuine and authorized (without limiting the foregoing, the Corporation or its transfer agent, may require that the indorsement or instruction must have been guaranteed by a commercial bank or brokerage firm that is a member of the Financial Industry Regulatory Authority (FINRA) and reasonable assurance is given that such endorsements are effective); (d) any applicable law relating to the collection of taxes has been complied with; (e) the transfer does not violate any restriction on transfer imposed by the Corporation in accordance with § 36-8-204 of the South Carolina Code; (f) the registered owner has not made a demand that the shares not be transferred, or if such demand has been made, the procedures set forth in § 36-8-403 of the South Carolina Code permit the transfer; and (g) the transfer is in fact rightful or is to a person otherwise entitled to obtain the shares as a protected purchaser as defined in § 36-8-303 of the South Carolina Code. A person acting as authenticating trustee, transfer agent, registrar, or other agent for the Corporation in the registration of a transfer of its securities, in the issue of new security certificates or uncertificated securities, or in the cancellation of surrendered security certificates has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed as the Corporation has in regard to those functions.

4. Control Share Acquisitions. The provisions of § 35-2-100 et seq. of the South Carolina Code shall not apply to control share acquisitions of the shares of any or all of its classes or series of the Corporation.

Article VI
ACTION BY CONSENT

1. Shareholders. Shareholders may act without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon or their attorneys-in-fact or proxy holders. Such consent shall be filed with the Secretary as part of the corporate records.

2. Directors; Executive Committee. Directors or any executive or other committee can act without a meeting on action taken by a majority thereof, or by a much larger vote as the Articles or Bylaws require, if all directors or committee members execute, before or after the action taken, a written consent thereto and the consent is filed in the records of the Corporation. Action which is permitted to be taken only when authorized at a meeting of the Board or committee, can be taken without a meeting, if before or after the action, all Board or committee members consent thereto in writing and the consent is filed in the minute book of the Board or committee. Such consent shall have the same effect as a vote of the Board for all purposes.

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Article VII
INDEMNIFICATION

1. Right to Indemnification. Any person who at any time serves or has served as a director or officer of the Corporation, or who, while serving as a director or officer of the Corporation, serves or has served, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan (whether or not such person continues to serve in such capacity at the time of any indemnification or advancement of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought), shall have the right to be indemnified by the Corporation (including, for all purposes of this Article VII, any successor of the Corporation by merger or otherwise) to the fullest extent permitted by law against (a) reasonable expenses, including attorneys’ fees, incurred by him in connection with any threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit or proceeding (and any appeal therein), whether or not brought by or on behalf of the Corporation, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (b) reasonable payments made by him in satisfaction of any judgment, money decree, fine (including an excise tax assessed with respect to an employee benefit plan), penalty or settlement for which he may have become liable in any such action, suit or proceeding.

2. Right to Advancement of Expenses. The right to indemnification conferred in this Article VII shall include the right to be paid by the Corporation the reasonable expenses (including attorney’s fees) incurred in defending any such action, suit or proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if required by law, an advancement of expenses incurred by a claimant shall be made only if: (a) the claimant furnishes the Corporation with a written affirmation of his good faith belief that he met the standard of conduct required by law; and (b) the claimant furnishes the Corporation with a written undertaking, executed personally on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct.

3. Payment of Indemnification and Advancement of Expenses. The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification and advancement of expenses required by this Article VII, including, without limitation, making a determination that indemnification and/or advancement of expenses is permissible in the circumstances and a good faith evaluation of the manner in which the claimant acted and of the reasonable amount of indemnity or expenses due him. The Board of Directors may appoint a committee or special counsel to make such determination and evaluation. Following any “Change of Control” of the Corporation defined in the Corporation’s 2012 Omnibus Stock and Performance Plan (or any comparable term as defined in any successor to such plan), any determination as to entitlement of indemnification and advancement of expenses under this Article VII shall be made by independent special legal counsel selected in the manner provided in the South Carolina Business Corporation Act.

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4. Right of Indemnitee to Bring Suit. If a claim under this Article VII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the claimant shall be entitled to be paid also for the expense of prosecuting or defending such suit. In (i) any suit brought by a claimant to enforce a right to indemnification or advancement of expenses hereunder, it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the claimant has not met the applicable standard for indemnification and/or advancement of expenses to the fullest extent permitted by law. A determination by the Corporation (including its Board of Directors, any committee of the Board of Directors, independent legal counsel, or the shareholders) that a claimant has not met such applicable standard of conduct shall not create a presumption that the claimant has not met the applicable standard of conduct or, in the case of such a suit brought by a claimant, be a defense to such suit. In any suit brought by a claimant to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the claimant is not entitled to be indemnified, or to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.

5. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under applicable law.

6. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

7. Binding and Nonexclusive. Any person who at any time after the adoption of this Article VII serves or has served in the aforesaid capacity for or on behalf of the Corporation shall be deemed to be doing or to have done so in reliance upon, and as consideration for, and shall have an express contractual entitlement to, the right of indemnification and advancement of expenses provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall be exclusive of any other rights to which such person may be entitled apart from the provision of this Article VII. Any amendment or modification of this Article VII or otherwise of these Bylaws that in any way diminishes or adversely affects any rights to indemnification, advancement of expenses or otherwise set forth in this Article VII shall be prospective only and shall not in any way diminish or adversely affect any such rights with respect to any actual or alleged state of facts, occurrence, action or omission occurring prior to the time of such amendment or modification, or proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission, and all of such rights shall continue as to any such person who has ceased to be a director or officer of the Corporation or ceased to serve at the Corporation’s request as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, and shall inure to the benefit of such person’s heirs, executors and administrators. If any provision or provisions of this Article VII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VII (including, without limitation, each portion of any paragraph of this Article VII containing any such provision held to be invalid, illegal or unenforceable that is not, itself, held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VII (including, without limitation, each such portion of any paragraph of this Article VII containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

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Article VIII
EXCLUSIVE FORUM

Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s shareholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the South Carolina Business Corporation Act or the Corporation’s Certificate of Incorporation or Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state court located within the State of South Carolina (or, if no state court located within the State of South Carolina has jurisdiction, the federal district court for the District of South Carolina).

Article IX
AMENDMENT OF BYLAWS

These Bylaws may be amended, added to, or repealed either by: (1) the affirmative vote of the holders of eighty percent (80%) of the shares entitled to vote, or (2) a majority vote of the entire Board of Directors.

Article X
CERTAIN GOVERNANCE MATTERS

1. Interpretation; Definitions.

(a) The provisions of this Article X shall apply notwithstanding anything to the contrary set forth in these Bylaws. In the event of any inconsistency between any provision of this Article X and any other provision of these Bylaws, such provision of this Article X shall control.

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(b) The following definitions shall apply to this Article X and otherwise as applicable in these Bylaws:

(i) “Designated Exchange” shall mean the primary stock exchange on which the Corporation’s common stock is listed.

(ii) “Effective Time” shall have the meaning set forth in the Agreement and Plan of Merger, dated as of January 25, 2020, by and between CenterState Bank Corporation and South State Corporation, as it may have been amended, restated, supplemented or otherwise modified from time to time.

(iii) “Entire Board of Directors” shall mean the total number of directors which the Corporation would have if there were no vacancies.

(iv) “Legacy CenterState” shall mean CenterState Bank Corporation, a Florida corporation, which has merged with and into the Corporation effective as of the Effective Time.

(v) “Legacy CenterState Directors” shall mean the directors as of the Effective Time who were directors of Legacy CenterState as of immediately prior to the Effective Time and who were designated to be directors by the Board of Directors of Legacy CenterState prior to the Effective Time and any additional directors nominated by the Legacy CenterState Directors Nominating Committee pursuant to Section 3(e) of this Article X.

(vi) “Legacy CenterState Directors Nominating Committee” shall mean a committee of the Board of Directors comprised of all of the Legacy CenterState Directors who satisfy the independence requirements (and any other requirements) for nominating committee membership under the rules of the Designated Exchange.

(vii) “Legacy South State” shall mean South State Corporation, a South Carolina corporation, as in existence immediately prior to the Effective Time.

(viii) “Legacy South State Directors” shall mean the directors as of the Effective Time who were directors of Legacy South State as of immediately prior to the Effective Time and who were designated to be directors by the Board of Directors of Legacy South State prior to the Effective Time and any additional directors nominated by the Legacy South State Directors Nominating Committee pursuant to Section 3(d) of this Article X.

(ix) “Legacy South State Directors Nominating Committee” shall mean a committee of the Board of Directors comprised of all of the Legacy South State Directors who satisfy the independence requirements (and any other requirements) for nominating committee membership under the rules of the Designated Exchange.

(x) “South State Bank” shall mean South State Bank, National Association, a wholly owned subsidiary of the Corporation.

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(xi) “Specified Period” shall mean the period beginning at the Effective Time and ending on the thirty-six (36) month anniversary of the Effective Time.

2. Executive Chairman; CEO; Lead Independent Director.

(a) Effective as of the Effective Time, (i) Mr. Robert R. Hill, Jr. shall serve as the Executive Chairman of the Corporation and the Board of Directors, (ii) Mr. John C. Corbett shall serve as the Chief Executive Officer of the Corporation and (iii) Charles W. McPherson shall serve as Lead Independent Director of the Board of Directors. The Lead Independent Director shall qualify as an independent director under the rules of the Designated Exchange.

(b) During the Specified Period, (i) any removal of any of the individuals serving in the capacities set forth in subsection (a) above from, or failure to appoint, re-elect or re-nominate any of them to, any such positions, (ii) any amendment or modification to any employment or similar agreement with any of them to the extent such amendment or modification would adversely affect such individual, (iii) any termination of their employment by the Corporation or (iv) any modification to any of their respective reporting relationships as set forth in Article III of these Bylaws shall, in each case, require the affirmative vote of at least seventy-five percent (75%) of the Entire Board of Directors.

(c) During the Specified Period, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth in subsection (a) above (other than the Lead Independent Director) (or any of such individuals’ successors selected and appointed pursuant to this subsection (c)), an individual approved by the affirmative vote of at least seventy-five percent (75%) of the Entire Board of Directors shall be appointed to serve in such capacity.

(d) During the Specified Period, upon the death, resignation, removal, disqualification or other cessation of service by the Lead Independent Director (or any of his or her successors selected and appointed pursuant to this subsection (d)), a Legacy CenterState Director selected by the Legacy CenterState Directors Nominating Committee shall be appointed to serve as Lead Independent Director.

(e) The Corporation shall cause South State Bank, effective as of the Effective Time, to appoint (i) Mr. Robert R. Hill, Jr. as the Executive Chairman of the Board of Directors of South State Bank and (ii) Mr. John C. Corbett as the President and Chief Executive Officer of South State Bank. During the Specified Period, the Corporation shall cause South State Bank not to (i) remove any of the individuals serving in the capacities set forth in the immediately preceding sentence, or fail to appoint, re-elect or re-nominate any such individuals to serve in any such capacities, (ii) amend or modify any employment or similar agreement with any of them to the extent such amendment or modification would adversely affect such individual, or (iii) terminate their employment, in each case, except with the affirmative vote of at least seventy-five percent (75%) of the Entire Board of Directors. During the Specified Period, upon the death, resignation, removal, disqualification or other cessation of service by any of the individuals serving in the capacities set forth in the first sentence of this subsection (e) (or any of such individuals’ successors selected and appointed pursuant to this subsection (e)), the Corporation shall cause South State Bank not to appoint any individual to serve in such capacity, except with the affirmative vote of at least seventy-five (75%) of the Entire Board of Directors. During the Specified Period, the Corporation may not exercise its authority, in its capacity as sole shareholder of South State Bank, to (and the Corporation shall cause South State Bank not to) modify, amend or repeal any of the provisions of the bylaws of South State Bank relating to the duties, authority or reporting relationships of the Executive Chairman of South State Bank or the Chief Executive Officer of South State Bank, in each case, without the affirmative vote of at least seventy-five percent (75%) of the Entire Board of Directors.

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3. Composition of the Board of Directors. During the Specified Period:

(a) the Entire Board of Directors shall be comprised of sixteen (16) Directors, of which eight (8) shall be Legacy South State Directors (one of whom, as of the Effective Time, shall be the Chief Executive Officer of Legacy South State as of immediately prior to the Effective Time) and eight (8) shall be Legacy CenterState Directors (one of whom, as of the Effective Time, shall be the Chief Executive Officer of Legacy CenterState as of immediately prior to the Effective Time and one of whom, as of the Effective Time, shall be Charles W. McPherson, who shall serve as Lead Independent Director as of the Effective Time);

(b) all vacancies resulting from the cessation of service by any Legacy South State Director for any reason shall be filled by the Board of Directors with a nominee selected by the Legacy South State Directors Nominating Committee;

(c) all vacancies resulting from the cessation of service by any Legacy CenterState Director for any reason shall be filled by the Board of Directors with a nominee selected by the Legacy CenterState Directors Nominating Committee;

(d) the Legacy South State Directors Nominating Committee shall have the exclusive authority to nominate, on behalf of the Board of Directors, directors for election at each annual meeting, or at any special meeting at which directors are to be elected, to fill each seat previously held by a Legacy South State Director;

(e) the Legacy CenterState Directors Nominating Committee shall have the exclusive authority to nominate, on behalf of the Board of Directors, directors for election at each annual meeting, or at any special meeting at which directors are to be elected, to fill each seat previously held by a Legacy CenterState Director; and

(f) at the Effective Time, the Legacy South State Directors Nominating Committee shall determine which class of directors each Legacy South State Director will join as of the Effective Time and the Legacy CenterState Directors Nominating Committee shall determine which class of directors each Legacy CenterState Director will join as of the Effective Time, in each case subject to achieving as near as possible proportional representation of Legacy CenterState Directors and Legacy South State Directors in each class of directors.

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4. Composition of Committees.

(a) Without limiting Article II, Section 7 of these Bylaws, the Board of Directors shall have and maintain as standing committees an Audit Committee, a Compensation Committee, a Governance Committee (which, during the Specified Period, shall consist of the Legacy South State Directors Nominating Committee and the Legacy CenterState Directors Nominating Committee) and a Risk Committee.

(b) The Board of Directors may by resolution (which, during the Specified Period, shall require the affirmative vote of at least seventy-five (75%) of the Entire Board of Directors) establish any committees not expressly contemplated by these Bylaws composed of directors as they may determine to be necessary or appropriate for the conduct of business of the Corporation and may prescribe the composition, duties and procedures thereof.

(c) During the Specified Period, each committee of the Board of Directors (other than the Legacy South State Directors Nominating Committee and the Legacy CenterState Directors Nominating Committee) shall (a) have at least four (4) members and, (b) be composed of fifty percent (50%) Legacy South State Directors and fifty percent (50%) Legacy CenterState Directors (subject to compliance with any independence requirements, and any other requirements, for membership on the applicable committee under the rules of the Designated Exchange). During the Specified Period, the chairman of the Audit Committee and Risk Committee shall be a Legacy South State Director and the chairman of the Governance Committee and Compensation Committee shall be a Legacy CenterState Director (subject to compliance with any independence requirements, and any other requirements, for membership on the applicable committee under the rules of the Designated Exchange). At any time during the Specified Period in which an Executive Committee is in existence, the chairman of the Executive Committee shall be Mr. Robert R. Hill, Jr. and Mr. John C. Corbett shall serve as a member of the Executive Committee.

(d) As of the Effective Time, the Board of Directors shall constitute a Legacy CenterState Directors Nominating Committee, which shall be comprised of all of the Legacy CenterState Directors who satisfy the independence requirements (and any other requirements) for nominating committee membership under the rules of the Designated Exchange. At the end of the Specified Period, the Legacy CenterState Directors Nominating Committee shall be automatically disbanded.

(e) As of the Effective Time, the Board of Directors shall constitute a Legacy South State Directors Nominating Committee, which shall be comprised of all of the Legacy South State Directors who satisfy the independence requirements (and any other requirements) for nominating committee membership under the rules of the Designated Exchange. At the end of the Specified Period, the Legacy South State Directors Nominating Committee shall be automatically disbanded.

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(f) Notwithstanding anything to the contrary in these Bylaws, during the Specified Period, no committee (including, for the avoidance of doubt, the Executive Committee, to the extent an Executive Committee is in existence) shall be permitted to take any action, and the Board shall not delegate to any committee the power to take any action, that, if taken by the Board of Directors, would require the affirmative vote of at least seventy-five (75%) of the Entire Board of Directors pursuant to this Article X.

5. Corporate Name; Headquarters. During the Specified Period, (a) the name of the Corporation shall be “South State Corporation” and the name of South State Bank shall be “South State Bank, National Association”, (b) the shares of common stock of the Corporation shall be traded on the Designated Exchange under the ticker symbol “SSB” and (c) the headquarters and principal office of the Corporation shall be located in Winter Haven, Florida. During the Specified Period, the Corporation shall cause South State Bank to have its main office in Winter Haven, Florida.

6. Amendments. During the Specified Period, the provisions of (i) this Article X, and (ii) any other provision of these Bylaws that sets forth the authority and responsibility of the Executive Chairman, the Chief Executive Officer or President, may be modified, amended or repealed, and any Bylaw provision or other resolution inconsistent with this Article X may be adopted, by the Board of Directors only by (and any such modification, amendment, repeal or inconsistent Bylaw provisions and other resolutions may be proposed or recommended by the Board of Directors for adoption by the shareholders of the Corporation only by) an affirmative vote of at least seventy-five percent (75%) of the Entire Board of Directors.

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Exhibit 4.3

SECOND SUPPLEMENTAL INDENTURE

THIS SECOND SUPPLEMENTAL INDENTURE dated as of June 7, 2020 is by and among U. S. Bank National Association, a national banking association (herein, together with its successors in interest, the "Trustee"), South State Corporation, a South Carolina corporation (the "Successor Company"), and CenterState Bank Corporation, a Florida corporation (the "Company") and the "Company" under the Indenture.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Trustee, the Company, and the Successor Company hereby agree as follows:

PRELIMINARY STATEMENTS

The Trustee and the Company are parties to that certain Indenture and First Supplemental Indenture dated as of May 29, 2020 (collectively, the "Indenture"), pursuant to which the Company issued U.S. $200,000,000 aggregate principal amount of its 5.750% Fixed-to-Floating Rate Subordinated Notes due 2030 (the "Notes").

As permitted by the terms of the Indenture, the Company, simultaneously with the effectiveness of this Second Supplemental Indenture, shall merge (referred to herein and for purposes of Article IX of the Indenture as the "Merger") with and into the Successor Company, with the Successor Company as the surviving corporation. The parties hereto are entering into this Second Supplemental Indenture pursuant to, and in accordance with, Section 901(a) of the Indenture.

Section 1. Definitions. All capitalized terms used herein which are defined in the Indenture, either directly or by reference therein, shall have the respective meanings assigned to them in the Indenture except as otherwise provided herein or unless the context otherwise requires.

Section 2. Interpretation.

(a)

In this Second Supplemental Indenture, unless a clear contrary intention appears:

(i)

the singular number includes the plural number and vice versa;

(ii)

reference to any gender includes the other gender;

(iii)

the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Second Supplemental Indenture as a whole and not to any particular Section or other subdivision;

(iv)

reference to any person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Second Supplemental Indenture or the Indenture, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Second Supplemental Indenture or the Indenture;

(v)

reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, as well as any substitution or replacement therefor and reference to any note includes modifications thereof and any note issued in extension or renewal thereof or in substitution or replacement therefor;

(vi)

reference to any Section means such Section of this Second Supplemental Indenture; and

(vii)

the word "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term.

(b)

No provision in this Second Supplemental Indenture shall be interpreted or construed against any Person because that Person or its legal representative drafted such provision.

Section 3. Assumption of Obligations.

(a)

Pursuant to, and in compliance and accordance with, Section 801 of the Indenture, the Successor Company hereby expressly assumes the due and punctual payment of the principal of (and premium, if any) and interest on, all of the Notes in accordance with their terms, and the due and punctual performance and observance of all of the covenants and conditions of the Indenture to be kept or performed by the Company.

(b)

Pursuant to, and in compliance and accordance with, Section 802 of the Indenture, the Successor Company succeeds to, is substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if the Successor Company had originally been named in the Indenture as the Company.

Section 4. Representations and Warranties. The Successor Company represents and warrants that (a) it has all necessary power and authority to execute and deliver this Second Supplemental Indenture and to perform the covenants and obligations of the Indenture, (b) it is the successor of the Company pursuant to a valid merger effected in accordance with applicable law, (c) it is a corporation organized and existing under the laws of the State of South Carolina and (d) this Second Supplemental Indenture is executed and delivered pursuant to Section 901 of the Indenture and does not require the consent of the Securityholders.

Section 5. Conditions of Effectiveness. This Second Supplemental Indenture shall become effective simultaneously with the effectiveness of the Merger, provided, however, that the Trustee shall have executed a counterpart of this Second Supplemental Indenture and shall have received a counterpart of this Second Supplemental Indenture executed by the Company and the Successor Company.

Section 6. Reference to the Indenture.

(a)

Upon the effectiveness of this Second Supplemental Indenture, each reference in the Indenture to "this Indenture," "hereunder," "herein" or words of like import shall mean and be a reference to the Indenture, as affected, amended and supplemented hereby.

(b)

Upon the effectiveness of this Second Supplemental Indenture, each reference in the Notes to the Indenture including each term defined by reference to the Indenture shall mean and be a reference to the Indenture or such term, as the case may be, as affected, amended and supplemented hereby.

(c)

The Indenture, as amended and supplemented hereby, shall remain in full force and effect and is hereby ratified and confirmed.

Section 7. Addresses for Notices. All notices or other communications to be addressed to the Company as contemplated by Section 105(a) of the Indenture shall be addressed to the Successor Company as follows:

South State Corporation

1101 First Street South

Winter Haven, Florida, 33880

Attention: Chief Financial Officer

Telephone: (863) 293-4710

Section 8. Execution in Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument.

Section 9.  Governing Law; Binding Effect. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and shall be binding upon the parties hereto and their respective successors and assigns.

Section 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or the due execution thereof by the Company or the Successor Company. The recitals of fact contained herein shall be taken as the statements solely of the Company or the Successor Company, and the Trustee assumes no responsibility for the correctness thereof.

[Signatures on following page]

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed and effective as of the day and year first written above, by their respective officers thereunto duly authorized.

		U. S. BANK NATIONAL ASSOCIATION


		By:	/s/ David W. Doucette
		Name:	David W. Doucette
		Title:	Vice President

[Signature Page to Second Supplemental Indenture – CenterState Bank Subdebt Due 2030]

SOUTH STATE CORPORATION


By:	/s/ Robert R. Hill, Jr.
	Name:	Robert R. Hill, Jr.
	Title:	Chief Executive Officer

[Signature Page to Second Supplemental Indenture – CenterState Bank Sub Debt Due 2030]

	CENTERSTATE BANK CORPORATION


	By:	/s/ John C. Corbett
	Name:	John C. Corbett
	Title:	Chief Executive Officer

[Signature Page to Second Supplemental Indenture – CenterState Bank Sub Debt Due 2030]

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Current Report on Form 8-K which is incorporated by reference in Registration Statement Nos. 333-26029, 333-26031, 333-26033, 333-80047, 333-33092, 333-86922, 333-90014, 333-103707, 333-103708, 333-115919, 333-182866, 333-190228, 333-194928, and 333-231176 on Form S-8, and 333-223489, 333-202553, 333-172970 and 333-180325 on Form S-3, of South State Corporation of our report dated February 27, 2020 on the consolidated financial statements of CenterState Bank Corporation, and the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of CenterState Bank Corporation for the year ended December 31, 2019.

/s/ Crowe LLP

Fort Lauderdale, Florida

June 5, 2020

Exhibit 99.1

CENTERSTATE BANK CORPORATION and SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		2

Consolidated Balance Sheets as of December 31, 2019 and 2018		5

Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017		6

Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017		8

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017		9

Notes to Consolidated Financial Statements		11

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of CenterState Bank Corporation

Winter Haven, Florida

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of CenterState Bank Corporation (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses – Adjustments to Historical Loss Experience

As disclosed in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for loan losses is a valuation allowance for probable incurred credit losses in its loan portfolio. As of December 31, 2019, the Company recorded an allowance for loan losses of $40,655,000 which consists of three components: the allowance for loans individually evaluated for impairment (“specific reserves”), representing $1,878,000, the allowance for loans collectively evaluated for impairment (“general reserve”), representing $38,551,000, and the allowance for purchase credit-impaired loans, representing $226,000. The general reserve covers loans that are not individually classified as impaired and is based on historical loss experience adjusted for economic factors.

The historical loss experience is the ratio of historical losses by portfolio segment to the balance of each respective portfolio segment. The portfolio segments identified by the Company are residential loans, commercial real estate loans, construction and land development loans, commercial and industrial loans and consumer and other loans. The historical loss experience is adjusted for economic factors based on the risks present for each portfolio segment. Management’s determination of the adjustments to historical loss experience relies on a qualitative assessment of risks to determine the quantitative impact on the general reserve. The economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; volume and severity of adversely classified or graded loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The adjusted historical loss experiences are multiplied by the recorded investment in each loan portfolio segment to estimate the general reserve.

Management’s analysis of the economic factors to determine the adjustments to the historical loss experience requires a high degree of subjectivity and judgment and requires the Company to make significant estimates of the risks present for each portfolio segment. Changes in these assumptions could have a material effect on the Company’s consolidated financial statements. We identified the testing of the adjustments to historical loss experience to be a critical audit matter, as it involved especially subjective auditor judgment.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of controls over the estimate of the adjustments to historical loss experience in the general reserve of the allowance for loan losses, including controls addressing:

The review of the qualitative and quantitative conclusions related to the adjustments to the historical loss experience, and the resulting allocation to the general reserve.

The accuracy of inputs and mathematical accuracy of the general reserve calculation.

Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the estimate of the adjustments to historical loss experience in the general reserve of the allowance for loan losses which included:

Evaluation of the reasonableness of management’s conclusions related to the adjustments to the historical loss experience, and the resulting allocation to the allowance.

Testing the accuracy of inputs and mathematical accuracy of the allowance for loan losses calculation.

Performing substantive analytical procedures over the adjustments to historical loss rates year over year.

Business Combination – Fair Value of Acquired Non-Purchased Credit Impaired Loans from the Acquisition of National Commerce Corporation

As described in Notes 1 and 26, the Company acquired 100% of the outstanding common stock of National Commerce Corporation on April 1, 2019. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The Company acquired loans with an estimated fair value of $3,327,850,000, which is net of a $61,384,000 discount to the outstanding principal balance. Of the total loans acquired, management identified $18,616,000 of loans with credit deterioration since origination (“PCI loans”) and $3,309,234,000 of loans without evidence of credit deterioration since origination (“non-PCI loans”). The non-PCI loans were valued by management using a discounted cash flow model under the income approach.

The determination of the fair value of the acquired non-PCI loans requires a high degree of subjectivity and judgment. The model assumptions and valuation results could have a material effect on the Company’s consolidated financial statements. We identified the testing of the model assumptions and valuation results for estimating the fair value of the acquired non-PCI loans to be a critical audit matter, as the overall evaluation involved especially subjective auditor judgment.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of internal control related the review of the reasonableness of the model assumptions and valuation results.

Substantively testing management’s process related to the assessment of model assumptions and valuation results, including evaluating their judgments and assumptions, which included:

Evaluation of the reasonableness of management’s judgments related to the model assumptions. We utilized valuation specialists in our evaluation, which considered the weight of confirming and disconfirming evidence from internal and external sources, loan portfolio performance and third-party credit quality data.

Utilizing valuation specialists to evaluate the application of the model and overall results.

	/s/ Crowe LLP
	Crowe LLP

We have served as the Company’s auditor since 2006.

Fort Lauderdale, Florida

February 27, 2020

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2019 and 2018

(in thousands of dollars, except per share data)

	2019			2018
ASSETS
Cash and due from banks	$	185,255		$	107,007
Deposits in other financial institutions (restricted cash)		140,913			28,345
Federal funds sold and FRB deposits		163,890			231,981
Cash and cash equivalents		490,058			367,333
Trading securities, at fair value		4,987			1,737
Available for sale debt securities, at fair value		1,886,724			1,727,348
Held to maturity debt securities (fair value of $208,852 and $212,179 at December 31, 2019 and December 31, 2018, respectively)		202,903			216,833
Loans held for sale (see Note 4)		142,801			40,399
Loans, excluding purchased credit impaired		11,848,475			8,181,533
Purchased credit impaired loans		135,468			158,971
Allowance for loan losses		(40,655	)		(39,770	)
Net Loans		11,943,288			8,300,734
Bank premises and equipment, net		296,706			227,454
Right-of-use operating lease assets		32,163			—
Accrued interest receivable		40,945			33,143
FHLB, FRB and other stock, at cost		100,305			79,584
Goodwill		1,204,417			802,880
Core deposit intangible, net		91,157			66,225
Other intangible assets, net		4,507			2,953
Bank owned life insurance		330,155			267,820
Other repossessed real estate owned ("OREO")		5,092			2,909
Deferred income tax asset, net		28,786			51,462
Bank property held for sale		23,781			25,080
Interest rate swap derivatives, at fair value		273,068			92,475
Prepaid expense and other assets		40,182			31,219
TOTAL ASSETS	$	17,142,025		$	12,337,588

LIABILITIES AND EQUITY
Deposits:
Demand - non-interest bearing	$	3,929,183		$	2,923,640
Demand - interest bearing		2,613,933			1,811,006
Savings and money market accounts		4,336,721			2,920,730
Time deposits		2,256,555			1,821,960
Total deposits		13,136,392			9,477,336

Securities sold under agreement to repurchase		93,141			57,772
Federal funds purchased		379,193			294,360
Other borrowed funds		161,000			361,000
Corporate and subordinated debentures		71,343			32,415
Accrued interest payable		3,998			2,627
Interest rate swap derivatives, at fair value		275,033			92,892
Operating lease liabilities		34,485			—
Payables and accrued expenses		90,722			47,842
Total liabilities		14,245,307			10,366,244

Equity:
Common stock, $.01 par value: 200,000,000 shares authorized; 125,173,597 and 95,679,596 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively		1,252			957
Additional paid-in capital		2,407,385			1,699,031
Retained earnings		465,680			293,777
Accumulated other comprehensive income (loss)		22,401			(22,421	)
Total equity		2,896,718			1,971,344

TOTAL LIABILITIES AND EQUITY	$	17,142,025		$	12,337,588

See accompanying Notes to the Consolidated Financial Statements

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years ended December 31, 2019, 2018 and 2017

(in thousands of dollars, except per share data)

	2019		2018			2017
Interest income:
Loans	$	618,125	$	405,881		$	219,972
Investment securities:
Taxable		48,432		42,723			22,598
Tax-exempt		6,899		6,399			5,324
Federal funds sold and other		11,876		5,629			3,432
		685,332		460,632			251,326
Interest expense:
Deposits		83,099		33,260			11,079
Securities sold under agreement to repurchase		1,106		632			246
Federal funds purchased and other borrowings		11,637		11,445			3,108
Corporate and subordinated debentures		3,726		2,213			1,350
		99,604		47,550			15,783

Net interest income		585,728		413,082			235,543
Provision for loan losses		10,585		8,283			4,958
Net interest income after loan loss provision		575,143		404,799			230,585

Non-interest income:
Correspondent banking capital markets revenue		60,373		28,884			23,520
Other correspondent banking related revenue		4,525		4,504			4,821
Mortgage banking revenue		29,553		12,610			1,511
Small business administration loans revenue		5,136		3,532			775
Service charges on deposit accounts		30,168		22,831			14,986
Debit, prepaid, ATM and merchant card related fees		18,399		16,243			9,035
Wealth management related revenue		3,161		2,657			3,554
Bank owned life insurance income		7,801		5,976			3,293
Gain on sale of deposits		—		611			—
Gain on sale of trust department		—		—			1,224
Net gain (loss) on sale of available for sale debt securities		25		(22	)		(7	)
Other non-interest income		6,919		7,301			2,463
Total other income		166,060		105,127			65,175

(Continued)

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years ended December 31, 2019, 2018 and 2017

(in thousands of dollars, except per share data)

	2019			2018			2017
Non-interest expense:
Salaries, wages and employee benefits		260,234			172,318			109,412
Occupancy expense		28,350			20,897			12,777
Depreciation of premises and equipment		14,438			9,788			7,247
Supplies, stationary and printing		3,234			2,498			1,610
Marketing expenses		7,540			6,235			3,929
Data processing expense		19,605			14,308			8,436
Legal, audit and other professional fees		8,870			6,163			3,644
Amortization of intangibles		16,030			10,018			4,066
Postage and delivery		3,967			2,961			1,938
ATM and debit card and merchant card related expenses		5,501			4,253			2,746
Bank regulatory expenses		5,048			4,885			3,051
Gain on sale of OREO		(428	)		(1,933	)		(876	)
Valuation write down of OREO		395			482			682
(Gain) loss on repossessed assets other than real estate		(25	)		138			(23	)
Foreclosure related expenses		3,221			2,815			2,252
Merger related expenses		39,257			34,912			13,046
Impairment on bank property held for sale		1,736			2,667			519
Other expenses		29,934			19,062			12,029
Total other expenses		446,907			312,467			186,485

Income before provision for income taxes		294,296			197,459			109,275
Provision for income taxes		67,698			41,024			53,480
Net income		226,598			156,435			55,795
Earnings attributable to noncontrolling interest		1,202			—			—
Net income attributable to CenterState Bank Corporation	$	225,396		$	156,435		$	55,795

Net income	$	226,598		$	156,435		$	55,795
Other comprehensive gain (loss) income, net of tax:
Unrealized available for sale debt securities holding gain (loss), net of income taxes of $15,302, ($5,233) and $1,765, respectively		45,454			(15,432	)		2,806
Unrealized interest rate swap holding loss, net of income taxes of ($204), $0 and $0, respectively		(613	)		—			—
Less: reclassified adjustments for (gain) loss included in net income, net of income tax expense (benefit) of $6, ($6) and ($3), respectively		(19	)		16			4

Net change in accumulated other comprehensive gain (loss)		44,822			(15,416	)		2,810

Total comprehensive income	$	271,420		$	141,019		$	58,605
Comprehensive income attributable to noncontrolling interest		1,202			—			—
Total comprehensive income attributable to CenterState Bank Corporation	$	270,218		$	141,019		$	58,605

Earnings per share:
Basic	$	1.88		$	1.78		$	0.97
Diluted	$	1.87		$	1.76		$	0.95
Common shares used in the calculation of earnings per share:
Basic (1)		119,746,949			87,641,220			57,244,698
Diluted (1)		120,603,823			88,758,853			58,340,813

(1)

Excludes participating securities.

See accompanying Notes to the Consolidated Financial Statements

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31, 2019, 2018 and 2017

(in thousands of dollars, except per share data)

													Accumulated
	Number of						Additional						other
	common			Common			paid in			Retained			comprehensive			Noncontrolling			Total
	shares			stock			capital			earnings			income (loss)			interest			equity
Balances at January 1, 2017		48,146,981		$	482		$	430,459		$	130,090		$	(8,574	)	$	—		$	552,457

Net income											55,795									55,795

Unrealized holding gain on available for sale debt securities, net of deferred income tax of $1,765														2,810						2,810
Reclassification of the disproportionate tax effect on unrealized losses on available for sale securities resulting from the change in federal tax rate											1,241			(1,241	)					—
Dividends paid - common ($0.24 per share)											(13,878	)								(13,878	)
Stock grants issued		242,854			2			401												403
Stock based compensation expense								4,586												4,586
Stock options exercised		598,039			6			6,709												6,715
Stock repurchase		(45,236	)		(1	)		(1,130	)											(1,131	)
Stock issued pursuant to Platinum Bank acquisition		4,279,255			43			110,790												110,833
Stock issued pursuant to Gateway Bank acquisition		4,244,441			43			107,044												107,087

Stock options acquired and converted pursuant to Gateway acquisition								15,811												15,811
Stock issued pursuant to public offering, net of costs of $529		2,695,000			27			63,235												63,262
Balances at December 31, 2017		60,161,334		$	602		$	737,905		$	173,248		$	(7,005	)	$	—		$	904,750

Net income											156,435									156,435

Unrealized holding loss on available for sale debt securities, net of deferred income tax of $5,233														(15,416	)					(15,416	)
Dividends paid - common ($0.40 per share)											(35,906	)								(35,906	)
Stock grants issued		236,921			3			647												650
Stock based compensation expense								4,193												4,193
Stock options exercised		1,793,339			18			14,689												14,707
Stock repurchase		(38,496	)		(1	)		(1,026	)											(1,027	)
Stock issued pursuant to Sunshine acquisition		7,050,645			70			181,343												181,413
Stock options acquired and converted pursuant to Sunshine acquisition								6,432												6,432
Stock issued pursuant to HCBF acquisition		15,051,639			151			387,128												387,279
Stock options acquired and converted pursuant to HCBF acquisition								18,025												18,025
Stock issued pursuant to Charter acquisition		11,424,214			114			349,695												349,809
Balances at December 31, 2018		95,679,596		$	957		$	1,699,031		$	293,777		$	(22,421	)	$	—		$	1,971,344

Net income											225,396						1,202			226,598
Unrealized holding gain on available for sale debt securities, net deferred income tax of $15,296														45,435						45,435
Unrealized holding loss on interest rate swap, net of deferred income tax of $204														(613	)					(613	)
Cumulative adjustment pursuant to adoption of ASU 842 (Note 29)											(1,093	)								(1,093	)
Dividends paid - common ($0.44 per share)											(52,400	)								(52,400	)
Stock grants issued		202,709			2			798												800
Stock based compensation expense								5,149												5,149
Stock options exercised		356,366			3			3,098												3,101
Stock repurchase		(5,733,042	)		(57	)		(132,020	)											(132,077	)
Stock issued pursuant to NCOM acquisition		34,667,968			347			825,097												825,444
Stock options acquired and converted pursuant to NCOM acquisition								6,232												6,232
Noncontrolling interest from NCOM acquisition																	12,002			12,002
Distributions paid to noncontrolling interest																	(1,065	)		(1,065	)
Purchase of noncontrolling interest																	(12,139	)		(12,139	)
Balances at December 31, 2019		125,173,597		$	1,252		$	2,407,385		$	465,680		$	22,401		$	—		$	2,896,718

See accompanying Notes to the Consolidated Financial Statements

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2019, 2018 and 2017

(in thousands of dollars)

	2019			2018			2017
Cash flows from operating activities:
Net income	$	226,598		$	156,435		$	55,795
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		10,585			8,283			4,958
Depreciation of premises and equipment		14,438			9,788			7,247
Accretion of purchase accounting adjustments		(59,275	)		(51,131	)		(34,264	)
Net amortization of investment securities		11,125			12,449			9,954
Net deferred loan origination fees		1,826			1,873			345
(Gain) loss on sale of available for sale debt securities		(25	)		22			7
Trading securities revenue		(99	)		(57	)		(242	)
Purchases of trading securities		(194,799	)		(254,555	)		(230,074	)
Proceeds from sale of trading securities		191,648			259,652			235,922
Repossessed real estate owned valuation write down		395			482			682
Gain on sale of repossessed real estate owned		(428	)		(1,933	)		(876	)
(Gain) loss on repossessed assets other than real estate		(25	)		138			(23	)
Gain on sale of residential loans held for sale		(29,491	)		(10,803	)		(1,511	)
Residential loans originated and held for sale		(1,157,356	)		(403,492	)		(93,642	)
Proceeds from sale of residential loans held for sale		1,100,207			403,583			77,791
Net change in fair value of residential loans held for sale		(1,174	)		(1,081	)		—
Gain on disposal of and or sale of fixed assets		(26	)		(762	)		(225	)
Gain on disposal of bank property held for sale		(1,408	)		(2,675	)		(340	)
Impairment on bank property held for sale		1,736			2,667			519
Gain on sale of small business administration loans		(5,136	)		(3,532	)		(775	)
Small business administration loans originated for sale		(52,383	)		(35,693	)		(12,268	)
Proceeds from sale of small business administration loans		57,519			39,225			13,043
Gain on sale of deposits		—			(611	)		—
Gain on sale of trust department		—			—			(1,224	)
Deferred income taxes		24,241			21,511			31,192
Tax deduction in excess of book deduction for stock awards		(999	)		(6,149	)		(3,007	)
Stock based compensation expense		5,149			4,193			4,586
Bank owned life insurance income		(7,801	)		(5,976	)		(3,293	)
Net cash from changes in:
Net changes in accrued interest receivable, prepaid expenses, and other assets		31,028			61,575			(48,145	)
Net change in accrued interest payable, accrued expense, and other liabilities		(12,733	)		(9,988	)		10,625
Net cash provided by operating activities		153,337			193,438			22,757

(Continued)

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2019, 2018 and 2017

(in thousands of dollars)

	2019			2018			2017
Cash flows from investing activities:
Available for sale debt securities:
Purchases of investment securities	$	(5,084	)		(40,788	)		(56,673	)
Purchases of mortgage-backed securities		(465,051	)		(539,807	)		(444,146	)
Proceeds from pay-downs of mortgage-backed securities		301,745			217,862			123,917
Proceeds from sales of investment securities		66,811			58,768			104,260
Proceeds from sales of mortgage-backed securities		160,341			296,884			208,432
Proceeds from called investment securities		10,870			1,210			865
Proceeds from maturities of investment securities		295			61,000			1,000
Held to maturity debt securities:
Purchases of investment securities		—			—			(2,693	)
Purchases of mortgage-backed securities		—			—			(1,695	)
Proceeds from pay-downs of mortgage-backed securities		12,747			14,232			20,874
Purchases of FHLB, FRB and other stock		(53,073	)		(67,115	)		(15,919	)
Proceeds from sales of FHLB, FRB and other stock		49,427			36,244			5,572
Net increase in loans		(266,141	)		(363,401	)		(286,110	)
Purchase of bank owned life insurance		—			—			(30,000	)
Purchases of premises and equipment, net		(23,814	)		(24,025	)		(10,289	)
Proceeds from sale of repossessed real estate		9,345			12,591			6,811
Proceeds from sale of premises and equipment, net		92			2,661			556
Proceeds from sale of bank property held for sale		18,748			16,001			7,437
Net cash from bank acquisitions		268,504			229,689			86,530
Net cash provided by (used in) investing activities		85,762			(87,994	)		(281,271	)
Cash flows from financing activities:
Net increase in deposits		176,161			97,083			180,744
Sale of deposits		—			25,341			—
Net increase in securities sold under agreement to repurchase		16,536			5,339			18,084
Net increase (decrease) in federal funds purchased		84,833			(37,130	)		69,504
Net (decrease) increase in in other borrowings		(200,000	)		(77,920	)		40,268
Net decrease in payable to shareholders for acquisitions		(63	)		(217	)		(89	)
Termination of corporate debentures		—			(9,000	)		—
Stock options exercised		3,101			14,707			6,715
Proceeds from stock offering, net of offering costs		—			—			63,262
Stock repurchased		(132,077	)		(1,027	)		(1,131	)
Dividends paid		(52,400	)		(35,906	)		(13,878	)
Purchase of noncontrolling interest		(11,400	)		—			—
Cash distribution paid to noncontrolling interest		(1,065	)		—			—
Net cash (used in) provided by financing activities		(116,374	)		(18,730	)		363,479

Net cash increase in cash and cash equivalents		122,725			86,714			104,965
Cash and cash equivalents, beginning of period		367,333			280,619			175,654
Cash and cash equivalents, end of period	$	490,058		$	367,333		$	280,619

Supplemental noncash disclosures:
Transfer of loans to other real estate owned	$	10,620		$	4,661		$	3,108
Transfers of bank property to held for sale		6,450			4,302			4,534
New operating right-of-use assets		39,205			—			—

Cash paid during the period for:
Interest	$	101,946		$	48,450		$	17,493
Income taxes		42,553			16,624			17,818

See accompanying Notes to the Consolidated Financial Statements

CENTERSTATE BANK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

December 31, 2019, 2018 and 2017

	(1)	Summary of Significant Accounting Policies

(a)

Nature of operations and principles of consolidation

The Consolidated Financial Statements of CenterState Bank Corporation (the “Company”) include the accounts of the Company, and its wholly owned subsidiaries CenterState Bank, N.A., R4ALL, Inc. and CSFL Insurance Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.

At December 31, 2019, the Company, through its subsidiary bank, operated as a community bank headquartered in the state of Florida, providing traditional retail, commercial, mortgage, wealth management and SBA services throughout its Florida, Georgia and Alabama branch network and customer relationships in neighboring states. The Company’s primary deposit products are checking, savings and term certificate accounts, and its primary lending products include commercial real estate loans, residential real estate loans, commercial loans and consumer loans. Substantially all loans are secured by commercial real estate, residential real estate, business assets or consumer assets. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area. The Company also provides correspondent banking and capital markets services to over 650 community banks nationwide. The Bank also owns CBI, which in turn owns Corporate Billing, a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and services providers throughout the United States and Canada.

R4ALL, Inc. is a non-bank subsidiary incorporated during the third quarter of 2009. The primary purpose of this subsidiary is to purchase, hold, and dispose of troubled assets acquired from the Company’s subsidiary bank.

CSFL Insurance Corp. is a non-bank subsidiary incorporated during the fourth quarter of 2015. The primary purpose of this subsidiary is to function as a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code. National Commerce Risk Management, Inc., which was a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code acquired from the NCOM transaction, was dissolved in December 2019.

The following is a description of the basis of presentation and the significant accounting and reporting policies, which the Company follows in preparing and presenting its Consolidated Financial Statements.

(b)

Use of estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Significant items subject to estimates and assumptions include allowance for loan losses, fair values of financial instruments, useful life of intangibles and valuation of goodwill, fair value estimates of stock-based compensation, fair value estimates of OREO, and deferred tax assets. Actual results could differ from these estimates.

(c)

Cash flow reporting

For purposes of the statement of cash flows, the Company considers cash and due from banks, federal funds sold, money market and non-interest bearing deposits in other banks with a purchased maturity of three months or less to be cash equivalents. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, federal funds purchased, repurchase agreements, proceeds from capital offering and other borrowed funds.

(d)

Interest bearing deposits in other financial institutions

Interest bearing deposits in other financial institutions mature within one year and are carried at cost and are included in Cash and Due From Banks in the Consolidated Balance Sheets.

(e)

Trading securities

The Company engages in trading activities for its own account. Securities that are held principally for resale in the near term are recorded at fair value with changes in fair value included in earnings. Interest is included in net interest income.

(f)

Investment Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities not classified as held to maturity or trading are classified as available for sale. Debt securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums on securities are amortized to the earliest call date. Discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Securities are evaluated for other-than-temporary impairment (“OTTI”) on at least an annual basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement; and 2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

(g)

Bond commissions revenue recognition

Bond sales transactions and related revenue and expenses are recorded on a settlement date basis. The effect on the financial statements of using the settlement date basis rather than the trade date basis is not material.

(h)

Loans held for sale

Mortgage loans originated and intended for sale in the secondary market are carried at fair value with changes in fair value recognized in current period earning. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights released. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

(i)

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balance net of purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. The recorded investment in a loan excludes accrued interest receivable, deferred fees, and deferred costs because they are not considered material.

A loan is considered a troubled debt restructured loan based on individual facts and circumstances. A modification may include either an increase or reduction in interest rate or deferral of principal payments or both. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings. The Company classifies troubled debt restructured loans as impaired and evaluates the need for an allowance for loan losses on a loan-by-loan basis. An allowance for loan losses is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral. Loans retain their accruing or non-accruing status at the time of modification.

Loan origination fees and the incremental direct cost of loan origination, are deferred and recognized in interest income without anticipating prepayments over the contractual life of the loans. If the loan is prepaid, the remaining unamortized fees and costs are charged or credited to interest income. Amortization ceases for non-accrual loans.

A loan is moved to non-accrual status in accordance with the Company’s policy typically after 90 days of non-payment, or less than 90 days of non-payment if management determines that the full timely collection of principal and interest becomes doubtful, excluding factored receivables. For CBI’s factored receivables, which are commercial trade credits rather than promissory notes, the Company’s practice, in most cases, is to charge-off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Single family home loans, consumer loans and smaller commercial, land, development and construction loans (less than $500) are monitored by payment history, and as such, past due payments is generally the triggering mechanism to determine non-accrual status. Larger (greater than $500) commercial, land, development and construction loans are monitored on a loan level basis, and therefore in these cases it is more likely that a loan may be placed on non-accrual status before it becomes 90 days past due.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Non real estate consumer loans are typically charged off no later than 120 days past due.

The Company, considering current information and events regarding the borrower’s ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the secondary market value of the loan, or the fair value of the collateral for collateral dependent loans. Interest income on impaired loans is recognized in accordance with the Company’s non-accrual policy. Impaired loans are written down to the extent that principal is judged to be uncollectible and, in the case of impaired collateral dependent loans where repayment is expected to be provided solely by the underlying collateral and there is no other available and reliable sources of repayment, are written down to the lower of cost or collateral value less estimated selling costs. Impairment losses are included in the allowance for loan losses. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

(j)

Purchased credit-impaired loans

As a part of business acquisitions, the Company acquires loans, some of which have shown evidence of credit deterioration since origination. These purchased credit-impaired (“PCI”) loans were determined to be credit impaired based on specific risk characteristics of the loan, including, but not limited to loans on non-accrual status, loans with insufficient cash flow, past due loans, high loan-to-value ratios, loans in process of foreclosure, or any TDR with loss potential. The Company, as a purchaser, is permitted to aggregate credit impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. For the loan portfolios acquired, the Company aggregated the commercial, consumer, and residential loans into pools of loans with common risk characteristics for each institution acquired. These acquired loans were recorded at the acquisition date fair value, and after acquisition, losses are recognized through the allowance for loan losses. The Company estimates the amount and timing of expected cash flows for each acquired loan pool and the expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan pools.

As frequently as quarterly or as long as annually, the Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the recognition of impairment, which is measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after the acquisition date are recognized through provision for loan losses. Probable and significant increases in expected principal cash flows would first reverse any previously recorded allowance for loan losses; any remaining increases are recognized prospectively as interest income over the life of the pool. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income over the life of the pool. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan from the purchased credit impaired portfolio.

(k)

Concentration of credit risk

Most of the Company’s business activity is with customers located within Southeastern United States largely in Florida, Alabama and Georgia. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy and the real estate market within Southeast.

(l)

Allowance for loan losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers loans that are not individually classified as impaired and is based on historical loss experience adjusted for current factors.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Commercial, commercial real estate, land, acquisition and development, and construction loans over $500 are individually evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. The portfolio segments identified by the Company are residential loans, commercial real estate loans, construction and land development loans, commercial and industrial and consumer and other. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; volume and severity of adversely classified or graded loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The Company segregates and evaluates its loan portfolio through the five portfolio segments: residential real estate, commercial real estate, land/ land development/construction, commercial and consumer/other.

Residential real estate loans are a mixture of fixed rate and adjustable rate residential mortgage loans, including first mortgages, second mortgages or home equity lines of credit. As a policy, the Company holds adjustable rate loans and sells a portion of its fixed rate loan originations into the secondary market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments. Residential real estate loans are secured by real property.

Commercial real estate loans include loans secured by office buildings, warehouses, retail stores and other property located in or near our markets. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

Land/land development/construction loans include residential and commercial real estate loans and include a mixture of owner occupied and non-owner occupied. The majority of the loans in this category are land related, either undeveloped land, land held for development, residential building lots and commercial building lots. Generally the terms are three to five years, with a potential for renewal at maturity.

Commercial loans consist of small-to medium-sized businesses including professional associations, medical services, retail trade, transportation, wholesale trade, manufacturing and tourism. Commercial loans are derived from our market areas and underwritten based on the borrower’s ability to service debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as inventory, accounts receivable, equipment or other assets although such loans may be uncollateralized but guaranteed.

Consumer and other loans include automobiles, boats, mobile homes without land, or uncollateralized but personally guaranteed loans. These loans are originated based primarily on credit scores, debt-to-income ratios and loan-to-value ratios.

The Company evaluates the loans acquired from the Gulfstream, First Southern, Community Bank, First National, Platinum, Gateway, HCBF, Sunshine and NCOM acquisitions that were not PCI loans as individual loan portfolio segments. The Company considered the levels of and trends in non-performing loans, past-due loans, adverse loan grade classification changes, historical loss rates, environmental factors and impaired loans in arriving at its estimate. The general loan loss allowance recorded for these performing loans acquired from Gulfstream is allocated between the five portfolio segments described above in Note 5.

(m)

Transfer of financial assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(n)

Other repossessed real estate owned

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. Repossessed real estate is included in other repossessed real estate owned and other repossessed assets other than real estate is included in Prepaid Expenses and Other Assets in the Consolidated Balance Sheets.

(o)

Premises and equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Buildings are depreciated over a 39 year period, and furniture, fixtures and equipment are depreciated over their related useful life (3 to 15 years). Leasehold improvements are depreciated over the shorter of their useful lives or the term of the lease. Major renewals and betterments of property are capitalized; maintenance, repairs, and minor renewals and betterments are expensed in the period incurred. Upon retirement or other disposition of the asset, the asset cost and related accumulated depreciation are removed from the accounts, and gains or losses are included in income.

(p)

Software costs

Costs of software developed for internal use, such as those related to software licenses, programming, testing, configuration, direct materials and integration, are capitalized and included in premises and equipment. Included in the capitalized costs are those costs related to both our personnel and third party consultants involved in the software development and installation. Once placed in service, the capitalized asset is amortized on a straight-line basis over its estimated useful life, generally three to five years. Capitalized costs of software developed for internal use are reviewed periodically for impairment.

(q)

Federal Home Loan Bank (FHLB), Federal Reserve Bank (FRB) and other stock

The Company’s subsidiary bank is a member of the FHLB and FRB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB, FRB and other stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

(r)

Bank owned life insurance (BOLI)

The Company, through its subsidiary bank, has purchased life insurance policies on certain key executives or acquired through various bank acquisitions. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

(s)

Goodwill and other intangible assets

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet.

The core deposit intangibles are intangible assets arising from either whole bank acquisitions or branch acquisitions. They are initially measured at fair value and then amortized over a ten-year period on an accelerated basis using the projected decay rates of the underlying core deposits.

As a part of normal business operations, the Company originates residential mortgage loans that have been pre-approved by secondary investors. The terms of the loans are set by the secondary investors, and the purchase price that the investor will pay for the loan is agreed to prior to the commitment of the loan by the Company. Generally within three weeks after funding, the loans are transferred to the investor in accordance with the agreed-upon terms. The Company records gains from the sale of these loans on the settlement date of the sale equal to the difference between the proceeds received and the carrying amount of the loan. The gain generally represents the portion of the proceeds attributed to servicing release premiums received from the investors and the realization of origination fees received from borrowers which were deferred as part of the carrying amount of the loan. Between the initial funding of the loans by the Company and the subsequent reimbursement by the investors, the Company carries the loans on its balance sheet at the lower of cost or market. The fair value of the underlying commitment is not material to the Consolidated Financial Statements. The standard structure of mortgage loan sales provides for the Company to retain a portion of the cash flow from the interest payments received on the loan. Fees for servicing loans for investors are based on the outstanding principal balance of the loans serviced and are recognized as income when earned. This cash flow is commonly known as a servicing spread. The servicing spread is recognized as a servicing asset to the extent the spread exceeds adequate compensation for the servicing function and recorded as a component of Other Intangible Assets in the Consolidated Balance Sheets. The fair value of the servicing asset is measured on a recurring basis at the present value of future cash flows using market-based discount assumptions. The future cash flows for each asset are based on their unique characteristics and market-based assumptions for prepayment speeds, default and voluntary prepayments. Adjustments to fair value are recorded as a component of Mortgage Banking Revenue. The value of our servicing portfolio is periodically independently evaluated.

(t)

Loan commitments and related financial instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

(u)

Stock-based compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. During 2014 the Company initiated a Long-Term Incentive Plan which included Performance Share Units (“PSUs”). The Monte-Carlo Simulation model was used to estimate fair value of the PSUs at the grant date. Compensation cost is recognized over the required service period, generally defined as the vesting period.

(v)

Income taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in other expenses.

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R1 (“Tax Act”) which reduced the federal corporate tax rates effective January 1, 2018. As a result of this new tax bill, the Company evaluated its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on its deferred tax assets. The reduction in the federal corporate tax rate resulted in a one-time charge to the Company’s 2017 earnings and reduction to its net deferred tax assets. See Note 15 for more details regarding Income Taxes.

(w)

Retirement plans

Employee 401(k) plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

(x)

Marketing and advertising costs

Marketing and advertising costs are expensed as incurred.

(y)

Earnings per common share

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options, stock warrants and unvested restricted stock awards where shares are not issued until vested. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

(z)

Comprehensive income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and unrealized holding gains and losses on interest rate swaps, which are also recognized as separate components of shareholders’ equity.

(aa)

Loss contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

(ab)

Restrictions on cash

Cash on hand or on deposit with the Federal Reserve Bank is generally required to meet regulatory reserve and clearing requirements. Cash is required to be pledged as collateral to the third party dealers for the interest rate swap derivatives.

(ac)

Dividend restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders.

(ad)

Fair value of financial instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

(ae)

Segment reporting

The Company’s correspondent banking and capital markets division represents a distinct reportable segment which differs from the Company’s primary business of commercial and retail banking in Florida, Georgia and Alabama. Accordingly, a reconciliation of reportable segment revenues, expenses and profit to the Company’s consolidated total has been presented in Note 25.

(af)

Derivatives

The Company enters into interest rate swaps in order to provide commercial loan clients the ability to swap from fixed to variable interest rates. Under these agreements, the Company enters into a fixed-rate loan with a client in addition to a swap agreement. This swap agreement effectively converts the client’s fixed rate loan into a variable rate. The Company then enters into a matching swap agreement with a third party dealer in order to offset its exposure on the customer swap. The Company does not use derivatives for trading purposes. The derivative transactions are considered instruments with no hedging designation, otherwise known as stand-alone derivatives. Changes in the fair value of the derivatives are reported currently in earnings.

(ag)

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior years’ net income or shareholders’ equity.

(ah)

Effect of new pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases." Under this guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases. Management is electing the effective date method of the modified retrospective transition approach. Under the effective date method, all lease accounting transitions to ASC 842 as of January 1, 2019 through a one-time recognition of previously off-balance sheet leases as well as a one-time offset to retained earnings for measurement differences. Under the effective date transition approach, all comparative periods presented prior to January 1, 2019 will remain in accordance with legacy lease accounting of ASC 840. The adoption of this standard on January 1, 2019 resulted in the recognition of right-of-use lease assets of $20,311 and lease liabilities of $22,795 on the Company’s Consolidated Balance Sheets. The one-time transition reduced retained earnings by $1,093.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available for sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company formed a CECL committee to assist with the implementation process. It selected a third-party vendor to assist with the allowance for credit loss methodology as well as advisory services related to the implementation of the amendments of ASU 2016-13. Management decided on a discounted cash flow model, worked on internal controls and built a qualitative framework. Effective January 1, 2020, the Company adopted ASU Topic 326. Based on the most recent analysis, we expect the allowance to loans ratio to increase by approximately 55 bps to 70 bps, which equates to a $65 to $84 million increase to the allowance, as a result of the adoption of CECL. This increase includes the reclassification of the credit mark on PCD loans from loan discount to ACL. Excluding the reclassification of the credit mark on PCD loans, the increase to the allowance is estimated to be $48 to $67 million. In addition, the Company estimates a reserve for potential losses on unfunded commitments to be in the range of $5 to $10 million, which will be recorded as a liability. Based on these ranges, the impact to retained earnings, net of deferred taxes, for the increase in ACL, reserve for the unfunded commitments and expected credit losses on debt securities is estimated to be in the range of $40 to $58 million. The estimates on the potential impact of the adoption of CECL on the Company’s financial statements are based on ongoing analyses, current expectations and forecasted economic conditions. These estimates are contingent upon continued refinement of assumptions, methodologies and judgments, which the Company will finalize in the first quarter 2020. The standard will add new disclosures starting with the March 31, 2020 10Q related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors, and reasons for the changes as well as the method applied to revert to historical credit loss experience.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements, but it is not expected to have a material impact.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting,” to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 but no earlier than an entity’s adoption date of Topic 606. The Company evaluated the impact of adopting the new guidance on the Consolidated Financial Statements, but it does not have a material impact.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The following disclosure requirements were removed from Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The following disclosure requirements were modified in Topic 820: (1) in lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added to Topic 820: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of adopting the new guidance on the Consolidated Financial Statements, but it is not expected to have a material impact.

(2)

Trading Securities

Realized and unrealized gains and losses are included in trading securities revenue, a component of non-interest income. Securities purchased for this portfolio have primarily been municipal securities.

A list of the activity in this portfolio for 2019 and 2018 is summarized below.

	2019			2018
Beginning balance	$	1,737		$	6,777
Purchases		194,799			254,555
Proceeds from sales		(191,648	)		(259,652	)
Net realized gain on sales		96			20
Net unrealized gains		3			37
Ending balance	$	4,987		$	1,737

(3)

Investment Debt Securities

Available for Sale Debt Securities

All of the mortgage-backed securities (“MBS”) listed below are residential FNMA, FHLMC, and GNMA MBSs.

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Corporate debt securities	$	5,504	$	153	$	—	$	5,657
Obligations of U.S. government sponsored entities and agencies		20,000		—		70		19,930
Mortgage-backed securities		1,742,221		26,403		1,382		1,767,242
Municipal securities		88,301		5,594		—		93,895
Total available for sale debt securities	$	1,856,026	$	32,150	$	1,452	$	1,886,724

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Corporate debt securities	$	6,265	$	162	$	—	$	6,427
Obligations of U.S. government sponsored entities and agencies		38,794		7		933		37,868
Mortgage-backed securities		1,623,906		3,792		33,423		1,594,275
Municipal securities		88,415		698		335		88,778
Total available for sale debt securities	$	1,757,380	$	4,659	$	34,691	$	1,727,348

The cost of securities sold is determined using the specific identification method. The securities sold during the second quarter of 2019 were collateralized loan obligation securities (“CLOs”) acquired through the NCOM acquisition. The CLOs were marked to fair value at acquisition and subsequently sold resulting in a loss of $5. The securities sold during the first quarter of 2018 include some securities acquired through the acquisitions of Sunshine and Harbor on January 1, 2018. These acquired securities were marked to fair value and subsequently sold after the acquisition date, and no gain or loss was recognized from the sale of these securities. Total sales of available for sale securities were as follows:

	2019		2018		2017
Proceeds	$	227,152	$	355,652	$	312,692
Gross gains		1,132		68		740
Gross losses		1,107		90		747

The tax provisions related to these net realized gains and losses were $6, $(6) and $(3), respectively.

Available for sale debt securities pledged at December 31, 2019 and 2018 had a carrying amount (estimated fair value) of $1,195,664 and $961,721, respectively. These securities were pledged primarily to secure public deposits and repurchase agreements. In addition, the amount at December 31, 2019 includes $361,127 of securities pledged to the third party dealers and clearinghouse exchanges for the Company’s cash flow hedge interest rate swaps. At year-end 2019 and 2018, there were no holdings of available for sale securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The fair value and amortized cost of available for sale debt securities at year end 2019 by contractual maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.

	Fair		Amortized
Investment securities available for sale:	Value		Cost
Due in one year or less	$	2,216	$	2,193
Due after one year through five years		4,098		3,973
Due after five years through ten years		35,872		35,206
Due after ten years through thirty years		77,296		72,433
Mortgage-backed securities		1,767,242		1,742,221
Total available for sale debt securities	$	1,886,724	$	1,856,026

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2019 and 2018.

	December 31, 2019
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of U.S. government sponsored entities and agencies	$	19,930	$	70	$	—	$	—	$	19,930	$	70
Mortgage-backed securities		125,249		388		117,903		994		243,152		1,382
Total temporarily impaired available for sale debt securities	$	145,179	$	458	$	117,903	$	994	$	263,082	$	1,452

	December 31, 2018
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of U.S. government sponsored entities and agencies	$	25,104	$	332	$	9,398	$	601	$	34,502	$	933
Mortgage-backed securities		647,923		10,782		635,172		22,641		1,283,095		33,423
Municipal securities		25,031		316		3,381		19		28,412		335
Total temporarily impaired available for sale debt securities	$	698,058	$	11,430	$	647,951	$	23,261	$	1,346,009	$	34,691

Mortgage-backed securities: At December 31, 2019, nearly 100% of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

Held to Maturity Debt Securities

The following reflects the fair value of held to maturity securities and the related gross unrecognized gains and losses as of December 31, 2019 and 2018.

	December 31, 2019
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	71,560	$	456	$	29	$	71,987
Municipal securities		131,343		5,522		—		136,865
Total held to maturity debt securities	$	202,903	$	5,978	$	29	$	208,852

	December 31, 2018
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Mortgage-backed securities	$	84,983	$	—	$	2,462	$	82,521
Municipal securities		131,850		799		2,991		129,658
Total held to maturity debt securities	$	216,833	$	799	$	5,453	$	212,179

Held to maturity debt securities pledged at December 31, 2019 and 2018 had a carrying amount of $100,582 and $103,710. These securities were pledged primarily to secure public deposits and repurchase agreements.

At year-end 2019 and 2018, there were no holdings of held to maturity securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The fair value and amortized cost of held to maturity debt securities at year end 2019 by contractual maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.

			Amortized
Investment securities held to maturity	Fair Value		Cost
Due after five years through ten years	$	2,064	$	2,031
Due after ten years through thirty years		134,801		129,312
Mortgage-backed securities		71,987		71,560
Total held to maturity debt securities	$	208,852	$	202,903

The following tables show the Company’s held to maturity debt investments’ gross unrecognized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrecognized loss position, at December 31, 2019 and 2018.

	December 31, 2019
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage-backed securities	$	—	$	—	$	8,445	$	29	$	8,445	$	29
Total temporarily impaired held to maturity debt securities	$	—	$	—	$	8,445	$	29	$	8,445	$	29

	December 31, 2018
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage-backed securities	$	—	$	—	$	82,521	$	2,462	$	82,521	$	2,462
Municipal securities		22,560		203		47,807		2,788		70,367		2,991
Total temporarily impaired held to maturity debt securities	$	22,560	$	203	$	130,328	$	5,250	$	152,888	$	5,453

Mortgage-backed securities: At December 31, 2019, 100% of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

(4) Loans Held for Sale

The Company accounts for the loans held for sale under the fair value option with changes in fair value recognized in current period earnings. At the date of funding of the loan, the funded amount of the loan, the relative derivative asset or liability of the associated interest rate lock commitment, less direct costs, becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. Net gains from changes in estimated fair value of mortgage loans held for sale were $1,174 and $1,081 at December 31, 2019 and 2018, respectively. The total unpaid principal balances of loans held for sale were $141,627 and $39,318 at December 31, 2019 and 2018, respectively. No loans held for sale at December 31, 2019 and 2018 were past due or on non-accrual.

The table below summarizes the activity in mortgage loans held for sale for the years ended December 31, 2019 and 2018.

	December 31,
	2019			2018
Beginning balance	$	40,399		$	19,647
Effect from acquisitions		14,588			8,959
Loans originated		1,157,356			403,492
Proceeds from sales		(1,100,207	)		(403,583	)
Net change in fair value		1,174			1,081
Net realized gain on sales		29,491			10,803
Ending balance	$	142,801		$	40,399

As loans are closed, they are typically sold at prices specified in the forward contracts. Gains or losses may arise if the yields of the loans delivered vary from those specified in the forward contracts. Derivative mortgage loan commitments, or interest rate locks, are also utilized and relate to the origination of a mortgage that will be held for sale upon funding. The Company began utilizing these derivative financial instruments on its loans held for sale in 2018 to manage interest rate risk and not for speculative purposes. The table below summarizes the main components of Mortgage Banking Revenue as reported in the Company’s Consolidated Statements of Income and Comprehensive Income during the years ended December 31, 2019 and 2018.

	2019			2018
Servicing fees and commissions	$	358		$	196
Gain on sale of loans held for sale		29,491			10,803
Unrealized gain on loans held for sale		1,174			1,081
Net gain on mortgage derivatives		494			614
Loss on mortgage hedge		(1,731	)		(46	)
Loss on mortgage servicing assets		(233	)		(38	)
Mortgage banking revenue	$	29,553		$	12,610

The table below summarizes the notional amounts for interest rate lock commitments, best efforts forward trades and MBS forward trades pertaining to loans held for sale at December 31, 2019 and 2018.

		Notional at
		December 31, 2019		December 31, 2018
Interest rate lock commitments	$	125,409	$	49,545
Best efforts forward trades		123,638		61,865
MBS forward trades		119,500		30,000
Total derivative instruments	$	368,547	$	141,410

Mortgage banking derivatives, which are included in Other Assets and Other Liabilities on the Company’s Consolidated Balance Sheets, used in the ordinary course of business consist of forward sales contracts and interest rate lock commitments on residential mortgage loans. Forward sales contracts represent future commitments to deliver loans at a specified price and by a specified date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund loans at a specific rate and by a specified expiration date. These derivatives involve underlying items, such as interest rates, and are designed to mitigate risk. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

(5)

Loans

The following table sets forth information concerning the loan portfolio by collateral types as of December 31, 2019 and 2018 are:

	December 31, 2019			December 31, 2018
Loans excluding PCI loans
Real estate loans
Residential	$	2,512,544		$	1,702,114
Commercial		6,325,108			4,454,098
Land, development and construction		999,923			635,562
Total real estate		9,837,575			6,791,774
Commercial, industrial & factored receivables		1,759,074			1,183,380
Consumer and other loans		247,307			203,686
Loans before unearned fees and deferred cost		11,843,956			8,178,840
Net unearned fees and costs		4,519			2,693
Total loans excluding PCI loans		11,848,475			8,181,533
PCI loans (note 1)
Real estate loans
Residential		45,795			58,804
Commercial		81,576			87,336
Land, development and construction		4,655			7,028
Total real estate		132,026			153,168
Commercial and industrial		3,342			5,594
Consumer and other loans		100			209
Total PCI loans		135,468			158,971
Total loans		11,983,943			8,340,504
Allowance for loan losses for loans that are not PCI loans		(40,429	)		(39,579	)
Allowance for loan losses for PCI loans		(226	)		(191	)
Total loans, net of allowance for loan losses	$	11,943,288		$	8,300,734

note 1: Purchased credit-impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017.

	Real Estate Loans									Comm.,
	Residential			Commercial			Land, Develop., Constr.			Industrial & Factored Receivables			Consumer & Other			Total
Allowance for loan losses for loans that are not PCI loans:
Twelve-month ended December 31, 2019
Beginning of the period	$	5,518		$	22,978		$	1,781		$	6,414		$	2,888		$	39,579
Charge-offs		(721	)		(567	)		(42	)		(9,545	)		(3,182	)		(14,057	)
Recoveries		710			1,057			85			1,934			571			4,357
Provision for loan losses		(1,250	)		(4,916	)		495			12,479			3,742			10,550
Balance at end of period	$	4,257		$	18,552		$	2,319		$	11,282		$	4,019		$	40,429

Twelve-month ended December 31, 2018
Beginning of the period	$	6,003		$	19,304		$	1,179		$	4,130		$	1,914		$	32,530
Charge-offs		(516	)		(13	)		(126	)		(1,474	)		(1,706	)		(3,835	)
Recoveries		1,027			679			39			360			327			2,432
Provision for loan losses		(996	)		3,008			689			3,398			2,353			8,452
Balance at end of period	$	5,518		$	22,978		$	1,781		$	6,414		$	2,888		$	39,579

Twelve-month ended December 31, 2017
Beginning of the period	$	5,640		$	14,713		$	883		$	3,785		$	1,548		$	26,569
Charge-offs		(254	)		(74	)		—			(677	)		(994	)		(1,999	)
Recoveries		950			662			596			334			217			2,759
Provision for loan losses		(333	)		4,003			(300	)		688			1,143			5,201
Balance at end of period	$	6,003		$	19,304		$	1,179		$	4,130		$	1,914		$	32,530

	Real Estate Loans									Comm.,
	Residential			Commercial			Land, Develop., Constr.			Industrial & Factored Receivables			Consumer & Other		Total
Allowance for loan losses for loans that are PCI loans:
Twelve-month ended December 31, 2019
Beginning of the period	$	—		$	—		$	177		$	—		$	14	$	191
Charge-offs		—			—			—			—			—		—
Recoveries		—			—			—			—			—		—
Provision for loan losses		—			—			—			—			35		35
Balance at end of period	$	—		$	—		$	177		$	—		$	49	$	226

Twelve-month ended December 31, 2018
Beginning of the period	$	—		$	59		$	222		$	—		$	14	$	295
Charge-offs		—			—			—			(10	)		—		(10	)
Recoveries		—			—			—			75			—		75
Provision for loan losses		—			(59	)		(45	)		(65	)		—		(169	)
Balance at end of period	$	—		$	—		$	177		$	—		$	14	$	191

Twelve-month ended December 31, 2017
Beginning of the period	$	54		$	92		$	312		$	—		$	14	$	472
Charge-offs		—			—			—			—			—		—
Recoveries		—			66			—			—			—		66
Provision for loan losses		(54	)		(99	)		(90	)		—			—		(243	)
Balance at end of period	$	—		$	59		$	222		$	—		$	14	$	295

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 and 2018. Accrued interest receivable and unearned fees/costs are not included in the recorded investment because they are not material.

	Real Estate Loans						Comm.,
	Residential		Commercial		Land, Develop., Constr.		Industrial & Factored Receivables		Consumer & Other		Total
As of December 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	588	$	375	$	—	$	914	$	1	$	1,878
Collectively evaluated for impairment		3,669		18,177		2,319		10,368		4,018		38,551
Purchased credit impaired		—		—		177		—		49		226
Total ending allowance balance	$	4,257	$	18,552	$	2,496	$	11,282	$	4,068	$	40,655

Loans:
Individually evaluated for impairment	$	6,475	$	11,445	$	865	$	7,232	$	123	$	26,140
Collectively evaluated for impairment		2,506,069		6,313,663		999,058		1,751,842		247,184		11,817,816
Purchased credit impaired		45,795		81,576		4,655		3,342		100		135,468
Total ending loan balances	$	2,558,339	$	6,406,684	$	1,004,578	$	1,762,416	$	247,407	$	11,979,424

	Real Estate Loans
	Residential		Commercial		Land, Develop., Constr.		Comm. & Industrial		Consumer & Other		Total
As of December 31, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	331	$	250	$	—	$	1,034	$	1	$	1,616
Collectively evaluated for impairment		5,187		22,728		1,781		5,380		2,887		37,963
Purchased credit impaired		—		—		177		—		14		191
Total ending allowance balance	$	5,518	$	22,978	$	1,958	$	6,414	$	2,902	$	39,770

Loans:
Individually evaluated for impairment	$	6,234	$	7,496	$	117	$	1,708	$	145	$	15,700
Collectively evaluated for impairment		1,695,880		4,446,602		635,445		1,181,672		203,541		8,163,140
Purchased credit impaired		58,804		87,336		7,028		5,594		209		158,971
Total ending loan balances	$	1,760,918	$	4,541,434	$	642,590	$	1,188,974	$	203,895	$	8,337,811

The following is a summary of information regarding impaired loans at December 31, 2019 and 2018:

	December 31, 2019		December 31, 2018
Performing TDRs (these are not included in nonperforming loans ("NPLs"))	$	8,012	$	8,475
Nonperforming TDRs (these are included in NPLs)		4,512		1,002
Total TDRs (these are included in impaired loans)		12,524		9,477
Impaired loans that are not TDRs		13,616		6,223
Total impaired loans	$	26,140	$	15,700

Troubled Debt Restructurings:

In certain circumstances, it may be beneficial to modify or restructure the terms of a loan (i.e. troubled debt restructure or “TDR”) and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable real estate market. When the Company modifies the terms of a loan, it usually either reduces the monthly payment and/or interest rate for generally twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan modifications to date. The Company has $12,524 of TDRs. Of this amount $8,012 are performing pursuant to their modified terms, and $4,512 are not performing and have been placed on non-accrual status and included in our non-performing loans (“NPLs”).

TDRs as of December 31, 2019 and 2018 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non-performing loans) are presented in the table below.

	Accruing		Non-Accrual		Total
As of December 31, 2019
Real estate loans:
Residential	$	4,862	$	1,147	$	6,009
Commercial		1,706		—		1,706
Land, development, construction		175		—		175
Total real estate loans		6,743		1,147		7,890
Commercial and industrial		1,146		3,365		4,511
Consumer and other		123		—		123
Total TDRs	$	8,012	$	4,512	$	12,524

	Accruing		Non-Accrual		Total
As of December 31, 2018
Real estate loans:
Residential	$	5,848	$	386	$	6,234
Commercial		1,837		566		2,403
Land, development, construction		77		41		118
Total real estate loans		7,762		993		8,755
Commercial and industrial		577		—		577
Consumer and other		136		9		145
Total TDRs	$	8,475	$	1,002	$	9,477

The Company’s policy is to return non-accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. The Company’s policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of $970, $77 and $265 and partial charge offs of $702, $44 and $72 on TDR loans during the periods ending December 31, 2019, 2018 and 2017, respectively.

Loans are modified to minimize loan losses when management believes the modification will improve the borrower’s financial condition and ability to repay the loan. The Company typically does not forgive principal. The Company generally either reduces interest rates or decreases monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. The Company may also extend maturities, convert balloon loans to longer term amortizing loans, or vice versa, or change interest rates between variable and fixed rate. Each borrower and situation is unique and management tries to accommodate the borrower and minimize the Company’s potential losses. Approximately 64% of the Company’s TDRs are current pursuant to their modified terms, and $4,512, or approximately 36% of the Company’s total TDRs are not performing pursuant to their modified terms. There does not appear to be any significant difference in success rates with one type of concession versus another.

Loans modified as TDRs during the twelve-month periods ending December 31, 2019, 2018 and 2017 were $5,228, $1,830, and $2,258. The Company recorded a loan loss provision of $911, $9 and $14 for loans modified during the twelve-month periods ending December 31, 2019, 2018 and 2017.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the years ending December 31, 2019, 2018 and 2017.

	Period ending				Period ending				Period ending
	December 31, 2019				December 31, 2018				December 31, 2017
	Number		Recorded		Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment		of loans		investment
Residential		—	$	—		—	$	—		—	$	—
Commercial real estate		—		—		1		433		1		177
Land, development, construction		—		—		1		49		—		—
Commercial and industrial		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—
Total		—	$	—		2	$	482		1	$	177

The Company recorded no provision for loan loss expense or partial charge offs during the years ending December 31, 2019 and 2018 on TDR loans that subsequently defaulted as described above. The Company recorded $8 in provision for loan loss expense and $8 in partial charge offs during the year ending December 31, 2017 on TDR loans that subsequently defaulted as described above.

The Company has allocated $494 and $334 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2019 and 2018. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2019 and 2018 excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30. The recorded investment is less than the unpaid principal balance primarily due to partial charge-offs.

	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
As of December 31, 2019
With no related allowance recorded:
Residential real estate	$	2,894	$	2,744	$	—
Commercial real estate		11,031		10,015		—
Land, development, construction		886		865		—
Commercial and industrial		5,522		4,820		—
Consumer, other		99		98		—

With an allowance recorded:
Residential real estate		3,920		3,731		588
Commercial real estate		1,438		1,430		375
Land, development, construction		—		—		—
Commercial and industrial		2,486		2,412		914
Consumer, other		31		25		1
Total	$	28,307	$	26,140	$	1,878

	Unpaid principal balance			Recorded investment			Allowance for loan losses allocated
As of December 31, 2018
With no related allowance recorded:
Residential real estate		$	3,608		$	3,485		$	—
Commercial real estate			6,447			5,906			—
Land, development, construction			144			117			—
Commercial and industrial			364			353			—
Consumer, other			109			108			—

With an allowance recorded:
Residential real estate			2,897			2,749			331
Commercial real estate			1,593			1,590			250
Land, development, construction			—			—			—
Commercial and industrial			1,378			1,355			1,034
Consumer, other			53			37			1
Total		$	16,593		$	15,700		$	1,616

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
December 31, 2019
Real estate loans:
Residential	$	6,153	$	233	$	—
Commercial		9,420		102		—
Land, development, construction		216		8		—
Total real estate loans		15,789		343		—

Commercial and industrial		5,446		59		—
Consumer and other loans		126		8		—
Total	$	21,361	$	410	$	—

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
December, 31, 2018
Real estate loans:
Residential	$	7,492	$	308	$	—
Commercial		7,876		104		—
Land, development, construction		588		8		—
Total real estate loans		15,956		420		—

Commercial and industrial		2,081		33		—
Consumer and other loans		174		8		—
Total	$	18,211	$	461	$	—

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
December, 31, 2017
Real estate loans:
Residential	$	7,731	$	267	$	—
Commercial		8,956		145		—
Land, development, construction		432		18		—
Total real estate loans		17,119		430		—

Commercial and industrial		1,968		29		—
Consumer and other loans		240		10		—
Total	$	19,327	$	469	$	—

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of December 31, 2019 and 2018 excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30:

	Non-accrual		Loans Past Due Over 90 Days Still Accruing
As of December 31, 2019
Residential real estate	$	13,455	$	—
Commercial real estate		12,141		—
Land, development, construction		2,516		—
Comm., industrial & factored receivables		7,884		1,692
Consumer, other		920		—
Total	$	36,916	$	1,692

	Non-accrual		Loans Past Due Over 90 Days Still Accruing
As of December 31, 2018
Residential real estate	$	11,488	$	—
Commercial real estate		8,445		—
Land, development, construction		795		—
Commercial and industrial		2,274		—
Consumer, other		565		—
Total	$	23,567	$	—

The following tables present the aging of the recorded investment in past due loans as of December 31, 2019 and 2018, excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30:

	Accruing Loans
	Total		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans
As of December 31, 2019
Residential real estate	$	2,512,544	$	7,601	$	5,928	$	—	$	13,529	$	2,485,560	$	13,455
Commercial real estate		6,325,108		7,554		2,577		—		10,131		6,302,836		12,141
Land, development, construction		999,923		1,343		2,349		—		3,692		993,715		2,516
Comm., industrial & factored receivables		1,759,074		14,924		12,465		1,692		29,081		1,722,109		7,884
Consumer		247,307		1,663		907		—		2,570		243,817		920
	$	11,843,956	$	33,085	$	24,226	$	1,692	$	59,003	$	11,748,037	$	36,916

	Accruing Loans
	Total		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Loans Not Past Due		Nonaccrual Loans
As of December 31, 2018
Residential real estate	$	1,702,114	$	5,730	$	5,631	$	—	$	11,360	$	1,679,266	$	11,488
Commercial real estate		4,454,098		10,840		4,607		—		15,446		4,430,207		8,445
Land, development, construction		635,562		661		4,022		—		4,683		630,084		795
Comm. & industrial		1,183,380		2,803		878		—		3,681		1,177,425		2,274
Consumer		203,686		1,061		271		—		1,332		201,789		565
	$	8,178,840	$	21,094	$	15,408	$	—	$	36,502	$	8,118,771	$	23,567

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2019 and 2018, and based on the most recent analysis performed, the risk category of loans by class of loans, excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30, is presented below.

	As of December 31, 2019
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	2,455,752	$	31,189	$	25,603	$	—
Commercial real estate		6,151,309		118,412		55,387		—
Land, development, construction		989,860		6,418		3,645		—
Comm., industrial & factored receivables		1,705,862		35,070		18,142		—
Consumer		245,905		160		1,242		—
Total	$	11,548,688	$	191,249	$	104,019	$	—

	As of December 31, 2018
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	1,633,810	$	41,522	$	26,782	$	—
Commercial real estate		4,246,687		160,981		46,430		—
Land, development, construction		610,631		20,586		4,345		—
Comm. & industrial		1,137,272		40,836		5,272		—
Consumer		202,701		247		738		—
Total	$	7,831,100	$	264,172	$	83,568	$	—

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans, excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30, based on payment activity as of December 31, 2019 and 2018:

	Residential		Consumer
As of December 31, 2019
Performing	$	2,499,089	$	246,387
Nonperforming		13,455		920
Total	$	2,512,544	$	247,307

	Residential		Consumer
As of December 31, 2018
Performing	$	1,690,626	$	203,121
Nonperforming		11,488		565
Total	$	1,702,114	$	203,686

Purchased Credit-Impaired (“PCI”) Loans:

Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of December 31, 2019, 2018 and 2017. Contractually required principal and interest payments have been adjusted for estimated prepayments.

	December 31,
	2019			2018			2017
Contractually required principal and interest	$	244,189		$	267,815		$	248,283
Non-accretable difference		(46,271	)		(38,602	)		(13,183	)
Cash flows expected to be collected		197,918			229,213			235,100
Accretable yield		(62,450	)		(70,242	)		(70,942	)
Carrying value of acquired loans		135,468			158,971			164,158
Allowance for loan losses		(226	)		(191	)		(295	)
Carrying value less allowance for loan losses	$	135,242		$	158,780		$	163,863

The Company recorded $35, ($169) and ($243) in loan loss provision expense (recovery) on PCI loans during the years ending December 31, 2019, 2018 and 2017, respectively. The Company adjusted its estimates of future expected losses, cash flows and renewal assumptions during the current year. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. The Company reclassified approximately $18,450, $22,469 and $4,707 from non-accretable difference to accretable yield during the twelve-month periods ending December 31, 2019, 2018 and 2017, respectively, to reflect the adjusted estimates of future expected cash flows.

The Company recognized approximately $33,766 of accretion income during the twelve-month period ending December 31, 2019. The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans during the periods ending December 31, 2019, 2018 and 2017.

				Effect of			Income		All Other
	Dec. 31, 2018			Acquisitions			Accretion		Adjustments			Dec. 31, 2019
Contractually required principal and interest	$	267,815		$	51,527		$	—	$	(75,153	)	$	244,189
Non-accretable difference		(38,602	)		(29,187	)		—		21,518			(46,271	)
Cash flows expected to be collected		229,213			22,340			—		(53,635	)		197,918
Accretable yield		(70,242	)		(3,724	)		33,766		(22,250	)		(62,450	)
Carry value of acquired loans	$	158,971		$	18,616		$	33,766	$	(75,885	)	$	135,468

				Effect of			Income		All Other
	Dec. 31, 2017			Acquisitions			Accretion		Adjustments			Dec. 31, 2018
Contractually required principal and interest	$	248,283		$	122,392		$	—	$	(102,860	)	$	267,815
Non-accretable difference		(13,183	)		(58,927	)		—		33,508			(38,602	)
Cash flows expected to be collected		235,100			63,465			—		(69,352	)		229,213
Accretable yield		(70,942	)		(7,770	)		35,944		(27,474	)		(70,242	)
Carry value of acquired loans	$	164,158		$	55,695		$	35,944	$	(96,826	)	$	158,971

				Effect of			Income		All Other
	Dec. 31, 2016			Acquisitions			Accretion		Adjustments			Dec. 31, 2017
Contractually required principal and interest	$	297,821		$	31,334		$	—	$	(80,872	)	$	248,283
Non-accretable difference		(18,372	)		(7,104	)		—		12,293			(13,183	)
Cash flows expected to be collected		279,449			24,230			—		(68,579	)		235,100
Accretable yield		(93,525	)		(4,185	)		32,388		(5,620	)		(70,942	)
Carry value of acquired loans	$	185,924		$	20,045		$	32,388	$	(74,199	)	$	164,158

(6)

Other real estate owned

Other real estate owned is real estate acquired through or instead of loan foreclosure. Activity in the valuation allowance was as follows:

	2019			2018			2017
Beginning of year	$	404		$	861		$	869
Valuation write down of OREO		395			482			682
Sales and/or dispositions		(284	)		(939	)		(690	)
End of year	$	515		$	404		$	861

Expenses related to foreclosed real estate include:

	2019			2018			2017
Gain on sale of OREO	$	(428	)	$	(1,933	)	$	(876	)
Valuation write down of repossessed real estate		395			482			682
Operating expenses, net of rental income		3,221			2,815			2,252
Total	$	3,188		$	1,364		$	2,058

(7)

Fair value

Generally accepted accounting principles establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of available for sale debt securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair values of corporate debt securities are calculated using market indicators such as broker quotes (Level 2).

The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the sales price is used as the fair value; and, (2) for those securities which have not traded as of the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.

The Company has the rights to service a portfolio of Fannie Mae ("FNMA") and other loans sold on a servicing retained basis. The fair value of mortgage servicing assets are measured when the loan is sold and subsequently measured at fair value on a recurring basis. Management uses a model operated and maintained by a third party to calculate the present value of future cash flows using the third party's market-based assumptions. The future cash flows for each asset are based on the asset's unique characteristics and the third party's market-based assumptions for prepayment speeds, default and voluntary prepayments (Level 2). Adjustments to fair value are recorded as a component of Mortgage Banking Revenue in the Consolidated Statements of Income and Comprehensive Income.

Effective January 1, 2018, the Company elected to account for mortgage loans held for sale under the fair value option with changes in fair value recognized in current period earnings. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans (Level 2). In conjunction with the fair value election on loans held for sale, Mortgage banking uses derivative forward sales contracts and interest rate lock commitments on residential mortgage loans. Fair values of these mortgage derivatives are estimated based on changes in market prices for mortgage forward trades and mortgage interest rates (Level 2) and estimated pull through percentages from the date the interest on the loan is locked (Level 3).

The Company has the rights to service a portfolio of Fannie Mae ("FNMA"), Freddie Mac (“FHLMC”) and other government guaranteed loans sold on a servicing retained basis. Mortgage servicing assets are measured at fair value when the loan is sold and subsequently measured at fair value on a recurring basis utilizing Level 2 inputs. Management uses a model operated and maintained by a third party to calculate the present value of future cash flows using the third party's market-based assumptions. The future cash flows for each asset are based on the asset's unique characteristics and the third party's market-based assumptions for prepayment speeds, default and voluntary prepayments. Adjustments to fair value are recorded as a component of Mortgage Banking Revenue in the Consolidated Statements of Income and Comprehensive Income.

The fair value of interest rate swap derivatives is based on valuation models using observable market data as of the measurement date (Level 2). The derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

The fair value of impaired loans with specific valuation allowance for loan losses and other real estate owned is based on recent real estate appraisals. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At December 31, 2019, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8% to 13%. Adjustments to comparable sales may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans and other real estate owned are considered a Level 3 in the fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis are summarized below.

			Fair value measurements using
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Carrying		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
at December 31,2019
Assets:
Trading securities	$	4,987	$	—	$	4,987	$	—
Available for sale debt securities
Corporate debt securities		5,657		—		5,657		—
Obligations of U.S. government sponsored entities and agencies		19,930		—		19,930		—
Mortgage-backed securities		1,767,242		—		1,767,242		—
Municipal securities		93,895		—		93,895		—
Loans held for sale		142,801		—		142,801		—
Mortgage servicing assets		1,332		—		1,332		—
Mortgage banking derivatives		1,761		—		14		1,747
Interest rate swap derivatives		273,068		—		273,068		—

Liabilities:
Mortgage banking derivatives		305		—		288		17
Interest rate swap derivatives		275,033		—		275,033		—

at December 31,2018
Assets:
Trading securities	$	1,737	$	—	$	1,737	$	—
Available for sale debt securities
Corporate debt securities		6,427		—		6,427		—
Obligations of U.S. government sponsored entities and agencies		37,868		—		37,868		—
Mortgage-backed securities		1,594,275		—		1,594,275		—
Municipal securities		88,778		—		88,778		—
Loans held for sale		40,399		—		40,399		—
Mortgage servicing assets		1,565		—		1,565		—
Mortgage banking derivatives		783		—		—		783
Interest rate swap derivatives		92,475		—		92,475		—

Liabilities:
Mortgage banking derivatives		169		—		164		5
Interest rate swap derivatives		92,892		—		92,892		—

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.

			Fair value measurements using
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Carrying		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
at December 31,2019
Assets:
Impaired loans
Residential real estate	$	2,213	$	—	$	—	$	2,213
Commercial real estate		8,177		—		—		8,177
Land, land development and construction		847		—		—		847
Commercial		5,564		—		—		5,564
Consumer		47		—		—		47
Other real estate owned
Commercial real estate		2,129		—		—		2,129
Land, land development and construction		340		—		—		340
Bank property held for sale		4,160		—		—		4,160

at December 31,2018
Assets:
Impaired loans
Residential real estate	$	1,811	$	—	$	—	$	1,811
Commercial real estate		5,614		—		—		5,614
Land, land development and construction		90		—		—		90
Commercial		1,274		—		—		1,274
Consumer		40		—		—		40
Other real estate owned
Land, land development and construction		867		—		—		867
Bank property held for sale		5,805		—		—		5,805

Impaired loans measured at fair value had a recorded investment of $18,556 with a valuation allowance of $1,708 at December 31, 2019, and a recorded investment of $8,829, with a valuation allowance of $1,463, at December 31, 2018. The Company recorded a provision for loan loss expense of $2,739 and $1,363 on these loans during the years ending 2019 and 2018, respectively.

Other real estate owned had a decline in fair value of $395 and $482 during the twelve-month periods ending December 31, 2019 and 2018, respectively. Changes in fair value were recorded directly as an adjustment to current earnings through non-interest expense.

Bank property held for sale represents certain branch office buildings which the Company has closed and consolidated with other existing branches or acquired through various acquisitions. The real estate was transferred out of the Bank Premises and Equipment category into Bank Property Held for Sale at the lower of amortized cost or fair value less estimated costs to sell. The fair values were based upon appraisals. The Company recorded an impairment charge of $1,736 and $2,667 during the twelve month periods ending December 31, 2019 and 2018 related to bank properties held for sale.

Fair Value of Financial Instruments:

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

FHLB, FRB and other stock: It is not practical to determine the fair value of FHLB, FRB and other stock due to restrictions placed on their transferability.

Investment securities held to maturity: The fair values of securities held to maturity are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Loans, net: For performing loans, the fair value is determined based on a discounted cash flow analysis (income approach). The discounted cash flow was based on contractual maturity of the loan and market indications of rates, prepayment speeds, defaults and credit risk resulting in Level 3 classification. For non-performing loans, the fair value is determined based on the estimated values of the underlying collateral or individual analysis of receipts (asset approach) resulting in Level 3 classification.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value and classified as Level 2 for accrued interest receivable related to investment securities and Level 3 for accrued interest receivable related to loans.

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Other Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other borrowings, approximate their fair values resulting in a Level 2 classification.

Corporate and Subordinated Debentures: The fair values of the Company’s corporate and subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

Off-balance Sheet Instruments: The fair value of off-balance-sheet items is not considered material.

The following table presents the carry amounts and estimated fair values of the Company’s financial instruments:

			Fair value measurements
	Carrying amount		Level 1		Level 2		Level 3		Total
at December 31,2019
Financial assets:
Cash and cash equivalents	$	490,058	$	490,058	$	—	$	—	$	490,058
Trading securities		4,987		—		4,987		—		4,987
Available for sale debt securities		1,886,724		—		1,886,724		—		1,886,724
Held to maturity debt securities		202,903		—		208,852		—		208,852
Loans held for sale		142,801		—		142,801		—		142,801
Loans, net		11,943,288		—		—		11,925,693		11,925,693
Mortgage servicing assets		1,332		—		1,332		—		1,332
Mortgage banking derivatives		1,761		—		14		1,747		1,761
Interest rate swap derivatives		273,068		—		273,068		—		273,068
Accrued interest receivable		40,945		—		7,547		33,398		40,945

Financial liabilities:
Deposits - without stated maturities	$	10,879,837	$	10,879,837	$	—	$	—	$	10,879,837
Deposits - with stated maturities		2,256,555		—		2,271,497		—		2,271,497
Securities sold under agreement to repurchase		93,141		—		93,141		—		93,141
Federal funds purchased and other borrowings		540,193		—		540,193		—		540,193
Corporate and subordinated debentures		71,343		—		—		66,964		66,964
Mortgage banking derivatives		305		—		288		17		305
Interest rate swap derivatives		275,033		—		275,033		—		275,033
Accrued interest payable		3,998		—		3,998		—		3,998

			Fair value measurements
	Carrying amount		Level 1		Level 2		Level 3		Total
at December 31,2018
Financial assets:
Cash and cash equivalents	$	367,333	$	367,333	$	—	$	—	$	367,333
Trading securities		1,737		—		1,737		—		1,737
Available for sale debt securities		1,727,348		—		1,727,348		—		1,727,348
Held to maturity debt securities		216,833		—		212,179		—		212,179
Loans held for sale		40,399		—		40,399		—		40,399
Loans, net		8,300,734		—		—		8,342,220		8,342,220
Mortgage servicing assets		1,565		—		1,565		—		1,565
Mortgage banking derivatives		783		—		—		783		783
Interest rate swap derivatives		92,475		—		92,475		—		92,475
Accrued interest receivable		33,143		—		8,355		24,788		33,143

Financial liabilities:
Deposits - without stated maturities	$	7,655,376	$	7,655,376	$	—	$	—	$	7,655,376
Deposits - with stated maturities		1,821,960		—		1,827,299		—		1,827,299
Securities sold under agreement to repurchase		57,772		—		57,772		—		57,772
Federal funds purchased and other borrowings		655,360		—		655,360		—		655,360
Corporate debentures		32,415		—		—		28,621		28,621
Mortgage banking derivatives		169		—		164		5		169
Interest rate swap derivatives		92,892		—		92,892		—		92,892
Accrued interest payable		2,627		—		2,627		—		2,627

(8)

Bank Premises and Equipment

A summary of bank premises and equipment as of December 31, 2019 and 2018 is as follows:

	December 31,
	2019		2018
Land	$	89,973	$	72,487
Land improvements		1,560		1,381
Buildings		174,344		130,424
Leasehold improvements		19,076		13,655
Furniture, fixtures and equipment		68,148		45,056
Construction in progress		10,821		15,491
Subtotal		363,922		278,494
Less: accumulated depreciation		67,216		51,040
Total	$	296,706	$	227,454

Rent expense, net of rental income, for the years ended December 31, 2019, 2018 and 2017, was $7,307, $5,642 and $2,996, respectively, and is included in Occupancy Expense in the accompanying Consolidated Statements of Income and Comprehensive Income. Rental income for the years ended December 31, 2019, 2018 and 2017, was $1,792, $1,183, and $930, respectively, and is included in Occupancy Expense.

(9)

Goodwill and Intangible Assets

Goodwill

Goodwill was a result of whole bank acquisitions, all within the Company’s commercial and retail banking segment. The change in balance for goodwill during the December 31, 2019, 2018 and 2017 is as follows:

	2019		2018		2017
Beginning of year	$	802,880	$	257,683	$	106,028
Acquired goodwill		401,537		545,197		151,655
Impairment		—		—		—
End of year	$	1,204,417	$	802,880	$	257,683

The Company performed a step 1 annual impairment analysis of the goodwill recorded at the commercial and retail banking (“Bank”) reporting unit as of November 30, 2019. Step 1 includes the determination of the carrying value of the reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. The carrying amount of the reporting unit did not exceed its fair value resulting in no impairment.

Core Deposit and Trust Intangible Assets

Intangible assets consist of core deposit intangibles (“CDI”) which are from either whole bank or branch acquisitions. Acquired CDI are initially measured at fair value and then amortized over a ten-year period on an accelerated basis using the projected decay rates of the underlying core deposits in the case of CDI. The Company sold its trust department resulting in the disposal of its related trust intangible asset in 2017.

The change in balance for the CDI and Trust intangible assets during the years 2019, 2018 and 2017 is as follows:

	2019			2018			2017
Beginning of year	$	66,225		$	24,063		$	16,209
Acquired CDI		39,900			51,945			12,424
Amortization expense on CDI and Trust		(14,968	)		(9,783	)		(3,997	)
Disposal of Trust intangible asset		—			—			(573	)
End of year	$	91,157		$	66,225		$	24,063

CDI intangible assets for years ended December 31, 2019 and 2018 were as follows:

	December 31, 2019				December 31, 2018
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Amortized intangible assets:
Core deposit intangibles	$	133,864	$	42,707	$	93,964	$	27,739
Total acquired intangibles	$	133,864	$	42,707	$	93,964	$	27,739

Estimated amortization expense for each of the next five years:

	CDI
2020	$	14,423
2021		12,438
2022		11,083
2023		10,688
2024		9,928

Mortgage and Small Business Administration Servicing Assets

Mortgage servicing assets (“MSA”) and small business administration (“SBA”) servicing assets are either originated by the Company’s commercial and retail banking business or obtained from whole bank acquisitions. The Company acquired a total of $1,581 SBA servicing assets through its acquisition of NCOM on April 1, 2019, and a total of $1,828 MSA and SBA servicing assets through its acquisition of Charter on September 1, 2018. As these servicing rights were acquired at fair value as of acquisition date, no impairment charge has currently been assessed on these assets.

Mortgage Servicing Assets

Activity for MSA and the related valuation allowance follows:

	2019			2018
Beginning of year	$	1,565		$	—
Effect from acquisitions		—			1,602
Changes in fair value		(233	)		(37	)
End of year	$	1,332		$	1,565

Fair value at year-end 2019 was determined using discount rates ranging from 0.4% to 1.1%, prepayment speeds ranging from 6.7% to 13.1%, depending on the stratification of the specific right, and a weighted average default rate of 0.6%.

Small Business Administration Servicing Assets

During the year ended December 31, 2019, the Company acquired $1,581 of SBA loans serviced for others in the acquisition of NCOM. During the year ended December 31, 2018, the Company acquired $226 of SBA loans serviced for others in the acquisition of Charter (see Note 26 “Business Combinations”, for further information). The Company had a total of $52,705, and $35,779 at December 31, 2019 and 2018, respectively of SBA loans sold with servicing assets retained. The Company recorded $1,062 and $235 of amortization on the SBA servicing assets during the years ended December 31, 2019 and 2018, respectively. As the SBA servicing assets from the NCOM and Charter acquisitions were assumed at fair value on April 1, 2019 and on September 1, 2018, no impairment charge has currently been assessed on these assets. SBA servicing assets totaled $3,175 and $1,388 at December 31, 2019 and 2018, respectively.

The risk inherent in SBA servicing assets includes prepayments at different rates than anticipated or resolution of loans at dates not consistent with the estimated expected lives. These events would cause the value of the SBA servicing assets to decline at a faster or slower rate than originally anticipated.

Activity for SBA servicing assets is as follows:

	2019			2018
Beginning of year	$	1,388		$	551
Additions		1,268			846
Effect from acquisitions		1,581			226
Amortized to expense		(1,062	)		(235	)
End of year	$	3,175		$	1,388

(10)

Deposits

A detail of deposits at December 31, 2019 and 2018 is as follows:

	December 31,
			Weighted					Weighted
			Average					Average
			Interest					Interest
	2019		Rate			2018		Rate
Non-interest bearing deposits	$	3,929,183		—	%	$	2,923,640		—	%
Interest bearing deposits:
Interest bearing demand deposits		2,613,933		0.4	%		1,811,006		0.3	%
Savings deposits		811,150		0.3	%		704,159		0.1	%
Money market accounts		3,525,571		1.0	%		2,216,571		0.9	%
Time deposits less than $100,000		966,040		1.7	%		871,043		1.6	%
Time deposits of $100,000 or greater		1,290,515		1.9	%		950,917		1.6	%
	$	13,136,392		0.7	%	$	9,477,336		0.6	%

The following table presents the amount of certificate accounts at December 31, 2019, maturing during the periods reflected below:

Year	Amount
2020	$	1,896,281
2021		216,494
2022		64,737
2023		46,607
2024		31,559
Thereafter		877
Total	$	2,256,555

Time deposits that meet or exceed the FDIC insurance limit of $250 at year-end 2019 and 2018 were $647,490 and $397,369, respectively. Total brokered deposits were $323,392 and $328,718 at year-end 2019 and 2018, respectively.

(11)

Securities Sold Under Agreements to Repurchase

The Company’s subsidiary bank enters into borrowing arrangements with its retail business customers by agreements to repurchase (“repurchase agreements”) under which the bank pledges investment securities owned and under its control as collateral against the one-day borrowing arrangement.

At December 31, 2019 and 2018, the Company had $93,141 and $57,772 in repurchase agreements. Repurchase agreements are secured by obligations of U.S. government agencies and municipal securities with fair values of $131,394 and $64,706 at December 31, 2019 and 2018, respectively. Any risk related to these arrangements, primarily market value changes, is minimized due to the overnight (one-day) maturity and the additional collateral pledged over the borrowed amounts.

The following tables provide additional details as of December 31, 2019 and 2018.

	MBS			Municipal
	Securities			Securities			Total
As of December 31, 2019
Market value of securities pledged	$	130,942		$	451		$	131,394
Borrowings related to pledged amounts		92,953			188			93,141
Market value pledged as a % of borrowings		141	%		240	%		141	%

	MBS			Municipal
	Securities			Securities			Total
As of December 31, 2018
Market value of securities pledged	$	64,269		$	437		$	64,706
Borrowings related to pledged amounts		57,594			178			57,772
Market value pledged as a % of borrowings		112	%		246	%		112	%

Information concerning repurchase agreements is summarized as follows:

	2019			2018			2017
Average daily balance during the year	$	73,314		$	54,344		$	43,850
Average interest rate during the year		1.51	%		1.16	%		0.56	%
Maximum month-end balance during the year	$	93,141		$	59,751		$	52,080
Weighted average interest rate at year end		1.30	%		1.66	%		0.88	%

(12)

Federal Funds Purchased

Federal funds purchased are overnight deposits including deposits from correspondent banks. These borrowings are included in Federal Funds Purchased on the Company’s Consolidated Balance Sheets.

Information concerning these deposits is summarized as follows:

	2019			2018
Average daily balance during the year	$	286,179		$	250,499
Average interest rate during the period		2.29	%		2.02	%
Maximum month-end balance during the year	$	379,193		$	294,360
Weighted average interest rate at year end		1.68	%		2.07	%

(13)

Federal Home Loan Bank Advances and Other Borrowed Funds

From time to time, the Company borrows either through Federal Home Loan Bank (“FHLB”) advances or one-day borrowings, other than correspondent bank deposits listed in Note 12 above.

At year-end, advances from the FHLB were as follows:

	2019		2018
Fixed rate advances, maturity through 01/28/2019, rates from 2.45% and 2.54%, averaging 2.50%	$	—	$	200,000
Floating rate advances, rates from 1.87% and 2.65%, as of December 31, 2019 and 2018, respectively		150,000		150,000
Total	$	150,000	$	350,000

The floating rate FHLB advance listed above for the year-end 2019 has a one-year term maturing on June 18, 2020. The FHLB advances outstanding as of year-end 2018 were daily rate credit lines. These FHLB advances are collateralized by residential and commercial loans under a blanket lien arrangement and investment securities. Based on this collateral, and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to $610,457 at year-end 2019. In addition, the Company had a $160,400 letter of credit issued through the FHLB to support public funds under the Alabama SAFE program.

The Company has $50,000 available in a revolving line of credit, with an interest rate of LIBOR plus 350 basis points (“bps”) and scheduled to mature on April 1, 2021. The Company had no revolving line of credit balance outstanding as of December 31, 2019 and 2018.

On January 1, 2018, the Company acquired all the assets and assumed all the liabilities of Sunshine pursuant to the merger agreement, including Sunshine’s debt obligations. In March 2016, Sunshine accepted subscriptions for and sold, at 100% of their principal amount, an aggregate of $11,000 of subordinated notes (the “Notes”), on a private placement basis, to two accredited investors. The Notes bear interest at a fixed interest rate of 5.00% per year. The Notes have a term of five years, and have a maturity date of April 1, 2021. The Notes are redeemable at the option of the Company, in whole or in part, at any time, without penalty or premium, subject to any required regulatory approvals.

The Federal Home Loan Bank Advances, revolving line of credit and Notes are included in Other Borrowed Funds on the Company’s Consolidated Balance Sheets.

(14)

Corporate and Subordinated Debentures

In September 2003, the Company formed CenterState Banks of Florida Statutory Trust I (the “Trust”) for the purpose of issuing trust preferred securities. On September 22, 2003, the Company issued a floating rate corporate debenture in the amount of $10,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 305 basis points (“bps”)). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $310 and is included in Other Assets.

In May 2004, Valrico Bancorp Inc. (“VBI”) formed Valrico Capital Statutory Trust (“Valrico Trust”) for the purpose of issuing trust preferred securities. On September 8, 2004, VBI issued a floating rate corporate debenture in the amount of $2,500. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI’s corporate debenture and related trust preferred security discussed above. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 270 bps). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Valrico Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $77 and is included in other assets.

In September 2003, Federal Trust Corporation (“FTC”) formed Federal Trust Statutory I (“FTC Trust”) for the purpose of issuing trust preferred securities. On September 17, 2003, FTC issued a floating rate corporate debenture in the amount of $5,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. In November 2011, the Company acquired certain assets and assumed certain liabilities of FTC from The Hartford Financial Services Group, Inc. (“Hartford”) pursuant to an acquisition agreement, including FTC’s corporate debenture and related trust preferred security issued through FTC’s finance subsidiary FTC Trust. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 295 bps). The corporate debenture and the trust preferred security each have 30-year lives maturing in 2033. The trust preferred security and the corporate debenture are callable by the Company or the FTC Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of the trust was $155 and is included in other assets.

In December 2006, GBI formed Gulfstream Bancshares Capital Trust II (“GBI Trust II”) for the purpose of issuing trust preferred securities. On December 28, 2006, GBI issued a floating rate corporate debenture in the amount of $3,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 170 bps). The rate is subject to change quarterly. The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the GBI Trust II, at their respective option, subject to prior approval by the Federal Reserve, if then required. On January 17, 2014, the Company acquired all the assets and assumed all the liabilities of GBI by merger, including GBI’s corporate debenture and related trust preferred security discussed above.

In July 2006, Hometown formed Homestead Statutory Trust I (“Homestead Trust I”) for the purpose of issuing trust preferred securities. On July 17, 2006, Hometown issued a floating rate corporate debenture in the amount of $16,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 165 bps). The rate is subject to change quarterly. The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the GBI Trust II, at their respective option, subject to prior approval by the Federal Reserve, if then required. On March 1, 2016, the Company acquired all the assets and assumed all the liabilities of Hometown by merger, including Hometown’s corporate debenture and related trust preferred security. On March 16, 2016, the Company partially redeemed and terminated $6,000 of Homestead Trust I.

In January 2018, the Company assumed BSA Financial Statutory Trust I (“BSA”) and MRCB Statutory Trust II (“MRCB”) from its acquisition of HCBF. These Trusts were acquired by HCBF in prior acquisitions completed by HCBF. The issued floating rate corporate debentures related to BSA and MRCB were in the amounts of $5,000 and $3,000, respectively. The trust preferred security essentially mirror the corporate debentures, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debentures (three month LIBOR plus 155 bps and LIBOR plus 160 bps, respectively). The rates are subject to change quarterly. The corporate debentures and the trust preferred securities each have 30-year lives. The trust preferred securities and the corporate debentures are callable by the Company or the BSA and MRCB trusts, at their respective option, subject to prior approval by the Federal Reserve, if then required. The Company is not considered the primary beneficiary of these trusts (variable interest entities), therefore the trusts are not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investments in the common stock of the trusts were $155 and $93, respectively, and are included in Other Assets.

In September 2018, the Company assumed CBS Financial Capital Trust I (“CBS Trust I”) and CBS Financial Capital Trust II (“CBS Trust II”) pursuant to its acquisition of Charter, in the amounts of $4,000 and $5,000, respectively. CBS Trust I and CBS Trust II were subsequently redeemed in December 2018, at par with no gains or losses realized on the termination of debt, with prior approval by the Federal Reserve.

On April 1, 2019, the Company acquired all the assets and assumed all the liabilities of NCOM pursuant to the merger agreement, including NCOM’s debt obligations. On May 19, 2016, NCOM completed the underwritten public offering of $25,000 of its unsecured 6.0% fixed-to-floating rate Notes due June 1, 2026. The Notes bear interest at a fixed rate of 6.0% per year, from, and including, May 19, 2016, to, but excluding, June 1, 2021. On June 1, 2021, the Notes convert to a floating rate equal to three-month LIBOR plus 479 basis points. The Notes may be redeemed by the Company after June 1, 2021. In addition, NCOM, from its Landmark Bancshares, Inc. acquisition, had assumed $13,000 of unsecured 6.5% fixed-to-floating rate Notes due June 30, 2027. The Notes bear interest at a fixed rate of 6.5% per year, to, but excluding, June 30, 2022. On June 30, 2022, the Notes convert to a floating rate equal to three-month LIBOR plus 467 basis points.

As the Company’s total assets exceeded $15 billion during the second quarter of 2019, the Company has treated the above mentioned corporate and subordinated debentures as Tier II capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

(15)

Income Taxes

Allocation of federal and state income tax expense between current and deferred portions for the years ended December 31, 2019, 2018 and 2017, is as follows:

	Current		Deferred		Total
December 31, 2019:
Federal	$	34,182	$	18,510	$	52,692
State		9,275		5,731		15,006
	$	43,457	$	24,241	$	67,698
December 31, 2018:
Federal	$	14,273	$	16,843	$	31,116
State		5,240		4,668		9,908
	$	19,513	$	21,511	$	41,024
December 31, 2017:
Federal	$	18,243	$	29,393	$	47,636
State		4,045		1,799		5,844
	$	22,288	$	31,192	$	53,480

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018, are presented below:

	December 31,
	2019			2018
Deferred tax assets:
Allowance for loan losses	$	10,178		$	10,079
Stock based compensation		2,242			1,701
Deferred compensation		2,782			2,235
Impairment expenses		2,222			1,334
Net operating loss carryforward		19,812			18,313
Other real estate owned expenses		129			177
Fair value adjustments		6,979			17,929
Nonaccrual interest		2,996			2,890
Unrealized loss on interest rate swap		205			—
Unrealized loss on available for sale debt securities		—			7,611
Other		973			—
Total deferred tax assets		48,518			62,269

Deferred tax liabilities:
Premises and equipment, due to differences in
depreciation methods and useful lives		(8,702	)		(8,145	)
Deferred loan costs, net		(1,131	)		(683	)
Unrealized gain on available for sale debt securities		(7,685	)		—
Investment in pass-through entity		(184	)		—
Prepaid expenses		(2,030	)		(1,608	)
Like kind exchange		—			(197	)
Accretion of discounts on investments		—			(67	)
Other		—			(107	)
Total deferred tax liabilities		(19,732	)		(10,807	)

Net deferred tax asset	$	28,786		$	51,462

As a result of the acquisition of First Southern on June 1, 2014, the Company obtained net operating loss carryforwards of approximately $57,375 which are subject to an Internal Revenue Code (“IRC”) Section 382 annual limitation of approximately $6,487 per year. The Company obtained net operating loss carryforwards of approximately $11,526 and $8,763 as a result of the acquisitions of Community and Hometown, respectively, on March 1, 2016 which are also subject to IRC Section 382 limitations of approximately $1,722 and $507, respectively. The Company obtained net operating loss carryforwards of approximately $22,529 and $14,003 as a result of the acquisitions of Sunshine and HCBF, respectively, on January 1, 2018 which are also subject to IRC Section 382 limitations of approximately $3,682 and $1,101, respectively. On April 1, 2019, the Company acquired approximately $35,712 of net operating loss carryforwards pursuant to its acquisition of NCOM, which are subject to IRC Section 382 annual limitations of varying amounts but all are expected to be utilized by December 31, 2026.

At December 31, 2019, total net operating losses approximate $79,204, which includes $24,322 of net operating loss carry forwards generated subsequent to December 31, 2017 by institutions acquired by the Company as noted above. Effective January 1, 2018, net operating losses generated on January 1, 2018 and forward are no longer subject to a 20-year carryforward period and are carried indefinitely until fully utilized. Excluding the net operating losses not subject to expiration, the Company had approximately $54,882 of net operating loss carryforwards at December 31, 2019, which will begin to expire as follows:

2027	$	1,318
2028		4,794
2029		7,060
2030		11,960
2031		5,524
2032		6,841
2033		13,350
2035		759
2036		3,276
	$	54,882

As a result of the enactment of the Tax Act on December 22, 2017, the Company evaluated its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on its deferred tax assets. The reduction in the federal corporate tax rate resulted in a one-time charge to the Company’s earnings and reduction to its net deferred tax assets of approximately $18,575, which was recorded in 2017. During 2019, the Company recorded a one-time charge to its net deferred tax asset of approximately $987 to reflect a state income tax rate reduction in Florida and Georgia effective January 1, 2019.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In performing this analysis, the Company considers all evidence currently available, both positive and negative, in determining whether based on the weight of that evidence, it is more likely than not the deferred tax asset will be realized. Based on management’s analysis, it was determined that it is more likely than not that the net deferred tax asset, net of the one-time charge mentioned above, will be realized as of December 31, 2019 and 2018.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Florida, Georgia, Alabama, California, Colorado, North Carolina and Tennessee. CSFL Insurance Corp. files a tax return in South Carolina. The Company is no longer subject to examination by taxing authorities for the years before 2016. The Company has not recorded any material interest or penalties on its income tax liabilities for the years 2019, 2018 and 2017.

A reconciliation between the actual tax expense and the “expected” tax expense, computed by applying the U.S. federal corporate rate of 21 percent for 2019 and 2018 and 35 percent for 2017 is as follows:

	December 31,
	2019			2018			2017
“Expected” tax expense	$	61,550		$	41,466		$	38,246
Tax exempt interest, net		(3,661	)		(3,177	)		(4,104	)
Bank owned life insurance		(1,834	)		(1,167	)		(1,251	)
State income taxes, net of federal income tax benefits		11,855			7,827			4,077
Stock based compensation		4			17			40
Merger and acquisition related expenses		348			610			1,049
Excess tax benefit from stock based compensation		(838	)		(5,095	)		(3,007	)
Revaluation of net deferred tax asset due to change in federal income tax rate		—			—			18,575
Other, net		274			543			(145	)
	$	67,698		$	41,024		$	53,480

(16)

Related-Party Transactions

Loans to principal officers, directors, and their affiliates during 2019 and 2018 were as follows:

	2019			2018
Beginning balance	$	48,426		$	30,458
New loans and advances on existing loans		1,605			39,183
Repayments		(4,020	)		(21,215	)
Ending balance	$	46,011		$	48,426

At December 31, 2019 and 2018 principal officers, directors, and their affiliates had $12,812 and $10,820, respectively, of available lines of credit. Deposits from principal officers, directors, and their affiliates at year-end 2019 and 2018 were approximately $16,198 and $6,739, respectively.

(17)

Regulatory Capital Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under these rules, banks are required to maintain a minimum CET1 ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets of 6%, a total risk-based capital ratio of 8%, and a minimum leverage capital ratio of 4%. In addition, the rules require a capital conservation buffer of up to 2.5% above each of CET1, tier 1, and total risk-based capital which must be met for a bank to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction. This capital conservation buffer is being phased in over a four-year period starting on January 1, 2016. The capital conservation buffer was 2.5% as of January 1, 2019 and 1.875% in 2018. Fully implemented, a banking organization would need to maintain a CET1 capital ratio of at least 7%, a total Tier 1 capital ratio of at least 8.5% and a total risk-based capital ratio of at least 10.5%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier I capital and CET1 (as defined in the regulations) to risk-weighted assets. Management believes, as of December 31, 2019, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2019 and 2018, the most recent notifications from the Office of Comptroller of the Currency (“OCC”) categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain total risk-based, Tier I risk-based, common equity Tier 1 risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

A summary of actual, required, and capital levels necessary for capital adequacy purposes for the Company as of December 31, 2019 and 2018, are presented in the table below. The ratios for capital adequacy purposes do not include capital conservation buffer requirements.

										To be well
										capitalized under
						For capital				prompt corrective
	Actual					adequacy purposes				action provision
	Amount		Ratio			Amount		Ratio		Amount	Ratio
December 31, 2019
Total capital (to risk weighted assets)	$	1,672,911		12.2	%	$	1,097,448		>8.0%	n/a	n/a
Tier 1 capital (to risk weighted assets)		1,555,756		11.3	%		823,086		>6.0%	n/a	n/a
Common equity tier 1 capital (to risk weighted assets)		1,555,756		11.3	%		617,315		>4.5%	n/a	n/a
Tier 1 capital (to average assets)		1,555,756		9.7	%		638,866		>4.0%	n/a	n/a

December 31, 2018
Total capital (to risk weighted assets)	$	1,183,229		12.7	%	$	745,543		>8.0%	n/a	n/a
Tier 1 capital (to risk weighted assets)		1,143,459		12.3	%		559,157		>6.0%	n/a	n/a
Common equity tier 1 capital (to risk weighted assets)		1,104,959		11.9	%		419,368		>4.5%	n/a	n/a
Tier 1 capital (to average assets)		1,143,459		10.0	%		455,561		>4.0%	n/a	n/a

A summary of actual, required, and capital levels necessary for capital adequacy purposes in the case of the Company’s subsidiary bank as of December 31, 2019 and 2018, are presented in the table below. The ratios for capital adequacy purposes do not include capital conservation buffer requirements.

										To be well
										capitalized under
						For capital				prompt corrective
	Actual					adequacy purposes				action provision
	Amount		Ratio			Amount		Ratio		Amount		Ratio
December 31, 2019
Total capital (to risk weighted assets)	$	1,670,678		12.2	%	$	1,097,258		>8.0%	$	1,371,572		>10.0%
Tier 1 capital (to risk weighted assets)		1,630,026		11.9	%		822,943		>6.0%		1,097,258		>8.0%
Common equity tier 1 capital (to risk weighted assets)		1,630,026		11.9	%		617,207		>4.5%		891,522		>6.5%
Tier 1 capital (to average assets)		1,630,026		10.2	%		638,628		>4.0%		798,285		>5.0%

December 31, 2018
Total capital (to risk weighted assets)	$	1,177,082		12.6	%	$	745,003		>8.0%	$	931,254		>10.0%
Tier 1 capital (to risk weighted assets)		1,137,315		12.2	%		558,753		>6.0%		745,003		>8.0%
Common equity tier 1 capital (to risk weighted assets)		1,137,315		12.2	%		419,064		>4.5%		605,315		>6.5%
Tier 1 capital (to average assets)		1,137,315		10.0	%		455,515		>4.0%		569,394		>5.0%

(18)

Dividends and Share Repurchases

The Company declared and paid cash dividends on its common stock of $52,400, $35,906 and $13,878 during the years ended December 31, 2019, 2018 and 2017 respectively. Banking regulations limit the amount of dividends that may be paid by the subsidiary banks to the Company without prior approval of the Bank’s regulatory agency. The Company received a $141,000 and $68,000 dividend from its subsidiary bank in 2019 and 2018, respectively. At December 31, 2019, dividends from the subsidiary bank available to be paid to the Company, without prior approval of the Bank’s regulatory agency, was $177,208, subject to the Bank meeting or exceeding regulatory capital requirements.

In September 2017, the Company’s Board of Directors authorized a repurchase program to acquire up to 3,000,000 shares of its outstanding common stock. In May 2019, the Board of Directors approved and reset the number of shares available to be repurchased under the 2017 stock repurchase program to 6,500,000 and extended the program for a two-year period ending on April 25, 2021. Under the announced stock repurchase program, the Company repurchased 5,733,042 shares at cost of $132,077 during the year ended December 31, 2019 and 38,496 shares at a cost of $1,027 during the year ended December 31, 2018. The Company repurchased 45,236 shares at a cost of $1,131 during the year ended December 31, 2017. In January 2020, the Board of Directors approved a new program to replace the current program and authorizes the Company to repurchase up to 6,500,000 of the its common stock for a two-year period ending on January 16, 2022. The Company is not obligated to repurchase any additional shares under the 2020 Stock Repurchase Program.

(19)

Equity-Based Compensation

The Company assumed the obligations of NCOM under various equity incentive plan’s pursuant to the closing on April 1, 2019 by CenterState of the merger of NCOM with and into CenterState. All of the NCOM stock options and warrants awarded and outstanding pursuant to the assumed NCOM plans at the merger closing date were converted to stock options and warrants for 487,365 of the Company’s common shares with an average exercise price of $10.99 per share. At December 31, 2019, there were options and warrants outstanding for 343,418 shares of the Company’s common stock with an average exercise price of $11.32 per share and an average remaining contractual life of approximately 4.7 years.

The Company assumed the obligations of Sunshine under Sunshine’s 2015 Equity Incentive Plan (“Sunshine Plan”) pursuant to the closing on January 1, 2018 by CenterState of the merger of Sunshine with and into CenterState. All of the Sunshine stock options awarded pursuant to the Sunshine Plan outstanding at the merger closing date were converted to stock options for 590,345 of the Company’s common shares with an average exercise price of $14.84 per share. At December 31, 2019, there were options outstanding for 14,240 shares of the Company’s common stock with an average exercise price of $15.91 per share and an average remaining contractual life of approximately 6.3 years.

The Company assumed the obligations of HCBF under HCBF’s 2010 Amended and Restated Stock Incentive Plan (the “HCBF Plan”), pursuant to the closing on January 1, 2018 by CenterState of the merger of HCBF with and into CenterState. All of the HCBF stock options awarded pursuant to the HCBF Plan outstanding at the merger closing date were converted to stock options for 1,621,543 of the Company’s common shares with an average exercise price of $14.80 per share. At December 31, 2019, there were options outstanding for 63,470 shares of the Company’s common stock with an average exercise price of $13.96 per share and an average remaining contractual life of approximately 5.3 years.

The Company assumed the obligations of Gateway under the Gateway Officers’ and Employees’ Stock Option Plan and the Gateway Directors’ Stock Option Plan (collectively, the “Gateway Plans”) pursuant to the closing on May 1, 2017 by CenterState of the merger of Gateway with and into CenterState. All of the Gateway stock options awarded pursuant to the Gateway Plans outstanding at the merger closing date were converted to stock options for 1,150,517 of the Company’s common shares with an average exercise price of $11.32 per share. At December 31, 2019, there were options outstanding for 191,828 shares of the Company’s common stock with an average exercise price of $10.53 per share and an average remaining contractual life of approximately 2.7 years.

The Company assumed the obligations of GBI under the Gulfstream 2009 Stock Option Plan, the Gulfstream Officers’ and Employees’ Stock Option Plan and the Gulfstream Directors’ Stock Option Plan (collectively, the “Gulfstream Plans”) pursuant to the closing on January 17, 2014 by CenterState of the merger of Gulfstream with and into CenterState. All of the Gulfstream stock options awarded pursuant to the Gulfstream Plans outstanding at the merger closing date were converted to stock options for 774,104 of the Company’s common shares with an average exercise price of $6.99 per share. At December 31, 2019, there were options outstanding for 40,000 shares of the Company’s common stock with an average exercise price of $6.15 per share and an average remaining contractual life of approximately 1.9 years.

On April 26, 2018, the Company’s shareholders approved the CenterState Bank Corporation 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan replaces the 2013 Plan discussed below. The 2018 Plan authorizes the issuance of up to 2,200,000 shares through the 2028 expiration of the plan. No more than $150 in grants of shares may be issued to any director in any one fiscal year. The Company’s Board of Directors froze the Company’s 2013 Equity Incentive Plan whereby no additional future grants and/or awards will be awarded pursuant to that plan effective with the shareholder approval of the 2018 Plan. During 2019 the Company did not grant any incentive stock options to its employees. The Company awarded 120,572 shares of Restricted Stock (“RSAs”) during 2019 with an average fair value of $26.33 per share at the date of grant. These restricted stock awards vest over periods ranging from two to five years. The Company awarded Performance Share Units (“PSUs”) during 2019 pursuant to the Company’s Long-Term Incentive Plan as described in the Company’s 2019 Proxy Statement. These PSUs will cliff vest on January 1, 2023. The units may be converted into common shares based upon the Company’s return on average tangible common equity compared to its peer group and the Company’s tangible book value per share growth over a three-year period ending January 1, 2023. The range of the units that may vest in the future is a minimum of 0 and a maximum of 181,402 with an expected target of 120,945 shares. The Company also awarded 84,383 Restricted Share Units (“RSUs”) during 2019 with an average fair value of $21.09 per unit at the date of grant. The RSUs will vest at a rate of one third each January 1, 2021, 2022 and 2023. In addition, the Company issued 33,536 shares to non-employee directors in lieu of cash for director fees during 2019. At December 31, 2019, there were a total of 1,644,184 shares available for future grants pursuant to the 2018 Plan, assuming maximum future vesting of PSUs outstanding.

On April 25, 2013, the Company’s shareholders approved the CenterState 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan replaced the 2007 Plan. The 2013 Plan authorized the issuance of up to 1,600,000 shares of the Company stock. In 2019, the 2013 Plan was frozen whereby no additional grants and/or awards were awarded pursuant to this plan subsequent to April 2018.

On April 24, 2007, the Company’s shareholders approved the CenterState 2007 Equity Incentive Plan (the “2007 Plan”) and approved an amendment to the 2007 Plan on April 28, 2009. The 2007 Plan, as amended, authorized the issuance of up to 1,350,000 shares of the Company stock. In 2013, the 2007 Plan was frozen whereby no additional grants and/or awards were awarded pursuant to this plan subsequent to April 2013.

The Company’s stock-based compensation consists of stock options, RSAs, RSUs and PSUs. During the twelve-month periods ended December 31, 2019, 2018 and 2017, the Company recognized total stock-based compensation expense as listed in the table below.

	2019		2018		2017
Stock option expense	$	19	$	83	$	115
RSA expense		3,329		2,922		3,560
RSU Expense		843		538		287
PSU expense		958		650		624
Total stock-based compensation expense	$	5,149	$	4,193	$	4,586

There is no income tax benefit provided for in the Company’s tax provision for qualified incentive stock options. The Company receives a tax benefit when a non-qualified stock option is exercised. The total income tax benefit related to the exercise of non-qualified stock options was approximately $723, $5,373 and $1,545 during the twelve-month periods ending December 31, 2019, 2018 and 2017, respectively. The Company provided an income tax benefit in its tax provision for RSA, RSU and PSU expenses of approximately $1,284, $1,042 and $1,725 during the twelve-month periods ending December 31, 2019, 2018 and 2017, respectively.

As of December 31, 2019, the total remaining unrecognized compensation cost related to non-vested stock options was approximately $22 and will be recognized over the next 3 years. The weighted average period over which this expense is expected to be recognized is approximately 1.4 years.

As of December 31, 2019, the total remaining unrecognized compensation cost related to non-vested RSAs, net of estimated forfeitures, was approximately $3,758 and will be recognized over the next 8 years. The weighted average period over which this expense is expected to be recognized is approximately 1.9 years.

As of December 31, 2019, the total remaining unrecognized compensation cost related to non-vested PSUs, net of estimated forfeitures, was approximately $3,272 and will be recognized over the next 3 years. The weighted average period over which this expense is expected to be recognized is approximately 1.8 years.

As of December 31, 2019, the total remaining unrecognized compensation cost related to non-vested RSUs, net of estimated forfeitures, was approximately $2,533 and will be recognized over the next 3 years. The weighted average period over which this expense is expected to be recognized is approximately 1.8 years.

The Company did not grant any stock options during 2017, 2018 and 2019. However, the Company converted all outstanding Gateway stock options into CenterState options for 1,150,517 shares of common stock on the May 1, 2017 acquisition date pursuant to the Company’s agreement to acquire Gateway. The Company also converted all outstanding Sunshine and HCBF stock options into CenterState options for 590,345 and 1,621,543 shares of common stock, respectively, on the January 1, 2018 acquisition date pursuant to the Company’s respective agreements to acquire Sunshine and HCBF. The Company also converted all outstanding NCOM stock options and warrants into CenterState options and warrants for 487,365 shares of common stock on the April 1, 2019 acquisition date pursuant to the Company’s agreement to acquire NCOM. The estimated fair value of options granted, or assumed in the case of Gateway, Sunshine, HCBF and NCOM, during these periods were calculated as of the grant date, or the acquisition date in the case of Gateway, Sunshine, HCBF and NCOM, using the Black-Scholes option-pricing model.

The Company determined the expected life of the stock options using the simplified method approach allowed for plain-vanilla share options as described in SAB 107. The risk-free interest rate is based on the U.S. Treasury yield curve in effect as of the grant date. Expected volatility was determined using historical volatility.

ASC 718 requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. However, with the adoption of ASU 2016-09 in 2017, the Company made an entity-wide accounting policy election to account for forfeitures when they occur.

The weighted-average estimated fair value of stock options granted, or acquired in the case of NCOM, during the twelve-month period ended December 31, 2019 was $10.99 per share. The table below presents information related to stock option activity for the years ended December 31, 2019, 2018 and 2017:

	2019		2018		2017
Total intrinsic value of stock options exercised	$	4,827	$	1,492	$	8,039
Net proceeds from stock options exercised	$	3,101	$	14,707	$	6,715
Gross income tax benefit from the exercise of stock options	$	723	$	5,373	$	1,545

A summary of stock option and warrant activity for the years ended December 31, 2019, 2018 and 2017 is as follows:

	December 31, 2019					December 31, 2018					December 31, 2017
				Weighted-					Weighted-					Weighted-
	Number of			Average					Average					Average
	Options and			Exercise		Number of			Exercise		Number of			Exercise
	Warrants			Price		Options			Price		Options			Price
Outstanding, beginning of period		655,261		$	11.26		1,119,483		$	11.26		623,490		$	12.30
Options assumed pursuant to acquisition of (note 1):
Gateway		—			—		—			—		1,150,517			11.32
HCBF		—			—		1,621,543			14.80		—			—
Sunshine		—			—		590,345			14.84		—			—
NCOM		487,365			10.99		—			—		—			—
Exercised		(356,366	)		10.82		(1,793,339	)		13.61		(598,039	)		12.11
Forfeited		(102,404	)		13.55		(882,771	)		15.37		(56,485	)		15.00
Outstanding, end of period		683,856		$	10.94		655,261		$	11.26		1,119,483		$	11.26

note 1:

Pursuant to the Company’s respective agreements to acquire Gateway (on May 1, 2017), Sunshine and HCBF (both on January 1, 2018) and NCOM (on April 1, 2019), all outstanding Gateway, Sunshine, HCBF and NCOM stock options and warrants were converted to CenterState stock options and warrants as of the acquisition date.

			Weighted-		Weighted-
			Average		Average	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Options		Price		Term	Value
Options outstanding, December 31, 2019		683,856	$	10.94	4.0 years	$	9,599
Options fully vested and expected to vest, December 31, 2019		681,718	$	10.96	4.0 years	$	9,561
Options exercisable, December 31, 2019		675,356	$	10.99	4.0 years	$	9,447

At December 31, 2019, there were restricted stock awards (“RSAs”) for 334,779 shares of the Company’s common stock outstanding and not vested. Of this amount 32,500 restricted shares have been issued and included in the Company’s total common stock outstanding, but have not vested as of December 31, 2019. The remaining 302,279 represent common shares to be issued at the end of their respective vesting period.

A summary of the RSA activity for the years ended December 31, 2019, 2018 and 2017 is presented in the table below.

	2019											2018											2017
	Number			Number						Weighted-		Number			Number						Weighted-		Number			Number						Weighted-
	of RSAs			of RSAs						average		of RSAs			of RSAs						average		of RSAs			of RSAs						average
	underlying			underlying			Total			fair value		underlying			underlying			Total			fair value		underlying			underlying			Total			fair value
	shares not			shares			number			at grant		shares not			shares			number			at grant		shares not			shares			number			at grant
	issued			issued			of RSAs			date		issued			issued			of RSAs			date		issued			issued			of RSAs			date
Outstanding, beginning period		339,766			50,600			390,366		$	19.10		489,424			69,700			559,124		$	15.89		572,064			127,901			699,965		$	12.20
Granted		120,572			—			120,572		$	26.33		67,502			—			67,502		$	26.77		148,232			—			148,232		$	24.94
Vested		(149,318	)		(17,100	)		(166,418	)	$	18.99		(214,847	)		(19,100	)		(233,947	)	$	13.65		(226,606	)		(58,201	)		(284,807	)	$	11.52
Forfeited		(8,741	)		(1,000	)		(9,741	)	$	22.78		(2,313	)		—			(2,313	)	$	18.55		(4,266	)		—			(4,266	)	$	15.76
Outstanding, end of period		302,279			32,500			334,779		$	21.65		339,766			50,600			390,366		$	19.10		489,424			69,700			559,124		$	15.89

In September 2014, the Company initiated a Long-Term Incentive Plan (“LTI”) that includes a Performance Share Unit (“PSU”) award that could be awarded in PSUs, which can eventually be converted to common stock, based on the Company’s relative return on average tangible common equity and tangible book value per share growth as compared to a peer group of similar companies selected by the Company’s Compensation Committee over a 39-month period beginning in September of each grant year. The Company awarded similar PSUs in 2017, 2018 and 2019. In 2019, a total of 38,107 PSUs were approved by the Company’s Compensation Committee pursuant to the 2015 LTI plan. The PSUs will be issued in the form of common stock at the end of the two-year mandatory hold period which ends in February 2021. The Company expects to recognize an expense of $687, $1,051 and $2,559 over the vesting period for PSUs granted in 2017, 2018 and 2019, respectively. The expense recognized during 2019 for all PSUs awarded pursuant to all LTI plans was $892.

In September 2016, the Company also awarded PSUs pursuant to a productive incentive plan to one of its divisions that could will be converted to the Company’s common stock based upon the division’s financial performance over three and four year periods ending August 31, 2019 and 2020, respectively. In 2019, a total of 12,000 shares of the Company’s common stock were issued pursuant to the vesting of the three-year production incentive plan. The Company expects to recognize a total expense of $192 during the performance periods. The expense recognized during 2019 was $66.

The Company awarded RSUs during September 2017, 2018 and 2019 pursuant to its LTI plans as mentioned above that could eventually be converted into the Company’s common stock. The Company expects to recognize an expense of $720, $1,107 and $1,880 for the RSUs awarded in 2017, 2018 and 2019, respectively. Generally, the RSUs will vest at a rate of one third each January 1^st beginning two years after each grant year. The expense recognized during 2019 for all RSUs awarded was $843.

A summary of the RSU activity for the years ended December 31, 2019, 2018 and 2017 is presented in the table below.

	December 31, 2019					December 31, 2018				December 31, 2017
				Weighted-				Weighted-				Weighted-
				average				average				average
				fair value				fair value				fair value
	Number of			at grant		Number of		at grant		Number of		at grant
	Units			date		Units		date		Units		date
Outstanding, beginning of period		128,447		$	20.00		86,817	$	17.00		54,376	$	14.00
Granted		84,383			21.09		41,630		26.60		32,441		22.19
Vested and issued		(8,547	)		12.22		—		—		—		—
Forfeited		(2,622	)		23.45		—		—		—		—
Outstanding, end of period		201,661		$	21.00		128,447	$	20.00		86,817	$	17.00

(20)

Employee Benefit Plan

Substantially all of the Company’s employees are covered under its 401(k) defined contribution retirement plan. Effective January 1, 2019, the Company amended its 401(k) defined contribution retirement plan’s participation eligibility requirement to the first month following the date of employment. Prior to the amendment, employees were eligible to participate in the plan after completing six months of continuous employment. The Company contributes an amount equal to a certain percentage of the employees’ contributions based on the discretion of the Board of Directors. In addition, the Company may also make additional contributions to the plan each year, subject to profitability and other factors, and based solely on the discretion of the Board of Directors. For the years ended December 31, 2019, 2018 and 2017, the Company’s contributions to the plan were $5,598, $3,444 and $2,249, respectively, which are included in Salary, Wages and Employee Benefits on the Consolidated Statements of Income and Comprehensive Income.

In 2008, the Company entered into a salary continuation agreement with its then chief executive officer. Five additional Company executive officers entered into salary continuation agreements during 2010. In 2007, an additional four pre-existing salary continuation agreements with certain Valrico State Bank’s executive officers were assumed as part of the acquisition. In 2018, the Company assumed pre-existing supplemental executive retirement plan agreements pursuant to the acquisition of Charter. In 2019, the Company assumed pre-existing supplemental executive retirement plan agreements pursuant to the acquisition of NCOM. The plans are nonqualified deferred compensation arrangements that are designed to provide supplemental retirement income benefits to participants. The Company expensed $1,546, $641 and $568 for the accrual of future salary continuation benefits in 2019, 2018 and 2017, respectively. Other liabilities include salary continuation benefits payable of $10,174, $7,966 and $4,834 at December 31, 2019, 2018 and 2017, respectively.

In 2007, the Company entered into deferred compensation arrangements, through Rabbi Trust agreements, with two Valrico State Bank’s executive officers pursuant to the acquisition. The Rabbi Trust asset is included in other assets, and the related deferred compensation payable is included in other liabilities. In 2018, one of the executive officers retired and received the applicable funds from the agreement. The Rabbi Trust asset and the related deferred compensation payable at December 31, 2019, 2018 and 2017 were $339, $307 and $1,761, respectively. Earnings from the Rabbi Trust increase the asset and increase the deferred compensation payable. Losses from the Rabbi Trust decrease the asset and decrease the deferred compensation payable. There was no net income statement effect other than the administration expenses of the Trust which approximates $5 per year.

(21)

Parent Company Only Financial Statements

Condensed financial statements of CenterState Bank Corporation (parent company only) are as follows:

Condensed Balance Sheet
December 31, 2019 and 2018
	2019		2018
Assets:
Cash and due from banks	$	5,168	$	1,338
Inter-company receivable from bank subsidiary		—		2,340
Investment in wholly-owned bank subsidiary		2,967,040		1,999,963
Investment in other wholly-owned subsidiary		3,431		2,761
Prepaid expenses and other assets		5,850		10,506
Total assets	$	2,981,489	$	2,016,908

Liabilities:
Accounts payable and accrued expenses	$	2,428	$	2,149
Other borrowings		49,577		11,000
Corporate debenture		32,766		32,415
Total liabilities		84,771		45,564

Stockholders’ Equity:
Common stock		1,252		957
Additional paid-in capital		2,407,385		1,699,031
Retained earnings		465,680		293,777
Accumulated other comprehensive income		22,401		(22,421	)
Total stockholders’ equity		2,896,718		1,971,344

Total liabilities and stockholders' equity	$	2,981,489	$	2,016,908

Condensed Statements of Operations
Years ended December 31, 2019, 2018 and 2017
	2019			2018			2017
Dividend income	$	144,209		$	68,000		$	10,000
Other income		—			8			—
Interest expense		(4,374	)		(3,415	)		(1,363	)
Operating expenses		(5,372	)		(3,988	)		(3,960	)
Income before equity in undistributed income of subsidiaries		134,463			60,605			4,677
Equity in undistributed income of subsidiaries		87,898			88,532			48,760
Net income before income tax benefit		222,361			149,137			53,437
Income tax benefit		(3,035	)		(7,298	)		(2,358	)
Net income	$	225,396		$	156,435		$	55,795

Condensed Statements of Cash Flows
Years ended December 31, 2019, 2018 and 2017
	2019			2018			2017
Cash flows from operating activities:
Net income	$	225,396		$	156,435		$	55,795
Adjustments to reconcile net income to net cash used in operating activities:
Undistributed net earnings of subsidiaries		(87,898	)		(88,532	)		(48,760	)
(Decrease) increase in payables and accrued expenses		(875	)		(13,385	)		463
Decrease (increase) in other assets		9,783			3,998			(40,369	)
Stock based compensation expense		—			—			1,048
Net cash flows provided by (used in) operating activities		146,406			58,516			(31,823	)
Cash flows from investing activities:
Inter-company receivables from subsidiary banks		3,143			(473	)		25,145
Net cash from bank acquisition		34,941			(36,037	)		(42,601	)
Investment in subsidiaries		—			—			(25,000	)
Cash payments to shareholders		(84	)		19,339			(90	)
Net cash flows provided by (used in) investing activities		38,000			(17,171	)		(42,546	)
Cash flows from financing activities:
Stock options exercised, net of tax benefit		3,101			14,707			6,715
Stock repurchase		(132,077	)		(1,027	)		(1,131	)
Stock issuance		800			650			—
(Decrease) increase in other borrowings		—			(20,000	)		20,000
Proceeds from stock offering, net of offering costs		—			—			63,262
Dividends paid to shareholders		(52,400	)		(35,906	)		(13,878	)
Net cash flows (used in) provided by financing activities		(180,576	)		(41,576	)		74,968
Net increase (decrease) in cash and cash equivalent		3,830			(231	)		599
Cash and cash equivalents at beginning of year		1,338			1,569			970
Cash and cash equivalents at end of year	$	5,168		$	1,338		$	1,569

(22)

Credit Commitments

The Company has outstanding at any time a significant number of commitments to extend credit. These arrangements are subject to strict credit control assessments and each customer’s credit worthiness is evaluated on a case-by-case basis.

A summary of commitments to extend credit and standby letters of credit written at December 31, 2019 and 2018, are as follows:

	December 31,
	2019		2018
Standby letters of credit	$	46,905	$	28,964
Available lines of credit		2,818,303		1,514,359
Unfunded loan commitments – fixed		257,277		153,680
Unfunded loan commitments – variable		118,291		65,880

Commitments to make loans are generally made for periods of 30 days or less. At December 31, 2019, the fixed rate loan commitments have interest rates ranging from 2.71% to 10.90% and maturities ranging from 1 year to 20 years.

Because many commitments expire without being funded in whole or part, the contract amounts are not estimates of future cash flows.

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that the collateral or other security is of no value.

The Company’s policy is to require customers to provide collateral prior to the disbursement of approved loans. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, real estate and income providing commercial properties.

Standby letters of credit are contractual commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Outstanding commitments are deemed to approximate fair value due to the variable nature of the interest rates involved and the short-term nature of the commitments.

(23)

Concentrations of Credit Risk

Most of the Company’s business activity is with customers located throughout Southeastern United States including Florida, Georgia and Alabama. The majority of commercial and mortgage loans are granted to customers doing business or residing in these areas. Generally, commercial loans are secured by real estate, and mortgage loans are secured by either first or second mortgages on residential or commercial property. As of December 31, 2019, substantially all of the Company’s loan portfolio was secured. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon the economy of those areas listed above. The Company does not have significant exposure to any individual customer or counterparty.

(24)

Basic and Diluted Earnings Per Share

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. There were no anti-dilutive stock options for the years ending December 31, 2019, 2018 and 2017.

The following table presents the factors used in the earnings per share computations for the periods indicated.

	2019			2018			2017
Basic
Net income available to common shareholders	$	225,396		$	156,435		$	55,795
Less: Earnings allocated to participating securities		(88	)		(116	)		(120	)
Net income allocated to common shareholders	$	225,308		$	156,319		$	55,675

Weighted average common shares outstanding including participating securities		119,793,869			87,707,196			57,368,322
Less: Participating securities (1)		(46,920	)		(65,976	)		(123,624	)
Average shares		119,746,949			87,641,220			57,244,698
Basic earnings per common share	$	1.88		$	1.78		$	0.97

Diluted
Net income available to common shareholders	$	225,308		$	156,319		$	55,675
Weighted average common shares outstanding for basic earnings per common share		119,746,949			87,641,220			57,244,698
Add: Dilutive effects of stock based compensation awards		856,874			1,117,633			1,096,115
Average shares and dilutive potential common shares		120,603,823			88,758,853			58,340,813
Diluted earnings per common share	$	1.87		$	1.76		$	0.95

note 1: Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested.

(25)

Reportable Segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management.

The tables below are reconciliations of the reportable segment revenues, expenses, and profit as viewed by management to the Company’s consolidated total for the year ending December 31, 2019, 2018 and 2017.

	Year ending December 31, 2019
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	667,428		$	17,904		$	—		$	—		$	685,332
Interest expense		(85,225	)		(10,004	)		(4,375	)		—			(99,604	)
Net interest income (expense)		582,203			7,900			(4,375	)		—			585,728
Provision for loan losses		(10,277	)		(308	)		—			—			(10,585	)
Non-interest income		101,162			64,898			—			—			166,060
Non-interest expense		(406,187	)		(35,348	)		(5,372	)		—			(446,907	)
Net income (loss) before taxes		266,901			37,142			(9,747	)		—			294,296
Income tax (provision) benefit		(61,468	)		(9,265	)		3,035			—			(67,698	)
Noncontrolling interest		(1,202	)		—			—			—			(1,202	)
Net income (loss)	$	205,433		$	27,877		$	(6,712	)	$	—		$	226,598
Total assets	$	16,364,434		$	777,197		$	2,981,489		$	(2,981,095	)	$	17,142,025

	Year ending December 31, 2018
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	445,688		$	14,944		$	—		$	—		$	460,632
Interest expense		(36,853	)		(7,282	)		(3,415	)		—			(47,550	)
Net interest income (expense)		408,835			7,662			(3,415	)		—			413,082
Provision for loan losses		(7,914	)		(369	)		—			—			(8,283	)
Non-interest income		71,731			33,388			8			—			105,127
Non-interest expense		(286,191	)		(22,288	)		(3,988	)		—			(312,467	)
Net income (loss) before taxes		186,461			18,393			(7,395	)		—			197,459
Income tax (provision) benefit		(43,662	)		(4,660	)		7,298			—			(41,024	)
Net income (loss)	$	142,799		$	13,733		$	(97	)	$	—		$	156,435
Total assets	$	11,769,734		$	561,885		$	2,016,908		$	(2,010,939	)	$	12,337,588

	Year ending December 31, 2017
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	240,583		$	10,743		$	—		$	—		$	251,326
Interest expense		(11,431	)		(2,989	)		(1,363	)		—			(15,783	)
Net interest income		229,152			7,754			(1,363	)		—			235,543
Provision for loan losses		(5,037	)		79			—			—			(4,958	)
Non-interest income		36,834			28,341			—			—			65,175
Non-interest expense		(161,946	)		(20,579	)		(3,960	)		—			(186,485	)
Net income (loss) before taxes		99,003			15,595			(5,323	)		—			109,275
Income tax (provision) benefit		(49,823	)		(6,015	)		2,358			—			(53,480	)
Net income (loss)	$	49,180		$	9,580		$	(2,965	)	$	—		$	55,795
Total assets	$	6,572,636		$	506,234		$	957,253		$	(912,148	)	$	7,123,975

Correspondent banking and capital markets division: Operating as a division of our subsidiary bank, its primary revenue generating activities are related to the capital markets division which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities. Income generated related to the correspondent banking services includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and fees generated from safe-keeping activities, bond accounting services, asset/liability consulting services, international wires, clearing and corporate checking account services and other correspondent banking related services. The fees derived from the correspondent banking services are less volatile than those generated through the capital markets group. The customer base includes small to medium size financial institutions primarily located in Southeastern United States.

Corporate overhead and administration: Corporate overhead and administration is comprised primarily of inter-company management fees, interest on parent company debt, office occupancy and depreciation of parent company facilities, merger related costs and other expenses.

(26) Business Combinations

Acquisition of Sunshine Bancorp, Inc.

On January 1, 2018, the Company completed its acquisition of Sunshine Bancorp, Inc. (“Sunshine”) whereby Sunshine merged with and into the Company. Pursuant to and simultaneously with the merger of Sunshine with and into the Company, Sunshine’s wholly owned subsidiary bank, Sunshine Bank merged with and into the Company’s subsidiary bank, CenterState Bank, N.A.

The Company’s primary reasons for the transaction were to further solidify its market share in the Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 14% and 13%, respectively, as compared with the balances at December 31, 2017, and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. No acquisition costs related to the Sunshine acquisition were incurred during the twelve-month period ending December 31, 2019. During the twelve-month periods ending December 31, 2018 and 2017, the Company incurred approximately $10,474 and $859, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in Merger Related Expenses on the Company’s Consolidated Statements of Income and Comprehensive Income.

The Company acquired 100% of the outstanding common stock of Sunshine. The purchase price consisted of stock plus cash in lieu of fractional shares. Each share of Sunshine common stock was exchanged for 0.89 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on December 29, 2017, the resulting purchase price was $187,852.

The table below summarizes the purchase price calculation.

Number of shares of Sunshine common stock outstanding at December 31, 2017		7,922,479
Per share exchange ratio		0.89
Number of shares of CenterState common stock less 361 of fractional shares		7,050,645
CenterState common stock price per share on December 29, 2017	$	25.73
Fair value of CenterState common stock issued	$	181,413
Cash consideration paid for 361 of fractional shares		7
Total consideration to be paid to Sunshine common shareholders	$	181,420
Fair value of Sunshine stock options converted to CenterState stock options		6,432
Total Purchase Price for Sunshine	$	187,852

The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed as of the January 1, 2018 purchase date.

	January 1, 2018
Assets:
Cash and cash equivalents	$	47,056
Loans, held for investment		676,090
Purchased credit impaired loans		8,232
Loans held for sale		430
Investments		93,006
Accrued interest receivable		2,170
Branch real estate		9,375
Furniture and fixtures		916
Bank property held for sale		9,503
FHLB stock		4,875
Bank owned life insurance		23,101
Core deposit intangible		8,525
Goodwill		114,228
Deferred tax asset		11,670
Other assets		6,135
Total assets acquired	$	1,015,312
Liabilities:
Deposits	$	719,039
Federal Home Loan Bank advances		95,001
Securities sold under agreement to repurchase		353
Subordinated notes		11,000
Accrued interest payable		457
Other liabilities		1,610
Total liabilities assumed	$	827,460

In the acquisition, the Company acquired $684,322 of loans at fair value, net of $22,657, or 3.2%, estimated discount to the outstanding principal balance, representing 14.3% of the Company’s total loans at December 31, 2017. Of the total loans acquired, management identified $8,232 with credit deficiencies. All loans that were on non-accrual status, impaired loans including TDRs and other substandard loans were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of January 1, 2018 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

Contractually required principal and interest	$	21,598
Non-accretable difference		(12,213	)
Cash flows expected to be collected		9,385
Accretable yield		(1,153	)
Total purchased credit-impaired loans acquired	$	8,232

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

	Book		Fair
	Balance		Value
Loans:
Single family residential real estate	$	148,342	$	146,057
Commercial real estate		375,377		371,323
Construction/development/land		58,530		57,331
Commercial loans		104,811		99,650
Consumer and other loans		1,770		1,729
Purchased credit-impaired		18,149		8,232
Total earning assets	$	706,979	$	684,322

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $8,525, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of HCBF Holding Company, Inc.

On January 1, 2018, the Company completed its acquisition of HCBF Holding Company, Inc. (“HCBF”) whereby HCBF merged with and into the Company. Pursuant to and simultaneously with the merger of HCBF with and into the Company, HCBF’s wholly owned subsidiary bank, Harbor Bank merged with and into the Company’s subsidiary bank, CenterState Bank, N.A.

The Company’s primary reasons for the transaction were to further solidify its market share in the Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 33% and 32%, respectively, as compared with the balances at December 31, 2017, and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. No acquisition costs related to the Sunshine acquisition were incurred during the twelve-month period ending December 31, 2019. During the twelve-month periods ending December 31, 2018 and 2017, the Company incurred approximately $12,302 and $2,060, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in Merger Related Expenses on the Company’s Consolidated Statements of Income and Comprehensive Income.

The Company acquired 100% of the outstanding common stock of HCBF. The purchase price consisted of both cash and stock. Each share of HCBF common stock was exchanged for $1.925 cash and 0.675 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on December 29, 2017, the resulting purchase price was $448,236.

The table below summarizes the purchase price calculation.

Number of shares of HCBF common stock outstanding at December 31, 2017		22,299,082
Per share exchange ratio		0.675
Number of shares of CenterState common stock less 241 of fractional shares		15,051,639
CenterState common stock price per share on December 29, 2017	$	25.73
Fair value of CenterState common stock issued	$	387,279

Number of shares of HCBF common stock outstanding at December 31, 2017		22,299,082
Cash consideration each HCBF share is entitled to receive	$	1.925
Total Cash Consideration plus $6 for 241 of fractional shares	$	42,932

Total Stock Consideration	$	387,279
Total Cash Consideration		42,932
Total consideration to be paid to HCBF common shareholders	$	430,211
Fair value of HCBF stock options converted to CenterState stock options	$	18,025
Total Purchase Price for HCBF	$	448,236

The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed as of the January 1, 2018 purchase date.

	January 1, 2018
Assets:
Cash and cash equivalents	$	77,176
Loans, held for investment		1,290,004
Purchased credit impaired loans		36,031
Loans held for sale		5,694
Investments		585,297
Accrued interest receivable		5,847
Branch real estate		34,035
Furniture and fixtures		3,571
Bank property held for sale		14,140
FHLB and other stock		9,488
Bank owned life insurance		39,089
Other real estate owned		5,144
Core deposit intangible		23,625
Goodwill		233,321
Deferred tax asset		14,071
Other assets		2,536
Total assets acquired	$	2,379,069
Liabilities:
Deposits	$	1,755,155
Federal Home Loan Bank advances		157,919
Corporate debentures		5,872
Accrued interest payable		478
Other liabilities		11,409
Total liabilities assumed	$	1,930,833

In the acquisition, the Company acquired $1,326,035 of loans at fair value, net of $40,438, or 3.0%, estimated discount to the outstanding principal balance, representing 27.8% of the Company’s total loans at December 31, 2017. Of the total loans acquired, management identified $36,031 with credit deficiencies. All loans that were on non-accrual status, impaired loans including TDRs and other substandard loans were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.

Contractually required principal and interest	$	67,107
Non-accretable difference		(25,951	)
Cash flows expected to be collected		41,156
Accretable yield		(5,125	)
Total purchased credit-impaired loans acquired	$	36,031

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

	Book		Fair
	Balance		Value
Loans:
Single family residential real estate	$	370,611	$	363,559
Commercial real estate		636,517		627,900
Construction/development/land		149,547		146,639
Commercial loans		113,818		110,630
Consumer and other loans		41,660		41,276
Purchased credit-impaired		54,320		36,031
Total earning assets	$	1,366,473	$	1,326,035

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $23,625, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of Charter Financial Corporation

On September 1, 2018, the Company completed its acquisition of Charter Financial Corporation (“Charter”) whereby Charter merged with and into the Company. Pursuant to and simultaneously with the merger of Charter with and into the Company, Charter’s wholly owned subsidiary bank, CharterBank, merged with and into the Company’s subsidiary bank, CenterState Bank, N.A.

The Company’s primary reasons for the transaction were to expand its franchise into Georgia and Alabama, further solidify its market share in the Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 24% as compared with the balances at December 31, 2017, and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. During the twelve-month periods ending December 31, 2019 and 2018, the Company incurred approximately $6,162 and $11,987, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in Merger Related Expenses on the Company’s Consolidated Statements of Income and Comprehensive Income.

The Company acquired 100% of the outstanding common stock of Charter. The purchase price consisted of both cash and stock. Each share of Charter common stock was exchanged for $2.30 cash and 0.738 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on August 31, 2018, the resulting purchase price was $389,476.

The table below summarizes the purchase price calculation.

Number of shares of Charter common stock outstanding at August 31, 2018		15,480,776
Per share exchange ratio		0.738
Number of shares of CenterState common stock less 599 of fractional shares		11,424,214
CenterState common stock price per share on August 31, 2018	$	30.62
Fair value of CenterState common stock issued	$	349,809

Number of shares of Charter common stock outstanding at August 31, 2018		15,480,776
Cash consideration each Charter share is entitled to receive	$	2.300
Total Cash Consideration plus $17 for 599 of fractional shares	$	35,624

Total Stock Consideration	$	349,809
Total Cash Consideration		35,624
Total consideration to be paid to Charter common shareholders	$	385,433
Cash out of Charter stock options		4,043
Total Purchase Price for Charter	$	389,476

The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed as of the September 1, 2018 purchase date.

	September 1, 2018
Assets:
Cash and cash equivalents	$	184,020
Loans, held for investment		1,130,240
Purchased credit impaired loans		11,432
Loans held for sale		2,835
Investments		73,808
Accrued interest receivable		3,684
Branch real estate		27,930
Furniture and fixtures		1,988
Bank property held for sale		1,695
FHLB and other stock		1,483
Bank owned life insurance		54,813
Other real estate owned		257
Servicing asset		1,828
Core deposit intangible		19,795
Goodwill		197,648
Deferred tax asset		3,441
Other assets		17,644
Total assets acquired	$	1,734,541
Liabilities:
Deposits	$	1,321,970
Corporate debentures		9,000
Accrued interest payable		1,015
Other liabilities		13,080
Total liabilities assumed	$	1,345,065

In the acquisition, the Company acquired $1,141,672 of loans at fair value, net of $23,118, or 2.0%, estimated discount to the outstanding principal balance, representing 23.9% of the Company’s total loans at December 31, 2017. Of the total loans acquired, management identified $11,432 with credit deficiencies. All loans that were on non-accrual status, impaired loans including TDRs and some substandard loans were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of September 1, 2018 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

Contractually required principal and interest	$	33,687
Non-accretable difference		(20,763	)
Cash flows expected to be collected		12,924
Accretable yield		(1,492	)
Total purchased credit-impaired loans acquired	$	11,432

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

	Book		Fair
	Balance		Value
Loans:
Single family residential real estate	$	284,505	$	280,200
Commercial real estate		567,506		557,730
Construction/development/land		181,128		178,687
Commercial loans		88,308		87,062
Consumer and other loans		26,221		26,561
Purchased credit-impaired		17,122		11,432
Total earning assets	$	1,164,790	$	1,141,672

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $19,795, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of National Commerce Corporation

On April 1, 2019, the Company completed its acquisition of NCOM whereby NCOM merged with and into the Company. Pursuant to and simultaneously with the merger of NCOM with and into the Company, NCOM’s wholly owned subsidiary bank, National Bank of Commerce, merged with and into the Company’s subsidiary bank, CenterState Bank, N.A. As a result of that merger, the Bank acquired a controlling 70% interest in CBI, and its factoring subsidiary, Corporate Billing. Subsequently on September 30, 2019, the Company purchased the 30% noncontrolling interest of CBI for $11,400. The undistributed earnings attributable to the noncontrolling interest at period-end September 30, 2019 payable to the noncontrolling interest were distributed in October 2019.

The Company’s primary reasons for the transaction were to further expand its franchise into Georgia and Alabama, further solidify its market share in the Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 36% and 37% as compared with the balances at December 31, 2018 and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. During the twelve-month period ending December 31, 2019, the Company incurred approximately $33,095 of acquisition costs related to this transaction. These acquisition costs are reported in merger and acquisition related expenses on the Company’s Consolidated Statements of Income and Comprehensive Income.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill on this acquisition of $401,537 which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill is calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.

The Company acquired 100% of the outstanding common stock of NCOM. The purchase price consisted of stock plus cash in lieu of fractional shares. Each share of NCOM common stock was exchanged for 1.65 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on March 29, 2019, the resulting purchase price was $831,696.

The table below summarizes the purchase price calculation.

Number of shares of NCOM common stock outstanding at March 29, 2019		21,011,352
Per share exchange ratio		1.650
Number of shares of CenterState common stock less 763 of fractional shares		34,667,968
CenterState common stock price per share on March 29, 2019	$	23.81
Fair value of CenterState common stock issued	$	825,444

Cash Consideration for 763 of fractional shares	$	20

Total Stock Consideration	$	825,444
Total Cash Consideration		20
Total consideration to be paid to NCOM common shareholders	$	825,464
Fair value of NCOM stock options converted to CenterState stock options		5,848
Fair value of NCOM warrants converted to CenterState warrants		384
Total Purchase Price for NCOM	$	831,696

The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed as of the April 1, 2019 purchase date.

	April 1, 2019
Assets:
Cash and cash equivalents	$	268,524
Loans, held for investment		3,309,234
Purchased credit impaired loans		18,616
Loans held for sale		14,588
Investments		178,488
Accrued interest receivable		11,006
Branch real estate		61,295
Furniture and fixtures		7,204
Bank property held for sale		12,436
FHLB, FRB and other stock		17,076
Bank owned life insurance		55,474
Other real estate owned		875
Servicing asset		1,581
Core deposit intangible		39,900
Goodwill		401,537
Deferred tax asset		16,285
Other assets		23,663
Total assets acquired	$	4,437,782
Liabilities:
Deposits	$	3,486,732
Securities sold under agreement to repurchase		18,833
Subordinated debt		38,802
Accrued interest payable		2,095
Other liabilities		47,622
Noncontrolling interest		12,002
Total liabilities assumed and noncontrolling interest	$	3,606,086

In the acquisition, the Company acquired $3,327,850 of loans at fair value, net of $61,384, or 1.8%, estimated discount to the outstanding principal balance, representing 39.9% of the Company’s total loans at December 31, 2018. Of the total loans acquired, management identified $18,616 with credit deficiencies. All loans that were on non-accrual status including accruing loans that are 90 days or more past due that should be recognized as non-accrual, all substandard loans or all loans with impaired collateral value including TDRs and all loans under litigation were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30. No TDRs were acquired from the NCOM transaction.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of April 1, 2019 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

Contractually required principal and interest	$	51,527
Non-accretable difference		(29,187	)
Cash flows expected to be collected		22,340
Accretable yield		(3,724	)
Total purchased credit-impaired loans acquired	$	18,616

The table below presents information with respect to the fair value of acquired loans, as well as their Book Balance at acquisition date.

	Book		Fair
	Balance		Value
Loans:
Single family residential real estate	$	615,296	$	608,705
Commercial real estate		1,762,480		1,736,653
Construction/development/land		363,005		358,643
Commercial loans		539,698		536,262
Consumer and other loans		70,058		68,971
Purchased credit-impaired		38,697		18,616
Total earning assets	$	3,389,234	$	3,327,850

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $39,900, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Pro-forma information (supplemental)

Pro-forma information for the twelve-month period ending December 31, 2018 assumes the Charter and NCOM acquisitions occurred at the beginning of 2018. Pro-forma data for the twelve-month period ending December 31, 2019 listed in the table below presents pro-forma information as if the NCOM acquisition occurred at the beginning of 2018.

	Years ended December 31,
	2019		2018
Net interest income	$	620,072	$	623,929
Net income available to common shareholders	$	257,271	$	240,107
EPS - basic	$	2.01	$	1.90
EPS - diluted	$	1.99	$	1.87

The disclosures regarding the results of operations for Charter and NCOM subsequent to their respective acquisition dates are omitted as this information is not practical to obtain. Although the Company did not convert Charter’s core system in the third quarter of 2018 or did not convert NCOM’s core system until the third quarter of 2019, the majority of the fixed costs and purchase accounting entries were booked on the Company’s core system making it impractical to determine Charter or NCOM’s results of operation on a stand-alone basis.

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Interest Rate Swap Derivatives

Fair Value Hedge

The Company enters into interest rate swaps in order to provide commercial loan clients the ability to swap from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan with a client in addition to a swap agreement. This swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company then enters into a matching swap agreement with a third party dealer in order to offset its exposure on the customer swap. At years ended December 31, 2019 and 2018, the notional amount of such arrangements was $10,596,427 and $5,743,283, respectively. The Company pledged $140,913 and $28,345 of cash as collateral to the third party dealers and clearinghouse exchanges at December 31, 2019 and 2018, respectively. The Company also pledged $361,127 of securities to the third party dealers and clearinghouse exchanges at December 31, 2019. As the interest rate swaps with the clients and third parties are not designated as hedges under ASC 815, changes in market values are reported in earnings.

Summary information about the derivative instruments is as follows:

	2019			2018
Notional amount	$	10,596,427		$	5,743,283
Weighted average pay rate on interest-rate swaps		3.20	%		3.64	%
Weighted average receive rate on interest rate swaps		3.20	%		3.64	%
Weighted average maturity (years)		11			11
Fair value of interest rate swap derivatives (asset)		273,068			92,475
Fair value of interest rate swap derivatives (liability)		274,216			92,892

Cash Flow Hedge

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate swaps are utilized to manage interest rate risk associated with the Company's variable rate borrowings entered during the second quarter of 2019. The Company recognizes interest rate swaps as either assets or liabilities at fair value in the Consolidated Balance Sheets.

The interest rate swap contract entered during the second quarter of 2019 on a variable rate borrowing was designated as a cash flow hedge and was negotiated over the counter. The contract was entered into by the Company with a counterparty and the specific agreement of terms were negotiated, including the amount, interest rate and maturity.

The following table reflects the cash flow hedge included in the Condensed Consolidated Balance Sheets as of December 31, 2019:

	December 31, 2019
Notional amount	$	150,000
Fair value of interest rate swap derivatives (asset)		—
Fair value of interest rate swap derivatives (liability)		817

The following table presents the net unrealized holding losses recorded in Accumulated Other Comprehensive Income on the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Income and Comprehensive Income relating to the cash flow derivative instrument for the nine-month period ended December 31, 2019:

	December 31, 2019
	Amount of			Amount of gain / (loss)		Location of gain / (loss)
	loss			reclassified from OCI		reclassified from AOCI
	recognized in OCI			to interest income		to income
Interest rate contracts - pay fixed, receive floating	$	(613	)	$	—	Interest expense: Federal funds purchased and other borrowings

During the year ended December 31, 2019, the derivative position designed as a cash flow hedge was not discontinued and none of the losses reported in Accumulated Other Comprehensive Income were reclassified into earnings as a result of the discontinuance of a cash flow hedge or because of the early extinguishment of the borrowing.

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Revenue from Contracts with Customers

On January 1, 2018, the Company adopted 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company concluded that there is no change to the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606 or the presentation of revenue as gross versus net. No adjustment to retained earnings was required on the adoption date. Because there is no change to the timing and pattern of revenue recognition, there are no material changes to the Company’s processes and internal controls. Expanded disclosures including disaggregation of revenues and descriptions of performance obligations required by ASU 2014-09 are included below. The Company adopted ASU 2014-09 in the first quarter of 2018 under the modified retrospective approach, and management determined during the assessment of the Company’s revenue streams that the adoption of ASU 2014-09 did not impact the Consolidated Financial Statements of the Company.

There are two reasons ASU 2014-09 did not have an impact to the Company. First, the majority of revenues are interest earned and gain on sales of loans, investment securities and other financial instruments, all of which are unaffected as they are outside the scope of ASU 2014-09. Secondly, the Company’s non-interest income revenue streams such as service charges on deposits, treasury management fees, wealth advisory fees, fixed income sales, and correspondent bank fees, are all within the scope of ASU 2014-09. However, ASC Topic 606 focuses on revenues from contracts earned over time, but all of these in-scope noninterest income revenue streams are governed by agreements that do not have an enforceable, contractual term. Given the cancellable-at-will structure, ASC Topic 606 views these contracts as agreements-at-will without a defined term, the revenues of which are immediately recognized. The revenue recognition timing is identical compared to previous revenue recognition standards.

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. ASU 2014-09 requires disclosure of sufficient information to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. A description of the Company’s revenue streams accounted for under ASC 606 as well as an explanation of why they are not impacted are as follows:

Revenues by Operating Segment/Line of Business

Correspondent Banking Capital Markets Revenue - Fixed Income Sales

The company earns commission revenues from the sale of fixed income securities to institutional investors. These revenues are earned and collected at each individual sale, and the sale is the sole performance obligation. There are no minimum orders or future performance obligations or deferred recognition requirements.

Other Correspondent Banking Related Revenue

The company earns revenues from a variety of services to other financial institutions including but not limited to correspondent banking, cash and clearing, safekeeping, wire transfers, international services, bond accounting, and others. Fixed income sales are discussed separately. While there is a significant variety of a la carte services, all (except fixed income sales) are either billed as incurred or are subject to monthly billing, at which point the performance obligation have been fulfilled. Even though a Correspondent agreement may provide for services over an indefinite period of time, the customer is free to end the agreement at will without penalty. This structure is viewed as an at-will agreement under ASC 606, the revenues of which are recognized immediately.

Service Charges on Deposit Accounts

The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include but are not limited to: services such as ATM use fees, stop payment charges, statement rendering, ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Wealth Management Related Revenue - Treasury Management

The Company earns fees for Treasury Management products and services which include but are not limited to online cash management, remote deposit capture, positive pay, and lockboxes. Similar to the above service charges on deposit accounts above, these fees are also recognized at either the time the transaction or at the end of the month in the case where service obligations are provided over the course of each month. Even though a customer’s Treasury Management agreement may provide for services over an indefinite period of time, the customer is free to end the agreement at will without penalty. This structure is viewed as an at-will agreement under ASC 606, the revenues of which are recognized immediately.

Wealth Management Related Revenue - Wealth Management & Advisory

The Company has contracted with a third party to provide wealth management and investment brokerage services on behalf of the Company. All fees earned by the Company from Wealth Management and Advisory activities are in the form of a revenue sharing agreement. The Company acts as agent in this agreement, and as such, ASC 606 deems the third party to be the customer of the Company as opposed to those individual and entities receiving the wealth advisory services. The agreed-upon portion of revenues generated by the third party for services provided other entities and individuals are owed and remitted to the Company at the end of each month, at which time all performance obligations of the Company are fulfilled.

Wealth Management Related Revenue - Trust

The Company sold its Trust Department in December 2017. While there would have been ASC Topic 606 revenue recognition timing implications, the sale prior to December 31, 2017 removed these revenues from consideration. Trust revenues are displayed for prior periods only.

Debit, Prepaid, ATM and Merchant Card Related Fees - Prepaid Cards

The Company earns revenues from prepaid card interchange fees and maintenance fees. Interchange fees from cardholder transactions represent a portion of the underlying transaction value and are recognized daily, concurrently with the transaction processing services to the cardholder. Similar to fees from deposits accounts, maintenance fees are earned over the performance obligation period, after which all obligations have been fulfilled.

Debit, Prepaid, ATM and Merchant Card Related Fees - Credit Cards

The Company earns revenues from a revenue sharing agreement with a third party who provides credit card services for Company customers. Similar to the Wealth Management and Advisory revenue sharing agreement discussed above, the Company is the agent and the third party is the customer. The revenue sharing agreement calculates fees owed to the Company based on interchange and application amounts and levels. These share of fees are remitted to the Company each month, at which time the performance obligation is fulfilled.

Debit, Prepaid, ATM and Merchant Card Related Fees - Debit Card Interchange Income

The Company earns interchange fees from debit cardholder transactions through the MasterCard payment network. Interchange fees form cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gains/Losses on Sales of Repossessed Real Estate (“OREO”)

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. There are no ASC 606 implications unless the Company finances the sale of OREO. There are no instances of the Company financing the sale of one of its repossessed OREO properties as of December 31, 2019.

Contract Balances

The Contract Balances disclosure requirement is not relevant, as no revenues are earned over time that would require the monitoring of contract balances. The Performance Obligations disclosure requirements call for a description of when performance obligations are satisfied, significant payment terms, nature of goods or services promised, and obligations for returns, refunds, and warranties.

(29)

Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Subsequently, amendments ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements were issued. ASC 842 establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company leases certain properties and equipment under operating leases that resulted in the recognition of ROU Lease Assets of $20,311 and Lease Liabilities of $22,795 on the Company’s Condensed Consolidated Balance Sheets. The one-time transition impact to retained earnings from measurement differences was approximately $1,093 as disclosed on the Company’s Condensed Consolidated Statements of Changes in Stockholders’ Equity.

ASC 842 was effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company chose to use the effective date approach. As such, all periods presented after January 1, 2019 are under ASC 842 whereas periods presented prior to January 1, 2019 are in accordance with prior lease accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 was not provided for dates and periods before January 1, 2019.

ASC 842 provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. The practical expedient pertaining to land easements is not applicable to the Company.

ASC 842 also requires certain accounting elections for ongoing application of ASC 842. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. However, since all real estate and equipment leases have terms greater than 12 months, no leases currently meet this exemption. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. However, since these non-lease items are subject to change, they are treated and disclosed as variable payments in the quantitative disclosures below. Consequently, ASC 842’s changed guidance on contract components will not significantly affect our financial reporting. Similarly, ASC 842’s narrowed definition of initial direct costs will not significantly affect financial reporting.

Lessee Leases

The majority of the Company’s lessee leases are operating leases, and consist of leased real estate for branches and operations centers. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Variable payments generally consist of common area maintenance and taxes. Rent escalations are generally specified by a payment schedule, or are subject to a defined formula. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages. The Company also has other operating leases for various equipment, including copiers, printers, and other small equipment. Equipment lease terms and conditions generally specify a fixed amount and term with options to renew. The Company’s equipment leases are typically not renewed, and existing leases are typically assumed from prior bank acquisitions.

For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. ASC 842 requires the use of the lease interest rate; however, this rate is typically not known. As an alternative, ASC 842 permits the use of an entity’s fully secured incremental borrowing rate. The Company is electing to utilize the FHLB Atlanta Fixed Rate Advance index, as it is the most actively used institution-specific collateralized borrowing source available to the Company.

The Company also holds a small number of finance leases assumed in connection to prior acquisitions. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above, but the lease terms are generally longer. Lease classifications from the acquired institution were retained, and were again retained as a result of the election of the package of practical expedients described above.

	December 31, 2019
Amortization of ROU Assets - Finance Leases	$	196
Interest on Lease Liabilities - Finance Leases		215
Operating Lease Cost (Cost resulting from lease payments)		7,453
Variable Lease Cost (Cost excluded from lease payments)		1,211
Total Lease Cost	$	9,075
Finance Lease - Operating Cash Flows		294
Finance Lease - Financing Cash Flows		294
Operating Lease - Operating Cash Flows (Fixed Payments)		7,585
Operating Lease - Operating Cash Flows (Liability Reduction)		7,131
New ROU Assets - Operating Leases		39,205
Weighted Average Lease Term (Years) - Finance Leases		10.93
Weighted Average Lease Term (Years) - Operating Leases		7.13
Weighted Average Discount Rate - Finance Leases		5.83	%
Weighted Average Discount Rate - Operating Leases		3.33	%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of December 31, 2019 is as follows:

	December 31, 2019
Operating lease payments due:
Within one year	$	7,577
After one but within two years		6,693
After two but within three years		5,358
After three but within four years		4,419
After four years but within five years		3,723
After five years		11,410
Total undiscounted cash flows		39,180
Discount on cash flows		(4,695	)
Total operating lease liabilities	$	34,485

The following is a schedule of future minimum annual rentals under operating leases as of December 31, 2018:

Year ending December 31,
2019	$	6,524
2020		5,096
2021		4,411
2022		3,633
2023		2,558
Thereafter		11,088
	$	33,310

Lessor Leases

ASC 842 also impacted lessor accounting. ASC 842 changed the criteria in which a lessor lease is classified. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.

Similar to the above lessee leases, the Company has elected the ‘package of practical expedients,’ which allows the Company not to reassess the Company’s prior conclusions under ASC 842 about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. Lastly, the practical expedient pertaining to land easements is not applicable to the Company.

While ASC 842 identifies common area building maintenance as a non-lease component of our real estate lease contracts, the Company elected to account for the Company’s real estate leases and associated common area maintenance service components as a single, combined operating lease component. Consequently, ASC 842’s changed guidance on contract components will not significantly affect financial reporting.

Substantially, all of the Company’s lessor leases are related to unused real estate office space owned by the Company. Most have defined terms, though some leases have gone month-to-month once the initial term has passed. The impact of subleases is not material. Income from operating leases are reported within Occupancy Expense as an offset to Non-interest Expense in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.

The Company is also the lessor on a few equipment direct finance leases (formerly known as capital leases) with three municipal entities. Interest income from these leases are tax exempt, and is reported within loan interest income. The lessee retains the title to all equipment in each of these finance leases. Each of these leases originated in 2018, and therefore the prior ASC 840 classification was not reassessed due to the election of the package of practical expedients.

	December 31, 2019
Operating Lease Income from Lease Payments	$	1,793
Direct Financing Lease Income		513
Total Lease Income	$	2,306

Net Investment in Direct Financing Leases	$	1,391
Unguaranteed Residual Assets		—
Deferred Selling Profit on Direct Financing Leases		—

Maturity Analysis of Operating Lease Receivables
0 - 12 Months	$	1,978
13 - 24 Months		1,599
25 - 36 Months		897
37 - 48 Months		188
48 - 60 Months		—
Over 60 Months		—

Maturity Analysis of Finance Lease Receivables
0 - 12 Months	$	916
13 - 24 Months		475
25 - 36 Months		—
37 - 48 Months		—
48 - 60 Months		—
Over 60 Months		—

(30) Subsequent Events

Announcement of Merger of Equals between CenterState and South State Corporation

On January 27, 2020, the Company and South State Corporation (“South State”) 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 South State, subject to the terms and conditions set forth therein. Under the terms of the Merger Agreement, which was unanimously approved by the Boards of Directors of both companies, the Company’s shareholders will receive 0.3001 shares of South State common stock for each share of CenterState common stock they own. The transaction is expected to close in the third quarter of 2020 subject to customary closing conditions, including receipt of all applicable regulatory approvals and shareholder approval of each company. The Company’s primary reason for the transaction is to create a leading Southeastern-based regional bank, which diversifies each company’s geographies into a contiguous six-state footprint, spanning from Florida to Virginia. The transaction will also expand both companies’ customer base which will enhance deposit fee income and leverage operating cost through economies of scale. The combined company will operate under the South State Bank name and will trade under the South State ticker symbol SSB on the Nasdaq stock market. The company will be headquartered in Winter Haven, Florida and will maintain a significant presence in Columbia and Charleston, South Carolina; Charlotte, North Carolina; and Atlanta, Georgia. South State is a bank holding company headquartered in Columbia, South Carolina. South State’s bank subsidiary South State Bank operates 157 banking locations. South State reported total assets of $15,921,092, total loans of $11,370,040 and total deposits of $12,177,096 as of December 31, 2019.

Stock Repurchase Plan

On January 16, 2020, the Company announced that it had approved a new share repurchase program. Under this repurchase program, the maximum number of shares subject to its share repurchase program is 6,500,000 shares of the Company’s outstanding common stock, subject to market conditions. The total shares subject to the Company’s repurchase plan represent approximately 5% of the Company’s outstanding shares as of December 31, 2019. The repurchases will be made from time to time by the Company in the open market as conditions allow throughout the plan period from January 16, 2020 to January 16, 2022, unless shortened or extended by the Company’s Board of Directors. The stock repurchase program does not obligate the Company to repurchase any specified number of shares of its common stock. The shares may be purchased in open market or negotiated transactions. Open market purchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Securities and Exchange and Commission and other applicable legal requirements. The number, price and timing of the repurchases, if any, will be at the Company’s sole discretion and will depend on a number of factors, including market and economic conditions, liquidity needs and other factors and there is no assurance that the Company will purchase any shares under the program. This stock repurchase program replaces the stock repurchase plan authorized on April 25, 2019.

As of February 26, 2020, subsequent to the fourth quarter of 2019, the Company repurchased an additional 1,102,934 common shares pursuant to an ongoing 10b-5 repurchase plan disclosed above at a volume-weighted average price of $23.46. Approximately 5.4 million shares remain under the Company’s existing repurchase authorization.

Exhibit 99.2

CENTERSTATE BANK CORPORATION and SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Page
Condensed Consolidated Balance Sheets (unaudited) at March 31, 2020 and December 31, 2019		2

Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited)		3

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019 (unaudited)		5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		8

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands of dollars, except per share data)

	March 31, 2020			December 31, 2019
ASSETS
Cash and due from banks	$	135,338		$	185,255
Deposits in other financial institutions (restricted cash)		550,101			140,913
Federal funds sold and FRB deposits		461,252			163,890
Cash and cash equivalents		1,146,691			490,058
Trading securities, at fair value		8,432			4,987
Available for sale debt securities, at fair value		2,138,442			1,886,724
Held to maturity debt securities, net of allowance for credit losses of $10 at March 31, 2020 (fair value of $205,458 and $208,852 at March 31, 2020 and December 31, 2019, respectively)		195,948			202,903
Loans held for sale (see Note 6)		188,316			142,801
Loans, excluding Purchased Credit Deteriorated ("PCD") loans		11,876,909			11,848,475
PCD loans		150,322			135,468
Allowance for credit losses		(158,733	)		(40,655	)
Net Loans		11,868,498			11,943,288
Bank premises and equipment, net		296,471			296,706
Right-of-use operating lease assets		33,062			32,163
Accrued interest receivable		43,382			40,945
FHLB, FRB and other stock, at cost		100,463			100,305
Goodwill		1,204,417			1,204,417
Core deposit intangible, net		87,295			91,157
Other intangible assets, net		4,131			4,507
Bank owned life insurance		331,713			330,155
Other repossessed real estate owned		9,942			5,092
Deferred income tax asset, net		37,687			28,786
Bank property held for sale		21,347			23,781
Interest rate swap derivatives, at fair value		831,891			273,068
Prepaid expense and other assets		48,164			40,182
TOTAL ASSETS	$	18,596,292		$	17,142,025

LIABILITIES AND EQUITY
Deposits:
Demand - non-interest bearing	$	4,164,091		$	3,929,183
Demand - interest bearing		2,650,252			2,613,933
Savings and money market accounts		4,413,773			4,336,721
Time deposits		2,893,383			2,256,555
Total deposits		14,121,499			13,136,392

Securities sold under agreement to repurchase		81,736			93,141
Federal funds purchased		255,433			379,193
Other borrowed funds		211,000			161,000
Corporate and subordinated debentures		71,356			71,343
Accrued interest payable		4,334			3,998
Interest rate swap derivatives, at fair value		842,451			275,033
Operating lease liabilities		35,168			34,485
Reserve for unfunded commitments		7,110			—
Payables and accrued expenses		95,953			90,722
Total liabilities		15,726,040			14,245,307

Equity:
Common stock, $.01 par value: 200,000,000 shares authorized; 124,131,401 and 125,173,597 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		1,241			1,252
Additional paid-in capital		2,376,637			2,407,385
Retained earnings		435,984			465,680
Accumulated other comprehensive income		56,390			22,401
Total equity		2,870,252			2,896,718
TOTAL LIABILITIES AND EQUITY	$	18,596,292		$	17,142,025

See notes to the accompanying condensed financial statements

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)

	Three months ended March 31,
	2020		2019
Interest income:
Loans	$	160,675	$	116,285
Investment securities:
Taxable		12,534		12,286
Tax-exempt		1,737		1,716
Federal funds sold and other		1,813		1,995
		176,759		132,282
Interest expense:
Deposits		19,836		13,323
Securities sold under agreement to repurchase		252		236
Federal funds purchased and other borrowings		2,321		3,978
Corporate and subordinated debentures		997		570
		23,406		18,107

Net interest income		153,353		114,175
Provision for credit losses		44,914		1,053
Net interest income after credit loss provision		108,439		113,122

Non-interest income:
Correspondent banking capital markets revenue		26,424		7,972
Other correspondent banking related revenue		1,384		1,028
Mortgage banking revenue		10,973		4,193
Small business administration loans revenue		1,403		688
Service charges on deposit accounts		7,522		6,678
Debit, prepaid, ATM and merchant card related fees		3,667		5,018
Wealth management related revenue		831		607
Bank owned life insurance income		1,927		1,626
Net gain on sale of available for sale debt securities		—		17
Other non-interest income		1,659		1,473
Total other income		55,790		29,300

See notes to the accompanying condensed consolidated financial statements

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)

	Three months ended March 31,
	2020			2019
Non-interest expense:
Salaries, wages and employee benefits	$	77,077		$	48,393
Occupancy expense		7,346			5,602
Depreciation of premises and equipment		4,045			2,850
Supplies, stationary and printing		861			748
Marketing expenses		2,158			2,020
Data processing expense		5,617			3,656
Legal, audit and other professional fees		2,682			1,442
Amortization of intangibles		4,535			2,814
Credit loss expense for unfunded commitments		1,027			—
Postage and delivery		1,160			925
ATM and debit card and merchant card related expenses		1,598			1,453
Bank regulatory expenses		1,807			1,616
Loss on sale of repossessed real estate (“OREO”)		1			47
Valuation write down of OREO		95			108
(Gain) loss on repossessed assets other than real estate		(8	)		13
Foreclosure related expenses		856			561
Merger related expenses		3,051			6,365
Impairment on bank property held for sale		31			107
Other expenses		8,833			5,753
Total other expenses		122,772			84,473

Income before provision for income taxes		41,457			57,949
Provision for income taxes		6,025			13,306
Net income	$	35,432		$	44,643

Net income	$	35,432		$	44,643
Other comprehensive income, net of tax
Unrealized available for sale debt securities holding gain, net of taxes of $13,268 and $7,322, respectively		39,729			21,571
Unrealized interest rate swap holding loss, net of taxes of ($1,917) and $0, respectively		(5,740	)		—
Less: reclassified adjustments for gain included in net income, net income tax expense of $0 and $4, respectively		—			(13	)

Net change in accumulated other comprehensive income	$	33,989		$	21,558

Total comprehensive income	$	69,421		$	66,201

Earnings per share:
Basic	$	0.28		$	0.47
Diluted	$	0.28		$	0.46
Common shares used in the calculation of earnings per share:
Basic (1)		124,798,732			95,740,856
Diluted (1)		125,341,227			96,500,740

(1) Excludes participating shares

See notes to the accompanying condensed consolidated financial statements

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three months ended March 31, 2020 and 2019 (unaudited)

(in thousands of dollars, except per share data)

													Accumulated
	Number of						Additional						other
	common			Common			paid in			Retained			comprehensive			Total
	shares			stock			capital			earnings			income (loss)			equity
Balances at January 1, 2019		95,679,596		$	957		$	1,699,031		$	293,777		$	(22,421	)	$	1,971,344

Net income											44,643						44,643
Unrealized holding gain on available for sale securities, net of deferred income tax of $7,318														21,558			21,558
Cumulative adjustment pursuant to adoption of ASU 842 (Note 11)											(1,464	)					(1,464	)
Dividends paid - common ($0.11 per share)											(10,547	)					(10,547	)
Stock grants issued		132,918			1			(1	)								—
Stock based compensation expense								1,218									1,218
Stock options exercised		116,764			1			1,198									1,199
Stock repurchase		(15,971	)		—			(399	)								(399	)
Balances at March 31, 2019		95,913,307			959			1,701,047			326,409			(863	)		2,027,552


Balances at January 1, 2020		125,173,597		$	1,252		$	2,407,385		$	465,680		$	22,401		$	2,896,718

Net income											35,432						35,432
Unrealized holding gain on available for sale securities, net of deferred income tax of $13,268														39,729			39,729
Unrealized holding loss on interest rate swaps, net of deferred income tax of $1,917														(5,740	)		(5,740	)
Cumulative adjustment pursuant to adoption of ASU 326 (Note 12)											(47,751	)					(47,751	)
Dividends paid - common ($0.14 per share)											(17,377	)					(17,377	)
Stock grants issued		258,616			3			(3	)								—
Stock based compensation expense								1,796									1,796
Stock options exercised		179,174			1			1,358									1,359
Stock repurchase		(1,479,986	)		(15	)		(33,899	)								(33,914	)
Balances at March 31, 2020		124,131,401		$	1,241		$	2,376,637		$	435,984		$	56,390		$	2,870,252

See notes to the accompanying condensed consolidated financial statements

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars, except per share data)

	Three months ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	35,432		$	44,643
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		44,914			1,053
Credit loss on unfunded commitments		1,027			—
Depreciation of premises and equipment		4,045			2,850
Accretion of purchase accounting adjustments		(12,575	)		(12,982	)
Net amortization of investment securities		2,273			2,421
Net deferred loan origination fees		435			344
Gain on sale of securities available for sale debt securities		—			(17	)
Trading securities revenue		(153	)		(25	)
Purchases of trading securities		(54,723	)		(51,691	)
Proceeds from sale of trading securities		51,431			53,453
Repossessed real estate owned valuation write down		95			108
Loss on sale of repossessed real estate owned		1			47
(Gain) loss on repossessed assets other than real estate		(8	)		13
Gain on sale of residential loans held for sale		(10,781	)		(3,976	)
Residential loans originated and held for sale		(423,622	)		(134,752	)
Proceeds from sale of residential loans held for sale		391,242			129,657
Net change in fair value of residential loans held for sale		(2,354	)		(4	)
Gain on disposal of and or sale of fixed assets		(6	)		(1	)
Gain on disposal of bank property held for sale		(236	)		(618	)
Impairment on bank property held for sale		31			107
Gain on sale of small business administration loans		(1,403	)		(688	)
Small business administration loans originated for sale		(12,255	)		(7,482	)
Proceeds from sale of small business administration loans		13,658			8,170
Deferred income taxes		(4,306	)		6,114
Tax deduction in excess of book deduction for stock awards		(1,391	)		(376	)
Stock based compensation expense		1,796			1,218
Bank owned life insurance income		(1,927	)		(1,626	)
Net cash from changes in:
Net changes in accrued interest receivable, prepaid expenses, and other assets		10,211			11,461
Net change in accrued interest payable, accrued expense, and other liabilities		(12,867	)		(5,019	)
Net cash provided by operating activities	$	17,984		$	42,402

See notes to the accompanying condensed consolidated financial statements

CenterState Bank Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars, except per share data)

(continued)

	Three months ended March 31,
	2020			2019
Cash flows from investing activities:
Available for sale debt securities:
Purchases of investment securities	$	(229,404	)	$	(1,037	)
Purchases of mortgage-backed securities		(50,138	)		(66,624	)
Proceeds from pay-downs of mortgage-backed securities		78,830			53,579
Proceeds from sales of investment securities		—			2,309
Proceeds from sales of mortgage-backed securities		—			64,177
Proceeds from maturities of investment securities		—			295
Held to maturity debt securities:
Proceeds from called investment securities		3,110			—
Proceeds from pay-downs of mortgage-backed securities		3,551			2,317
Purchases of FHLB, FRB and other stock		(20,344	)		(4,717	)
Proceeds from sales of FHLB, FRB and other stock		20,188			10,826
Net (increase) decrease in loans		(16,919	)		1,956
Purchases of premises and equipment, net		(3,813	)		(3,931	)
Proceeds from sale of repossessed real estate		438			430
Proceeds from sale of fixed assets		9			1
Proceeds from sale of bank property held for sale		2,639			6,365
Net cash (used in) provided by investing activities	$	(211,853	)	$	65,946
Cash flows from financing activities:
Net increase in deposits		985,602			269,954
Net (decrease) increase in securities sold under agreement to repurchase		(11,405	)		1,259
Net (decrease) increase in federal funds purchased		(123,760	)		8,657
Net increase (decrease) in other borrowings		50,000			(150,000	)
Net decrease in payable to shareholders for acquisitions		(3	)		(1	)
Stock options exercised		1,359			1,199
Stock repurchased		(33,914	)		(399	)
Dividends paid		(17,377	)		(10,547	)
Net cash provided by financing activities	$	850,502		$	120,122

Net increase in cash and cash equivalents		656,633			228,470
Cash and cash equivalents, beginning of period		490,058			367,333
Cash and cash equivalents, end of period	$	1,146,691		$	595,803

Supplemental Information
Transfer of loans to other real estate owned	$	5,384		$	3,657
New right-of-use operating lease assets		4,749			—

Cash paid during the period for:
Interest	$	23,889		$	17,689
Income taxes		—			—

See notes to the accompanying condensed consolidated financial statements

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 1: Nature of operations and basis of presentation

The consolidated financial statements include the accounts of CenterState Bank Corporation (the “Parent Company,” “Company” or “CSFL”), and its wholly owned subsidiary bank, CenterState Bank, N.A. (“CenterState” or the “Bank”), and non-bank subsidiaries, R4ALL, Inc., and CSFL Insurance Corp. The Company operates as one of the largest community bank franchises headquartered in the state of Florida. The Bank provides traditional retail, commercial, mortgage, wealth management and SBA services throughout its Florida, Georgia and Alabama branch network and customer relationships in neighboring states.

The Bank, headquartered in Winter Haven, Florida, also operates a correspondent banking and capital markets division, of which the majority of its bond salesmen, traders and operational personnel are primarily housed in facilities located in Birmingham, Alabama and Atlanta, Georgia. This division’s primary revenue generating activities are related to its capital markets division, which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities; and its correspondent banking division, which includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and correspondent bank checking account deposits and fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services. The customer base includes small to medium size financial institutions primarily located in the Southeastern United States, although clients are located across the United States. The Bank also owns CBI Holding Company, LLC (“CBI”), which in turn owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.

R4ALL, Inc. manages troubled loans purchased from the Bank to their eventual disposition. CSFL Insurance Corp. is a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019. In the Company’s opinion, all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods have been made. The results of operations of the three-month ended March 31, 2020 are not necessarily indicative of the results expected for the full year.

Some items in the prior period financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or common stockholders’ equity.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 2: Common stock outstanding and earnings per share data

	Three months ended March 31,
	2020			2019
Basic
Net income available to common shareholders	$	35,432		$	44,643
Less: Earnings allocated to participating securities		(8	)		(23	)
Net income allocated to common shareholders	$	35,424		$	44,620

Weighted average common shares outstanding
including participating securities		124,831,232			95,790,456
Less: Participating securities (1)		(32,500	)		(49,600	)
Average shares		124,798,732			95,740,856
Basic earnings per common share	$	0.28		$	0.47

Diluted
Net income available to common shareholders	$	35,424		$	44,620
Weighted average common shares outstanding for
basic earnings per common share		124,798,732			95,740,856
Add: Dilutive effects of stock based compensation awards		542,495			759,884
Average shares and dilutive potential common shares		125,341,227			96,500,740
Diluted earnings per common share	$	0.28		$	0.46


	(1)	Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested.

NOTE 3: Fair value

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of available for sale debt securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). U.S. Treasury securities are valued using quoted market prices. Valuation adjustments are not applied (Level 1). The fair values of corporate debt securities are calculated using market indicators such as broker quotes (Level 2).

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The Company accounts for mortgage loans held for sale under the fair value option with changes in fair value recognized in current period earnings. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans (Level 2). In conjunction with the fair value election on loans held for sale, Mortgage banking uses derivative forward sales contracts and Interest Rate Lock Commitments (“IRLCs”) on residential mortgage loans. Fair values of these mortgage derivatives are estimated based on changes in market prices for mortgage forward trades and mortgage interest rates (Level 2) and estimated pull through percentages from the date the interest on the loan is locked (Level 3). The fair values of IRLCs are derived by a valuation model using various unobservable inputs, such as an estimate of the fair value of the servicing rights expected to be recorded upon sale of the loans, estimated costs to originate the loans, and the pull through rate. At March 31, 2020, the estimated gain on sale before the pull through rate ranged from (1.45%) to 9.34% with an average of 3.19%. The costs to originate ranged from 0.70% to 0.89% with an average of 0.82%. The pull through rates ranged from 47.00% to 100.00% with an average of 85.19%. At December 31, 2019, the estimated gain on sale before the pull through rate ranged from (2.41%) to 8.21% with an average of 2.54%. The costs to originate ranged from 0.70% to 0.89% with an average of 0.82%. The pull through rates ranged from 58.00% to 100.00% with an average of 89.00%.

The Company has the rights to service a portfolio of Fannie Mae and other government guaranteed loans sold on a servicing retained basis. Mortgage servicing assets are measured at fair value when the loan is sold and subsequently measured at fair value on a recurring basis utilizing Level 2 inputs. Management uses a model operated and maintained by a third party to calculate the present value of future cash flows using the third party's market-based assumptions. The future cash flows for each asset are based on the asset's unique characteristics and the third party's market-based assumptions for prepayment speeds, default and voluntary prepayments. Adjustments to fair value are recorded as a component of Mortgage Banking Revenue in the Condensed Consolidated Statements of Income and Comprehensive Income.

The fair value of impaired loans with specific valuation allowance for credit losses and other real estate owned is based on recent real estate appraisals. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans, and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At March 31, 2020, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 5% to 13%. Adjustments to appraisals may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans, other real estate owned and bank property held for sale are considered a Level 3 in the fair value hierarchy.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Assets and liabilities measured at fair value on a recurring basis are summarized below.

			Fair value measurements using
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Carrying		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
at March 31,2020
Assets:
Trading securities	$	8,432	$	—	$	8,432	$	—
Available for sale debt securities
Corporate debt securities		5,757		—		5,757		—
Obligations of U.S. government sponsored entities and agencies		147,959		—		147,959		—
Mortgage-backed securities		1,787,846		—		1,787,846		—
U.S. treasuries		99,997		—		99,997		—
Municipal securities		96,883		—		96,883		—
Loans held for sale		188,316		—		188,316		—
Mortgage servicing assets		1,038		—		1,038		—
Mortgage banking derivatives		6,436		—		57		6,379
Interest rate swap derivatives		831,891		—		831,891		—

Liabilities:
Mortgage banking derivatives		6,126		—		6,032		94
Interest rate swap derivatives		842,451		—		842,451		—

at December 31,2019
Assets:
Trading securities	$	4,987	$	—	$	4,987	$	—
Available for sale debt securities
Corporate debt securities		5,657		—		5,657		—
Obligations of U.S. government sponsored entities and agencies		19,930		—		19,930		—
Mortgage-backed securities		1,767,242		—		1,767,242		—
Municipal securities		93,895		—		93,895		—
Loans held for sale		142,801		—		142,801		—
Mortgage servicing assets		1,332		—		1,332		—
Mortgage banking derivatives		1,761		—		14		1,747
Interest rate swap derivatives		273,068		—		273,068		—

Liabilities:
Mortgage banking derivatives		305		—		288		17
Interest rate swap derivatives		275,033		—		275,033		—

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.

			Fair value measurements using
			Quoted prices		Significant
			in active		other		Significant
			markets for		observable		unobservable
	Carrying		identical assets		inputs		inputs
	value		(Level 1)		(Level 2)		(Level 3)
at March 31,2020
Assets:
Impaired loans, non-PCD
Residential real estate	$	1,916	$	—	$	—	$	1,916
Commercial real estate		12,748		—		—		12,748
Land, land development and construction		725		—		—		725
Commercial		4,944		—		—		4,944
Consumer		47		—		—		47
Impaired loans, PCD
Commercial real estate		9,694		—		—		9,694
Commercial		766		—		—		766
Other real estate owned
Residential real estate		363		—		—		363
Commercial real estate		2,129		—		—		2,129
Land, land development and construction		289		—		—		289
Bank property held for sale		2,834		—		—		2,834

at December 31,2019
Assets:
Impaired loans
Residential real estate	$	2,213	$	—	$	—	$	2,213
Commercial real estate		8,177		—		—		8,177
Land, land development and construction		847		—		—		847
Commercial		5,564		—		—		5,564
Consumer		47		—		—		47
Other real estate owned
Residential real estate		—		—		—		—
Commercial real estate		2,129		—		—		2,129
Land, land development and construction		340		—		—		340
Bank property held for sale		4,160		—		—		4,160

Non-PCD impaired loans measured at fair value had a recorded investment of $22,169, with a valuation allowance of $1,789 at March 31, 2020, and a recorded investment of $18,556, with a valuation allowance of $1,708 at December 31, 2019. The Company recorded a provision for credit loss expense of $911 and $1,124 on non-PCD impaired loans carried at fair value during the three-month periods ending March 31, 2020 and 2019, respectively. Beginning in 2020, the Company began accounting for PCD loans under ASC Topic 326 and as a result several loans previously evaluated on a pool level basis were individually evaluated for impairment during the current period. PCD impaired loans measured at fair value had a recorded investment of $22,776, with a valuation allowance of $12,316 at March 31, 2020. The Company recorded a provision for credit loss expense of $2,870 on PCD impaired loans carried at fair value during the three-month periods ending March 31, 2020.

Other real estate owned had a decline in fair value of $95 and $108 during the three-month periods ending March 31, 2020 and 2019, respectively. Changes in fair value were recorded directly to current earnings through non-interest expense.

Bank property held for sale represents certain branch office buildings which the Company has closed and consolidated with other existing branches. The real estate was transferred out of the Bank Premises and Equipment category into Bank Property Held for Sale at the lower of amortized cost or fair value less estimated costs to sell. The fair values were based upon appraisals. The Company recognized an impairment charge of $31 and $107 during the three-month periods ending March 31, 2020 and 2019, respectively, related to bank properties held for sale.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Fair Value of Financial Instruments:

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

FHLB, FRB and Other Stock: It is not practical to determine the fair value of FHLB, FRB and other stock due to restrictions placed on their transferability.

	Quantitative information about Level 3 fair value measurements
	Fair value		Valuation	Unobservable	Range
		at March 31, 2020	technique	inputs	(weighted average rate)
Loan, net	$	12,008,094	Discounted cash flow	Probability of default (PD)	0.51% - 100.00% (1.43%)
				Loss given default (LGD)	0% - 100.00% (17.95%)
				Prepayment rate	0.00% - 34.47% (20.76%)
				Discount rate	3.03% - 8.28% (4.5%)

	Quantitative information about Level 3 fair value measurements
	Fair value		Valuation	Unobservable	Range
	at December 31, 2019		technique	inputs	(average) ⁽¹⁾
Loan, net	$	11,925,693	Discounted cash flow	Probability of default (PD)	1.04% - 2.79% (1.83%)
				Loss given default (LGD)	6.44% - 46.26% (22.02%)
				Prepayment rate	10.00% - 34.47% (19.19%)
				Discount rate	1.48% - 2.39% (1.62%)

(1)

Average rates are median rates.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value and is classified as Level 2 for accrued interest receivable related to investment securities and Level 3 for accrued interest receivable related to loans.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

Off-balance Sheet Instruments: The fair value of off-balance-sheet items is not considered material.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following table presents the carry amounts and estimated fair values of the Company’s financial instruments:

			Fair value measurements
	Carrying amount		Level 1		Level 2		Level 3		Total
at March 31,2020
Financial assets:
Cash and cash equivalents	$	1,146,691	$	1,146,691	$	—	$	—	$	1,146,691
Trading securities		8,432		—		8,432		—		8,432
Available for sale debt securities		2,138,442		—		2,138,442		—		2,138,442
Held to maturity debt securities		195,948		—		205,458		—		205,458
Loans held for sale, at fair value		188,316		—		188,316		—		188,316
Loans, net		11,868,498		—		—		12,008,094		12,008,094
Mortgage servicing assets		1,038		—		1,038		—		1,038
Mortgage banking derivatives		6,436		—		57		6,379		6,436
Interest rate swap derivatives		831,891		—		831,891		—		831,891
Accrued interest receivable		43,382		—		7,594		35,788		43,382

Financial liabilities:
Deposits - without stated maturities	$	11,228,116	$	11,228,116	$	—	$	—	$	11,228,116
Deposits - with stated maturities		2,893,383		—		2,918,615		—		2,918,615
Securities sold under agreement to repurchase		81,736		—		81,736		—		81,736
Federal funds purchased and other borrowings		466,433		—		466,433		—		466,433
Corporate and subordinated debentures		71,356		—		—		66,669		66,669
Mortgage banking derivatives		6,126		—		6,032		94		6,126
Interest rate swap derivatives		842,451		—		842,451		—		842,451
Accrued interest payable		4,334		—		4,334		—		4,334

			Fair value measurements
	Carrying amount		Level 1		Level 2		Level 3		Total
at December 31,2019
Financial assets:
Cash and cash equivalents	$	490,058	$	490,058	$	—	$	—	$	490,058
Trading securities		4,987		—		4,987		—		4,987
Available for sale debt securities		1,886,724		—		1,886,724		—		1,886,724
Held to maturity debt securities		202,903		—		208,852		—		208,852
Loans held for sale, at fair value		142,801		—		142,801		—		142,801
Loans, net		11,943,288		—		—		11,925,693		11,925,693
Mortgage servicing assets		1,332		—		1,332		—		1,332
Mortgage banking derivatives		1,761		—		14		1,747		1,761
Interest rate swap derivatives		273,068		—		273,068		—		273,068
Accrued interest receivable		40,945		—		7,547		33,398		40,945

Financial liabilities:
Deposits - without stated maturities	$	10,879,837	$	10,879,837	$	—	$	—	$	10,879,837
Deposits - with stated maturities		2,256,555		—		2,271,497		—		2,271,497
Securities sold under agreement to repurchase		93,141		—		93,141		—		93,141
Federal funds purchased and other borrowings		540,193		—		540,193		—		540,193
Corporate and subordinated debentures		71,343		—		—		66,964		66,964
Mortgage banking derivatives		305		—		288		17		305
Interest rate swap derivatives		275,033		—		275,033		—		275,033
Accrued interest payable		3,998		—		3,998		—		3,998

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

NOTE 4: Reportable segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The table below is a reconciliation of the reportable segment revenues, expenses, and profit to the Company’s consolidated total for the three-month periods ending March 31, 2020 and 2019.

	Three-month period ending March 31, 2020
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	173,702		$	3,057		$	—		$	—		$	176,759
Interest expense		(20,434	)		(1,664	)		(1,308	)		—			(23,406	)
Net interest income (expense)		153,268			1,393			(1,308	)		—			153,353
Provision for credit losses		(45,156	)		242			—			—			(44,914	)
Non-interest income		27,981			27,809			—			—			55,790
Non-interest expense		(108,373	)		(12,503	)		(1,896	)		—			(122,772	)
Net income (loss) before taxes		27,720			16,941			(3,204	)		—			41,457
Income tax (provision) benefit		(3,487	)		(4,241	)		1,703			—			(6,025	)
Net income (loss)		24,233			12,700			(1,501	)		—			35,432
Total assets	$	17,954,442		$	641,599		$	3,005,931		$	(3,005,680	)	$	18,596,292

	Three-month period ending March 31, 2019
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	127,832		$	4,450		$	—		$	—		$	132,282
Interest expense		(14,851	)		(2,549	)		(707	)		—			(18,107	)
Net interest income (expense)		112,981			1,901			(707	)		—			114,175
Provision for credit losses		(1,015	)		(38	)		—			—			(1,053	)
Non-interest income		20,300			9,000			—			—			29,300
Non-interest expense		(77,581	)		(5,713	)		(1,179	)		—			(84,473	)
Net income (loss) before taxes		54,685			5,150			(1,886	)		—			57,949
Income tax (provision) benefit		(12,690	)		(1,305	)		689			—			(13,306	)
Net income (loss)	$	41,995		$	3,845		$	(1,197	)	$	—		$	44,643
Total assets	$	11,939,930		$	647,046		$	2,073,703		$	(2,073,042	)	$	12,587,637

Commercial and retail banking: The Company’s primary business is commercial and retail banking. Currently, the Company operates primarily through the Bank providing traditional retail, commercial, mortgage, wealth management and SBA services throughout its Florida, Georgia and Alabama branch network and customer relationships in neighboring states. This segment also includes the results of CBI, our transaction-based finance company that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers throughout the United States and Canada.

Corporate overhead and administration: Corporate overhead and administration is comprised primarily of compensation and benefits for certain members of management, interest on parent company debt, office occupancy and depreciation of parent company facilities, merger related costs and other expenses.

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

NOTE 5: Investment securities

Available for Sale Debt Securities

All of the mortgage-backed securities (“MBS”) listed below are residential Fannie Mae, Freddie Mac and Ginnie Mae MBSs. The amortized cost, fair value and allowance for credit losses of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

	March 31, 2020
			Gross		Gross		Allowance
	Amortized		unrealized		unrealized		for credit		Fair
	cost		gains		losses		losses		value
Corporate debt securities	$	5,504	$	253	$	—	$	—	$	5,757
Obligations of U.S. government sponsored entities and agencies		147,339		620		—		—		147,959
Mortgage-backed securities		1,711,738		76,108		—		—		1,787,846
U.S. treasuries		100,001		—		4		—		99,997
Municipal securities		90,162		6,721		—		—		96,883
Total available for sale debt securities	$	2,054,744	$	83,702	$	4	$	—	$	2,138,442

	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Corporate debt securities	$	5,504	$	153	$	—	$	5,657
Obligations of U.S. government sponsored entities and agencies		20,000		—		70		19,930
Mortgage-backed securities		1,742,221		26,403		1,382		1,767,242
Municipal securities		88,301		5,594		—		93,895
Total available for sale debt securities	$	1,856,026	$	32,150	$	1,452	$	1,886,724

The cost of securities sold is determined using the specific identification method. No available for sale debt securities were sold during the three-month ended March 31, 2020. Sales of available for sale debt securities for the three-month ended March 31, 2019 were as follows:

For the three months ended:	March 31, 2020		March 31, 2019
Proceeds	$	—	$	66,486
Gross gains		—		646
Gross losses		—		629

The tax provision related to these net realized gain at March 31, 2019 was $4.

The fair value of available for sale debt securities at March 31, 2020 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Fair		Amortized
Investment securities available for sale:	Value		Cost
Due one year or less	$	102,204	$	102,191
Due after one year through five years		131,668		131,295
Due after five years through ten years		45,763		44,017
Due after ten years through thirty years		70,961		65,503
Mortgage-backed securities		1,787,846		1,711,738
Total available for sale debt securities	$	2,138,442	$	2,054,744

Available for sale debt securities pledged at March 31, 2020 and December 31, 2019 had a carrying amount (estimated fair value) of $1,403,169 and $1,195,664, respectively. These securities were pledged primarily to increase borrowing capacity at the FHLB, secure public deposits and repurchase agreements. In addition, the amounts at March 31, 2020 and December 31, 2019 include $605,100 and $361,127 of securities pledged to the third party dealers and clearinghouse exchanges for the Company’s cash flow hedge interest rate swaps, respectively.

At March 31, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than mortgage-backed securities issued by U.S. Government sponsored entities, in an amount greater than 10% of stockholders’ equity.

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

The following tables show the Company’s available for sale debt investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2020 and December 31, 2019.

	March 31, 2020
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
Mortgage-backed securities	$	100	$	—	$	—	$	—	$	100	$	—
U.S. treasuries		99,997		4		—		—		99,997		4
Total temporarily impaired available for sale debt securities	$	100,097	$	4	$	—	$	—	$	100,097	$	4

	December 31, 2019
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of U.S. government sponsored entities and agencies	$	19,930	$	70	$	—	$	—	$	19,930	$	70
Mortgage-backed securities		125,249		388		117,903		994		243,152		1,382
Total temporarily impaired available for sale debt securities	$	145,179	$	458	$	117,903	$	994	$	263,082	$	1,452

Mortgage-backed securities: At March 31, 2020, 100% of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. As of March 31, 2020, none of our mortgage-backed securities were in a loss position.

U.S. treasuries: U.S. treasuries have almost no credit risk since they are backed by the full faith and credit of the U.S. government. Because the decline in fair value is attributable to changes in interest rates and inflation, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

Held to Maturity Debt Securities

Mortgage-Backed Securities: Most of the held to maturity securities investment portfolio is invested in U.S. Government Agency MBS. Given that the principal and interest payments on these securities are guaranteed by a U.S. Government Agency, there is minimal risk. Default from mortgage-backed securities would be present in macroeconomic events such as a recession which would result in insufficient cash flow to the servicer to continue regular payments.

Municipal Securities: Defaults on municipal bonds are not common, but they are not without risk. Risks stem from the potential for financial mismanagement of the municipal entity or a significant deterioration in the tax or revenue base of the municipal entity.

The following reflects the amortized cost, fair value and allowance for credit losses and the related gross unrecognized gains and losses of held to maturity securities as of March 31, 2020 and December 31, 2019.

	March 31, 2020
			Gross		Gross				Allowance
	Amortized		unrecognized		unrecognized		Fair		for credit
	cost		gains		losses		value		losses
Mortgage-backed securities	$	67,841	$	2,317	$	—	$	70,158	$	—
Municipal securities		128,117		7,183		—		135,300		(10	)
Total held to maturity debt securities	$	195,958	$	9,500	$	—	$	205,458	$	(10	)

	December 31, 2019
			Gross		Gross
	Amortized		unrecognized		unrecognized		Fair
	cost		gains		losses		value
Mortgage-backed securities	$	71,560	$	456	$	29	$	71,987
Municipal securities		131,343		5,522		—		136,865
Total held to maturity debt securities	$	202,903	$	5,978	$	29	$	208,852

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

Held to maturity securities pledged at March 31, 2020 and December 31, 2019 had a carrying amount of $130,281 and $100,582 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.

At March 31, 2020, there were no holdings of held to maturity securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The fair value and amortized cost of held to maturity securities at March 31, 2020 by contractual maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.

	Fair		Amortized
Held to maturity debt securities	value		cost
Due after five years through ten years	$	2,193	$	2,138
Due after ten years through thirty years		133,107		125,979
Mortgage-backed securities		70,158		67,841
Total held to maturity debt securities	$	205,458	$	195,958

As of March 31, 2020, there were no held to maturity debt securities in an unrecognized loss position. The following table shows the Company’s held to maturity debt investments’ gross unrecognized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrecognized loss position, at December 31, 2019.

	December 31, 2019
	Less than 12 months				12 months or more				Total
	Fair		Unrecognized		Fair		Unrecognized		Fair		Unrecognized
	Value		Losses		Value		Losses		Value		Losses
Mortgage-backed securities	$	—	$	—	$	8,445	$	29	$	8,445	$	29
Total temporarily impaired held to maturity debt securities	$	—	$	—	$	8,445	$	29	$	8,445	$	29

The following table shows a roll-forward for the three-month ended March 31, 2020 for the of the allowance for credit losses on held to maturity debt investments:

	Municipal
Held to maturity debt securities	securities
Allowance for credit losses:
Beginning balance, January 1, 2020	$	—
Impact of adopting ASC 326		10
Provision for credit loss expense		—
Allowance on purchased financial assets with credit deterioration		—
Securities charged off		—
Recoveries		—
Total ending allowance balance	$	10

The Company adopted CECL effective January 1, 2020 and recorded allowance for credit losses of $10 for held to maturity debt securities. The Company did not record any provision for credit loss on held to maturity debt securities for the three-month ended March 31, 2020.

Credit Quality Indicators:

Pursuant to ASC 326, the Company must also determine if the decline in fair value of investment securities, relative to its amortized cost, is due to credit-related factors. With respect to U.S. Government agency securities, the Bank has determined that a decline in fair value is not due to credit-related factors. In addition, no held to maturity debt securities were past due or on non-accrual as of March 31, 2020. The Company monitors the credit quality of debt securities held to maturity through the use of credit rating and other factors specific to an individual security in assessing whether or not the decline in fair value of municipal and corporate securities, relative to their amortized cost, is due to credit-related factors. The Company uses the following triggers to prompt further investigation of securities when the fair value is less than amortized costs: the security has been downgraded and fallen below an A credit rating, and the security’s unrealized loss exceeds 20% of its book value. The Company monitors credit ratings quarterly and annually performs an internal credit review of its municipal securities.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following table summarizes the amortized costs of held to maturity debt securities at March 31, 2020, aggregated by credit quality indicator:

	Mortgage-backed		Municipal
	securities		securities
At March 31, 2020
AAA/AA/A	$	—	$	126,737
Not rated (1)		67,841		1,380
Total	$	67,841	$	128,117


(1)	All unrated mortgage-backed securities are FNMA and GNMA. The federal backing of these securities result in negligible credit risk.

NOTE 6: Loans Held for Sale

The Company accounts for loans held for sale under the fair value option with changes in fair value recognized in current period earnings. At the date of funding of the loan, the funded amount of the loan, the relative derivative asset or liability of the associated interest rate lock commitment, less direct costs, becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. Net gains from changes in estimated fair value of mortgage loans held for sale were $2,354 and $4 for the three-month periods ending March 31, 2020 and 2019, respectively. The total unpaid principal balance of loans held for sale was $185,962 and $141,627 at March 31, 2020 and December 31, 2019, respectively. No loans held for sale at March 31, 2020 or at December 31, 2019 were past due or on nonaccrual.

The table below summarizes the activity in mortgage loans held for sale during the three-month period ending March 31, 2020 and 2019.

	Three-month periods ended
	March 31, 2020			March 31, 2019
Beginning balance	$	142,801		$	40,399
Loans originated		423,622			134,752
Proceeds from sales		(391,242	)		(129,657	)
Net change in fair value		2,354			4
Net realized gain on sales		10,781			3,976
Ending balance	$	188,316		$	49,474

As loans are closed, they are typically sold at prices specified in the forward contracts. Gains or losses may arise if the yields of the loans delivered vary from those specified in the forward contracts. Derivative mortgage loan commitments, or interest rate locks, are also utilized and relate to the origination of a mortgage that will be held for sale upon funding. The Company uses these derivative financial instruments on its loans held for sale to manage interest rate risk and not for speculative purposes. The table below summarizes the main components of Mortgage Banking Revenue during the three-month period ending March 31, 2020 and 2019. The Mortgage Banking Revenue amounts are reported in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.

	Three-month periods ended
	March 31, 2020			March 31, 2019
Servicing fees and commissions	$	83		$	93
Gain on sale of loans held for sale		10,781			3,976
Unrealized gain on loans held for sale		2,354			4
(Loss) gain on mortgage derivatives		(1,147	)		557
Loss on mortgage hedge		(1,098	)		(404	)
Loss on mortgage servicing assets		—			(33	)
Mortgage banking revenue	$	10,973		$	4,193

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The table below summarizes the notional amounts for interest rate lock commitments, best efforts forward trades and MBS forward trades pertaining to loans held for sale at March 31, 2020 and 2019.

	Notional at
	March 31, 2020		March 31, 2019
Interest rate lock commitments	$	389,387	$	85,802
Best efforts forward trades		152,788		92,115
MBS forward trades		345,500		57,000
Total derivative instruments	$	887,675	$	234,917

Mortgage banking derivatives used in the ordinary course of business consist of forward sales contracts and interest rate lock commitments on residential mortgage loans. Forward sales contracts represent future commitments to deliver loans at a specified price and by a specified date and are used to manage interest rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund loans at a specific rate and by a specified expiration date. These derivatives involve underlying items, such as interest rates, and are designed to mitigate risk. Notional amounts are amounts on which calculations and payments are based, but which do not represent credit exposure, as credit exposure is limited to the amounts required to be received or paid.

NOTE 7: Loans

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.

	March 31, 2020			December 31, 2019
Loans excluding PCD loans
Real estate loans
Residential	$	2,537,240		$	2,512,544
Commercial		6,391,975			6,325,108
Land, development and construction		929,014			999,923
Total real estate		9,858,229			9,837,575
Commercial, industrial & factored receivables		1,778,526			1,759,074
Consumer and other loans		235,200			247,307
Loans before unearned fees and deferred cost		11,871,955			11,843,956
Net unearned fees and costs		4,954			4,519
Total loans excluding PCD loans		11,876,909			11,848,475
PCD loans (note 1)
Real estate loans
Residential		42,779			45,795
Commercial		92,281			81,576
Land, development and construction		5,447			4,655
Total real estate		140,507			132,026
Commercial and industrial		9,756			3,342
Consumer and other loans		59			100
Total PCD loans		150,322			135,468
Total loans		12,027,231			11,983,943
Allowance for credit losses for loans that are not PCD loans		(140,803	)		(40,429	)
Allowance for credit losses for PCD loans		(17,930	)		(226	)
Total loans, net of allowance for credit losses	$	11,868,498		$	11,943,288

note 1:

Purchased credit deteriorated (“PCD”) loans are being accounted for pursuant to ASC Topic 326 effective January 1, 2020.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The table below set forth the activity in the allowance for credit losses for the periods presented.

	Allowance for credit losses for loans that are not PCD loans			Allowance for credit losses on PCD loans			Total
Three-month ended March 31, 2020
Balance at beginning of period, prior to adoption of ASC 326	$	40,429		$	226		$	40,655
Impact of adopting ASC 326		57,604			17,004			74,608
Loans charged-off		(2,350	)		(1,257	)		(3,607	)
Recoveries of loans previously charged-off		1,201			962			2,163
Net charge-offs		(1,149	)		(295	)		(1,444	)
Provision for credit losses		43,919			995			44,914
Balance at end of period	$	140,803		$	17,930		$	158,733

Three-month ended March 31, 2019
Balance at beginning of period	$	39,579		$	191		$	39,770
Loans charged-off		(1,447	)		—			(1,447	)
Recoveries of loans previously charged-off		676			—			676
Net charge-offs		(771	)		—			(771	)
Provision for credit losses		1,053			—			1,053
Balance at end of period	$	39,861		$	191		$	40,052

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following tables present the activity in the allowance for credit losses by portfolio segment for the periods presented.

	Real Estate Loans									Comm.,
	Residential			Commercial			Land, develop., constr.			industrial & factored receivables			Consumer & other			Total
Allowance for credit losses for loans that are not PCD loans:
Three-month ended March 31, 2020
Beginning balance, prior to adoption of ASC 326	$	4,257		$	18,552		$	2,319		$	11,282		$	4,019		$	40,429
Impact of adopting ASC 326		11,412			35,596			6,932			2,995			669			57,604
Charge-offs		(294	)		—			(24	)		(1,117	)		(915	)		(2,350	)
Recoveries		181			305			25			556			134			1,201
Provision for credit losses		4,675			37,073			4,929			(2,727	)		(31	)		43,919
Balance at end of period	$	20,231		$	91,526		$	14,181		$	10,989		$	3,876		$	140,803

Three-month ended March 31, 2019
Beginning of the period	$	5,518		$	22,978		$	1,781		$	6,414		$	2,888		$	39,579
Charge-offs		(201	)		—			(31	)		(664	)		(551	)		(1,447	)
Recoveries		142			152			83			155			144			676
Provision for loan losses		(11	)		(883	)		387			1,025			535			1,053
Balance at end of period	$	5,448		$	22,247		$	2,220		$	6,930		$	3,016		$	39,861

	Real Estate Loans									Comm.,
	Residential			Commercial			Land, develop., constr.			industrial & factored receivables			Consumer & other			Total
Allowance for credit losses for loans that are PCD loans:
Three-month ended March 31, 2020
Beginning balance, prior to adoption of ASC 326	$	—		$	—		$	177		$	—		$	49		$	226
Impact of adopting ASC 326		3,021			11,966			79			1,924			14			17,004
Charge-offs		(156	)		(1,021	)		—			(80	)		—			(1,257	)
Recoveries		141			244			293			283			1			962
Provision for credit losses		(154	)		914			(291	)		533			(7	)		995
Balance at end of period	$	2,852		$	12,103		$	258		$	2,660		$	57		$	17,930

Three-month ended March 31, 2019
Beginning of the period	$	—		$	—		$	177		$	—		$	14		$	191
Charge-offs		—			—			—			—			—			—
Recoveries		—			—			—			—			—			—
Provision for loan losses		—			—			—			—			—			—
Balance at end of period	$	—		$	—		$	177		$	—		$	14		$	191

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

The following tables present the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019. Upon adoption of ASC Topic 326 effective January 1, 2020, the Company began to evaluate PCD loans that met the criteria for individual impairment analysis on a loan level basis. Previously, the Company accounted for PCD (formerly PCI) loans on a pool level basis pursuant to ASC 310-30 and were therefore collectively evaluated for period end December 31, 2019. Accrued interest receivable and unearned loan fees and costs are not included in the recorded investment because they are not material.

	Real Estate Loans						Comm.,
	Residential		Commercial		Land, develop., constr.		industrial & factored receivables		Consumer & other		Total
As of March 31, 2020
Allowance for credit losses:
Ending allowance balance attributable to:
Non-PCD loans
Individually evaluated for impairment	$	322	$	280	$	4	$	1,314	$	—	$	1,920
Collectively evaluated for impairment		19,909		91,246		14,177		9,675		3,876		138,883
Total ending allowance balance, non-PCD	$	20,231	$	91,526	$	14,181	$	10,989	$	3,876	$	140,803
PCD loans
Individually evaluated for impairment	$	—	$	9,917	$	—	$	2,398	$	—	$	12,315
Collectively evaluated for impairment		2,852		2,186		258		262		57		5,615
Total ending allowance balance, PCD	$	2,852	$	12,103	$	258	$	2,660	$	57	$	17,930
Total ending allowance balance	$	23,083	$	103,629	$	14,439	$	13,649	$	3,933	$	158,733

Loans:
Non-PCD loans
Individually evaluated for impairment	$	4,659	$	18,145	$	781	$	7,276	$	134	$	30,995
Collectively evaluated for impairment		2,532,581		6,373,830		928,233		1,771,250		235,066		11,840,960
Total non-PCD loans	$	2,537,240	$	6,391,975	$	929,014	$	1,778,526	$	235,200	$	11,871,955
PCD loans
Individually evaluated for impairment	$	—	$	19,611	$	—	$	3,165	$	—	$	22,776
Collectively evaluated for impairment		42,779		72,670		5,447		6,591		59		127,546
Total PCD loans	$	42,779	$	92,281	$	5,447	$	9,756	$	59	$	150,322
Total ending loan balances	$	2,580,019	$	6,484,256	$	934,461	$	1,788,282	$	235,259	$	12,022,277

	Real Estate Loans						Comm.,
	Residential		Commercial		Land, develop., constr.		industrial & factored receivables		Consumer & other		Total
As of December 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	588	$	375	$	—	$	914	$	1	$	1,878
Collectively evaluated for impairment		3,669		18,177		2,319		10,368		4,018		38,551
Purchased credit impaired		—		—		177		—		49		226
Total ending allowance balance	$	4,257	$	18,552	$	2,496	$	11,282	$	4,068	$	40,655

Loans:
Individually evaluated for impairment	$	6,475	$	11,445	$	865	$	7,232	$	123	$	26,140
Collectively evaluated for impairment		2,506,069		6,313,663		999,058		1,751,842		247,184		11,817,816
Purchased credit impaired		45,795		81,576		4,655		3,342		100		135,468
Total ending loan balances	$	2,558,339	$	6,406,684	$	1,004,578	$	1,762,416	$	247,407	$	11,979,424

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

The table below summarizes impaired loan data for the periods presented.

	March 31, 2020		December 31, 2019
Performing TDRs (these are not included in nonperforming loans ("NPLs"))	$	7,215	$	8,012
Nonperforming TDRs (these are included in NPLs)		4,648		4,512
Total TDRs (these are included in impaired loans)		11,863		12,524
Impaired loans that are not TDRs		19,132		13,616
Total impaired loans, excluding PCD loans	$	30,995	$	26,140
Impaired PCD loans		22,776		—
Total impaired loans	$	53,771	$	26,140

Troubled Debt Restructurings:

In certain situations, it is common to restructure or modify the terms of troubled loans (i.e. troubled debt restructure or “TDRs”). In those circumstances, it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in a distressed sale. When the terms of a loan have been modified, usually the monthly payment and/or interest rate is reduced for generally twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan modifications to date.

TDRs as of March 31, 2020 and December 31, 2019 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non-performing loans) are presented in the tables below.

	Accruing		Non-accrual		Total
As of March 31, 2020
Real estate loans:
Residential	$	4,660	$	813	$	5,473
Commercial		1,290		—		1,290
Land, development, construction		46		470		516
Total real estate loans		5,996		1,283		7,279
Commercial and industrial		1,085		3,365		4,450
Consumer and other		134		—		134
Total TDRs	$	7,215	$	4,648	$	11,863

	Accruing		Non-Accrual		Total
As of December 31, 2019
Real estate loans:
Residential	$	4,862	$	1,147	$	6,009
Commercial		1,706		—		1,706
Land, development, construction		175		—		175
Total real estate loans		6,743		1,147		7,890
Commercial and industrial		1,146		3,365		4,511
Consumer and other		123		—		123
Total TDRs	$	8,012	$	4,512	$	12,524

The Company’s policy is to return non-accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. Our policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for credit loss expense of $22 and partial charge offs of $21 on the TDR loans described above during the three-month period ending March 31, 2020. The Company recorded a provision for credit loss expense of $31 and partial charge-offs of $8 on TDR loans during the three-month period ending March 31, 2019.

Loans are modified to minimize credit losses when we believe the modification will improve the borrower’s financial condition and ability to repay the loan. We typically do not forgive principal. We generally either reduce interest rates or decrease monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. We may also extend maturities, convert balloon loans to longer-term amortizing loans, or vice versa, or change interest rates between variable and fixed rate. Each borrower and situation is unique and we try to accommodate the borrower and minimize the Company’s potential losses. Approximately 61% of our TDRs are current pursuant to their modified terms, and $4,648, or approximately 39% of our total TDRs are not performing pursuant to their modified terms. There does not appear to be any significant difference in success rates with one type of concession versus another.

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

Loans modified as TDRs during the three-month period ending March 31, 2020 were $482. Loans modified as TDRs during the three-month period ending March 31, 2019 were $713. The Company recorded $14 of credit loss provision for loans modified during the three-month period ending March 31, 2020. No credit loss provision was recorded during the three-month period ending March 31, 2019.

The following table presents loans by class modified and for which there was a payment default within twelve months following the modification during the periods ending March 31, 2020 and 2019.

	Period ending				Period ending
	March 31, 2020				March 31, 2019
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
Residential		1	$	169		—	$	—
Commercial real estate		1		267		—		—
Land, development, construction		—		—		—		—
Commercial and industrial		1		61		1		122
Consumer and other		—		—		—		—
Total		3	$	497		1	$	122

The Company recorded $1 provision for credit loss expense related to TDRs and $1 partial charge offs on TDR loans subsequently defaulted during the for three-month period ending March 31, 2020. The Company recorded no provision for loan loss expense of and no partial charge offs on TDR loans that subsequently defaulted as described above during the three-month period ending March 31, 2019.

The following tables present non-PCD loans individually evaluated for impairment by class of loans as March 31, 2020 and December 31, 2019. The recorded investment is less than the unpaid principal balance due to partial charge-offs.

	Unpaid principal balance		Recorded investment		Allowance for credit losses allocated
As of March 31, 2020
With no related allowance recorded:
Residential real estate	$	2,822	$	2,669	$	—
Commercial real estate		16,470		15,003		—
Land, development, construction		755		725		—
Commercial and industrial		3,737		3,424		—
Consumer, other		110		109		—

With an allowance recorded:
Residential real estate		2,126		1,990		322
Commercial real estate		3,175		3,142		280
Land, development, construction		56		56		4
Commercial and industrial		3,922		3,852		1,314
Consumer, other		30		25		—
Total	$	33,203	$	30,995	$	1,920

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
As of December 31, 2019
With no related allowance recorded:
Residential real estate	$	2,894	$	2,744	$	—
Commercial real estate		11,031		10,015		—
Land, development, construction		886		865		—
Commercial and industrial		5,522		4,820		—
Consumer, other		99		98		—

With an allowance recorded:
Residential real estate		3,920		3,731		588
Commercial real estate		1,438		1,430		375
Land, development, construction		—		—		—
Commercial and industrial		2,486		2,412		914
Consumer, other		31		25		1
Total	$	28,307	$	26,140	$	1,878

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
Three-month ended March 31, 2020
Real estate loans:
Residential	$	5,567	$	37	$	—
Commercial		14,795		31		—
Land, development, construction		823		2		—
Total real estate loans		21,185		70		—

Commercial and industrial		7,254		18		—
Consumer and other loans		129		2		—
Total	$	28,568	$	90	$	—

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
Three-month ended March 31, 2019
Real estate loans:
Residential	$	5,945	$	62	$	—
Commercial		7,787		25		—
Land, development, construction		117		1		—
Total real estate loans		13,849		88		—

Commercial and industrial		2,600		12		—
Consumer and other loans		140		2		—
Total	$	16,589	$	102	$	—

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following tables present PCD loans, accounted for pursuant to ASC Topic 326, individually evaluated for impairment by class of loans as of March 31, 2020. The recorded investment is less than the unpaid principal balance due to partial charge-offs and non-credit discounts. In addition, the interest income recognized during impairment excludes interest accretion recognized during the current reporting period.

	Unpaid principal balance		Recorded investment		Allowance for credit losses allocated
As of March 31, 2020, PCD loans
With no related allowance recorded:
Residential real estate	$	—	$	—	$	—
Commercial real estate		—		—		—
Land, development, construction		—		—		—
Commercial and industrial		—		—		—
Consumer, other		—		—		—

With an allowance recorded:
Residential real estate		—		—		—
Commercial real estate		35,999		19,611		9,917
Land, development, construction		—		—		—
Commercial and industrial		4,745		3,165		2,398
Consumer, other		—		—		—
Total	$	40,744	$	22,776	$	12,315

	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
Three-month ended March 31, 2020, PCD loans
Real estate loans:
Residential	$	—	$	—	$	—
Commercial		20,128		125		—
Land, development, construction		—		—		—
Total real estate loans		20,128		125		—

Commercial and industrial		3,593		23		—
Consumer and other loans		—		—		—
Total	$	23,721	$	148	$	—

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All loans greater than 90 days past due are placed on non-accrual status, excluding factored receivables. For CBI’s factored receivables, which are commercial trade credits rather than promissory notes, the Company’s practice, in most cases, is to charge-off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual PCD loans in its nonperforming loans. As such the nonperforming loans as of March 31, 2020 include PCD loans accounted for pursuant to ASC 326 as these loans are individually evaluated. The nonperforming loans do not include PCD (formerly PCI) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool level basis.

Nonperforming loans were as follows:	March 31, 2020		December 31, 2019
Non-accrual loans, non-PCD	$	45,305	$	36,916
Non-accrual loans, PCD		33,893		—
Loans past due over 90 days and still accruing interest		535		1,692
Total nonperforming loans	$	79,733	$	38,608

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2020 and December 31, 2019. Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual PCD loans in its nonperforming loans. As such the nonperforming loans as of March 31, 2020 below include PCD loans accounted for pursuant to ASC 326 but does not include PCD (formerly PCI) loans in non-performing loans as of December 31, 2019.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

	Non-accrual with no allocated allowance for credit losses		Non-accrual with allocated allowance for credit losses		Loans past due over 90 days still accruing
As of March 31, 2020
Non-PCD loans:
Residential real estate	$	11,537	$	926	$	—
Commercial real estate		18,386		2,264		—
Land, development, construction		2,107		470		—
Comm., industrial & factored receivables		5,713		2,869		535
Consumer, other		1,033		—		—
Total	$	38,776	$	6,529	$	535

	Non-accrual with no allocated allowance for credit losses		Non-accrual with allocated allowance for credit losses		Loans past due over 90 days still accruing
As of March 31, 2020
PCD loans:
Residential real estate	$	8,847	$	—	$	—
Commercial real estate		10,722		9,609		—
Land, development, construction		1,334		—		—
Comm., industrial & factored receivables		1,396		1,969		—
Consumer, other		16		—		—
Total	$	22,315	$	11,578	$	—

	Non-accrual		Loans past due over 90 days still accruing
As of December 31, 2019
Non-PCD loans:
Residential real estate	$	13,455	$	—
Commercial real estate		12,141		—
Land, development, construction		2,516		—
Commercial and industrial		7,884		1,692
Consumer, other		920		—
Total	$	36,916	$	1,692

Collateral dependent loans:

Collateral dependent loans are impaired loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. They are written down to the lower of cost or collateral value less estimated selling costs. As of March 31, 2020, there were $19,611 of collateral-dependent loans which are secured by real-estate.

The following table presents the aging of the recorded investment in past due non-PCD loans as of March 31, 2020 and December 31, 2019:

	Accruing Loans
As of March 31, 2020	Total		30 - 59 days past due		60 - 89 days past due		Greater than 90 days past due		Total past due		Loans not past due		Nonaccrual loans
Residential real estate	$	2,537,240	$	17,555	$	910	$	—	$	18,465	$	2,506,312	$	12,463
Commercial real estate		6,391,975		10,802		7,147		—		17,949		6,353,376		20,650
Land, development, construction		929,014		4,757		74		—		4,831		921,606		2,577
Comm., industrial & factored receivables		1,778,526		15,859		2,043		535		18,437		1,751,507		8,582
Consumer		235,200		1,870		377		—		2,247		231,920		1,033
	$	11,871,955	$	50,843	$	10,551	$	535	$	61,929	$	11,764,721	$	45,305

	Accruing Loans
As of December 31, 2019	Total		30 - 59 days past due		60 - 89 days past due		Greater than 90 days past due		Total past due		Loans not past due		Nonaccrual loans
Residential real estate	$	2,512,544	$	7,601	$	5,928	$	—	$	13,529	$	2,485,560	$	13,455
Commercial real estate		6,325,108		7,554		2,577		—		10,131		6,302,836		12,141
Land, development, construction		999,923		1,343		2,349		—		3,692		993,715		2,516
Comm., industrial & factored receivables		1,759,074		14,924		12,465		1,692		29,081		1,722,109		7,884
Consumer		247,307		1,663		907		—		2,570		243,817		920
	$	11,843,956	$	33,085	$	24,226	$	1,692	$	59,003	$	11,748,037	$	36,916

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following table presents the aging of the recorded investment in past due PCD loans as of March 31, 2020:

	Accruing Loans
As of March 31, 2020	Total		30 - 59 days past due		60 - 89 days past due		Greater than 90 days past due		Total past due		Loans not past due		Nonaccrual loans
Residential real estate	$	42,779	$	782	$	—	$	—	$	782	$	33,150	$	8,847
Commercial real estate		92,281		870		—		—		870		71,080		20,331
Land, development, construction		5,447		12		35		—		47		4,066		1,334
Comm., industrial & factored receivables		9,756		1,049		168		—		1,217		5,174		3,365
Consumer		59		3		—		—		3		40		16
	$	150,322	$	2,716	$	203	$	—	$	2,919	$	113,510	$	33,893

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as; current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Effective January 1, 2020, the Company began accounting for PCD loans pursuant to ASC Topic 326. Previously, PCD (formerly PCI) loans were accounted for pursuant to ASC Topic 310-30. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Term Loans Amortized Cost Basis by Origination Year
Loan Category	2020		2019		2018		2017		2016		Prior		Revolving loans amortized cost		Total
As of March 31, 2020
Residential Non-PCD:
Risk rating
Pass	$	96,916	$	331,772	$	340,612	$	235,228	$	191,581	$	626,533	$	659,493	$	2,482,135
Special mention		—		—		272		1,258		3,182		21,568		3,414		29,694
Substandard		—		19		1,893		1,642		1,200		16,183		4,474		25,411
Total residential loans	$	96,916	$	331,791	$	342,777	$	238,128	$	195,963	$	664,284	$	667,381	$	2,537,240
Commercial Non-PCD:
Risk rating
Pass	$	231,694	$	1,068,021	$	1,013,588	$	908,262	$	827,344	$	2,162,917	$	—	$	6,211,826
Special mention		555		6,378		3,801		16,580		13,985		79,175		—		120,474
Substandard		—		439		1,111		9,406		10,942		37,777		—		59,675
Total commercial loans	$	232,249	$	1,074,838	$	1,018,500	$	934,248	$	852,271	$	2,279,869	$	—	$	6,391,975
Land, Dev., Construction Non-PCD:
Risk rating
Pass	$	55,460	$	414,429	$	218,397	$	84,358	$	51,453	$	93,530	$	—	$	917,627
Special mention		—		184		626		584		—		6,042		—		7,436
Substandard		—		348		274		154		919		2,256		—		3,951
Total land, dev., construction loans	$	55,460	$	414,961	$	219,297	$	85,096	$	52,372	$	101,828	$	—	$	929,014

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Commercial & Industrial Non-PCD:
Risk rating
Pass	$	113,652	$	334,843	$	382,869	$	287,342	$	161,970	$	449,985	$	—	$	1,730,661
Special mention		—		—		75		3,026		2,264		25,662		—		31,027
Substandard		98		995		5,212		5,480		3,020		2,033		—		16,838
Total commercial & industrial loans	$	113,750	$	335,838	$	388,156	$	295,848	$	167,254	$	477,680	$	—	$	1,778,526
Consumer & Other Non-PCD:
Risk rating
Pass	$	20,977	$	65,488	$	42,744	$	25,046	$	29,300	$	23,642	$	26,498	$	233,695
Special mention		—		—		—		5		33		108		—		146
Substandard		—		141		106		137		670		267		38		1,359
Total consumer & other loans	$	20,977	$	65,629	$	42,850	$	25,188	$	30,003	$	24,017	$	26,536	$	235,200

Total, non-PCD loans	$	519,352	$	2,223,057	$	2,011,580	$	1,578,508	$	1,297,863	$	3,547,678	$	693,917	$	11,871,955

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
Loan Category	2020		2019		2018		2017		2016		Prior		cost		Total
As of March 31, 2020
Residential PCD:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	268	$	14,814	$	3,695	$	18,777
Special mention		—		—		—		—		—		3,849		224		4,073
Substandard		—		98		—		3		500		16,945		2,383		19,929
Total residential loans	$	—	$	98	$	—	$	3	$	768	$	35,608	$	6,302	$	42,779
Commercial PCD:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	25,820	$	—	$	25,820
Special mention		—		—		—		—		—		10,792		—		10,792
Substandard		—		1,807		—		2,801		678		50,383		—		55,669
Total commercial loans	$	—	$	1,807	$	—	$	2,801	$	678	$	86,995	$	—	$	92,281
Land, Dev., Construction PCD:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	1,810	$	—	$	1,810
Special mention		—		—		—		—		—		630		—		630
Substandard		—		—		188		—		121		2,698		—		3,007
Total land, dev., construction loans	$	—	$	—	$	188	$	—	$	121	$	5,138	$	—	$	5,447
Commercial & Industrial PCD:
Risk rating
Pass	$	—	$	—	$	15	$	—	$	—	$	1,398	$	—	$	1,413
Special mention		—		—		—		—		—		405		—		405
Substandard		—		—		48		1,123		1,286		5,481		—		7,938
Total commercial & industrial loans	$	—	$	—	$	63	$	1,123	$	1,286	$	7,284	$	—	$	9,756
Consumer & Other PCD:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	30	$	3	$	33
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		1		—		25		—		26
Total consumer & other loans	$	—	$	—	$	—	$	1	$	—	$	55	$	3	$	59

Total, PCD loans	$	—	$	1,905	$	251	$	3,928	$	2,853	$	135,080	$	6,305	$	150,322

As of December 31, 2019, the risk category of loans by class of loans, excluding purchased credit deteriorated loans, is presented below.

	As of December 31, 2019
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	2,455,752	$	31,189	$	25,603	$	—
Commercial real estate		6,151,309		118,412		55,387		—
Land, development, construction		989,860		6,418		3,645		—
Comm., industrial & factored receivables		1,705,862		35,070		18,142		—
Consumer		245,905		160		1,242		—
Total	$	11,548,688	$	191,249	$	104,019	$	—

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
Loan Category	2020		2019		2018		2017		2016		Prior		cost		Total
As of March 31, 2020
Residential Non-PCD:
Performing	$	96,916	$	331,639	$	342,340	$	236,663	$	195,436	$	657,475	$	664,308	$	2,524,777
Nonperforming		—		152		437		1,465		527		6,809		3,073		12,463
Total residential loans	$	96,916	$	331,791	$	342,777	$	238,128	$	195,963	$	664,284	$	667,381	$	2,537,240

Consumer & Other Non-PCD:
Performing	$	20,977	$	65,599	$	42,794	$	25,055	$	29,469	$	23,750	$	26,523	$	234,167
Nonperforming		—		30		56		133		534		267		13		1,033
Total consumer & other loans	$	20,977	$	65,629	$	42,850	$	25,188	$	30,003	$	24,017	$	26,536	$	235,200

As of March 31, 2020
Residential PCD:
Performing	$	—	$	98	$	—	$	—	$	471	$	27,984	$	5,379	$	33,932
Nonperforming		—		—		—		3		297		7,624		923		8,847
Total residential loans	$	—	$	98	$	—	$	3	$	768	$	35,608	$	6,302	$	42,779

Consumer & Other PCD:
Performing	$	—	$	—	$	—	$	1	$	—	$	39	$	3	$	43
Nonperforming		—		—		—		—		—		16		—		16
Total consumer & other loans	$	—	$	—	$	—	$	1	$	—	$	55	$	3	$	59

As of December 31, 2019	Residential		Consumer
Performing	$	2,499,089	$	246,387
Nonperforming		13,455		920
Total	$	2,512,544	$	247,307

Purchased Credit Deteriorated (“PCD”) loans:

Effective January 1, 2020, the Company began accounting for PCD loans pursuant to ASC Topic 326. As such, the following disclosures are no longer applicable for the current period and are only presented for periods prior to the adoption of ASC Topic 326. Prior to the adoption of ASC 326, income was recognized on PCD (formerly PCI) loans pursuant to ASC Topic 310. A portion of the fair value discount was ascribed as an accretable yield that was accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represented cash flows not expected to be collected.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of December 31, 2019. Contractually required principal and interest payments were adjusted for estimated prepayments.

	December 31, 2019
Contractually required principal and interest	$	244,189
Non-accretable difference		(46,271	)
Cash flows expected to be collected		197,918
Accretable yield		(62,450	)
Carrying value of acquired loans		135,468
Allowance for credit losses		(226	)
Carrying value less allowance for credit losses	$	135,242

The Company adjusted its estimates of future expected losses, cash flows and renewal assumptions for the three months ended March 31, 2019. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. The Company reclassified $7,199 from non-accretable difference to accretable yield during the three-month period ending March 31, 2019 to reflect its adjusted estimates of future expected cash flows at that time.

The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans during the three-month period ending March 31, 2019.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Activity during the three-month period ending March 31, 2019	December 31, 2018			Effect of acquisitions		income accretion		all other adjustments			March 31, 2019
Contractually required principal and interest	$	267,815		$	—	$	—	$	(19,572	)	$	248,243
Non-accretable difference		(38,602	)		—		—		9,737			(28,865	)
Cash flows expected to be collected		229,213			—		—		(9,835	)		219,378
Accretable yield		(70,242	)		—		10,140		(9,820	)		(69,922	)
Carry value of acquired loans	$	158,971		$	—	$	10,140	$	(19,655	)	$	149,456

NOTE 8: Securities sold under agreement to repurchase

The Company enters into borrowing arrangements with our retail business customers by agreements to repurchase (“securities sold under agreements to repurchase”) under which the bank pledges investment securities owned and under its control as collateral against these one-day borrowing arrangements. These short-term borrowings totaled $81,736 at March 31, 2020 compared to $93,141 at December 31, 2019. Repurchase agreements are secured by obligations of U.S. government agencies and municipal securities with fair values of $113,426 and $131,394 at March 31, 2020 and December 31, 2019, respectively. The following table provides additional details for the periods presented.

	MBS			Municipal
As of March 31, 2020	securities			securities			Total
Market value of securities pledged	$	112,973		$	453		$	113,426
Borrowings related to pledged amounts		81,520			216			81,736
Market value pledged as a % of borrowings		139	%		209	%		139	%

As of December 31, 2019
Market value of securities pledged	$	130,942		$	451		$	131,394
Borrowings related to pledged amounts		92,953			188			93,141
Market value pledged as a % of borrowings		141	%		240	%		141	%

Any risk related to these arrangements, primarily market value changes, are minimized due to the overnight (one day) maturity and the additional collateral pledged over the borrowed amounts.

NOTE 9: Business Combinations

Acquisition of National Commerce Corporation

On April 1, 2019, the Company completed its acquisition of NCOM whereby NCOM merged with and into the Company. Pursuant to and simultaneously with the merger of NCOM with and into the Company, NCOM’s wholly owned subsidiary bank, National Bank of Commerce, merged with and into the Company’s subsidiary bank, CenterState Bank, N.A. As a result of that merger, the Bank acquired a controlling 70% interest in CBI, and its factoring subsidiary, Corporate Billing. Effective September 30, 2019, the Company purchased the 30% noncontrolling interest of CBI for $11,400.

The Company’s primary reasons for the transaction were to further expand its franchise into Georgia and Alabama, further solidify its market share in the Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 36% and 37% as compared with the balances at December 31, 2018 and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. During the three-month periods ending March 31, 2020 and 2019, the Company incurred approximately ($25) and $1,264, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in merger and acquisition related expenses on the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill on this acquisition of $401,537 which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill is calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The table below summarizes the purchase price calculation.

Number of shares of NCOM common stock outstanding at March 29, 2019		21,011,352
Per share exchange ratio		1.650
Number of shares of CenterState common stock less 763 of fractional shares		34,667,968
CenterState common stock price per share on March 29, 2019	$	23.81
Fair value of CenterState common stock issued	$	825,444

Cash Consideration for 763 of fractional shares	$	20

Total Stock Consideration	$	825,444
Total Cash Consideration		20
Total consideration to be paid to NCOM common shareholders	$	825,464
Fair value of NCOM stock options converted to CenterState stock options		5,848
Fair value of NCOM warrants converted to CenterState warrants		384
Total Purchase Price for NCOM	$	831,696

The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed as of the April 1, 2019 purchase date.

	April 1, 2019
Assets:
Cash and cash equivalents	$	268,524
Loans, held for investment		3,309,234
Purchased credit impaired loans		18,616
Loans held for sale		14,588
Investments		178,488
Accrued interest receivable		11,006
Branch real estate		61,295
Furniture and fixtures		7,204
Bank property held for sale		12,436
FHLB, FRB and other stock		17,076
Bank owned life insurance		55,474
Other real estate owned		875
Servicing asset		1,581
Core deposit intangible		39,900
Goodwill		401,537
Deferred tax asset		16,285
Other assets		23,663
Total assets acquired	$	4,437,782
Liabilities:
Deposits	$	3,486,732
Securities sold under agreement to repurchase		18,833
Subordinated debt		38,802
Accrued interest payable		2,095
Other liabilities		47,622
Noncontrolling interest		12,002
Total liabilities assumed and noncontrolling interest	$	3,606,086

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of April 1, 2019 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

Contractually required principal and interest	$	51,527
Non-accretable difference		(29,187	)
Cash flows expected to be collected		22,340
Accretable yield		(3,724	)
Total purchased credit-impaired loans acquired	$	18,616

The table below presents information with respect to the fair value of acquired loans, as well as their Book Balance at acquisition date.

	Book		Fair
	Balance		Value
Loans:
Single family residential real estate	$	615,296	$	608,705
Commercial real estate		1,762,480		1,736,653
Construction/development/land		363,005		358,643
Commercial loans		539,698		536,262
Consumer and other loans		70,058		68,971
Purchased credit-impaired		38,697		18,616
Total earning assets	$	3,389,234	$	3,327,850

In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $39,900, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Pro-forma information

Pro-forma data for the three-month period ending March 31, 2019 listed in the table below presents pro-forma information as if the NCOM acquisitions occurred at the beginning of 2019.

	Three-month ended March 31,
	2019
Net interest income	$	163,968
Net income available to common shareholders	$	65,178
EPS - basic	$	0.50
EPS - diluted	$	0.50

The disclosures regarding the results of operations for NCOM subsequent to its respective acquisition date are omitted as this information is not practical to obtain. Although the Company did not convert NCOM’s core system until the third quarter of 2019, the majority of the fixed costs and purchase accounting entries were booked on the Company’s core system making it impractical to determine NCOM’s results of operation on a stand-alone basis.

Announcement of Merger of Equals between CenterState and South State Corporation

On January 27, 2020, the Company and South State Corporation (“South State”) 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 South State, subject to the terms and conditions set forth therein. Under the terms of the Merger Agreement, which was unanimously approved by the Boards of Directors of both companies, the Company’s shareholders will receive 0.3001 shares of South State common stock for each share of CenterState common stock they own. The transaction is expected to close in the third quarter of 2020 subject to customary closing conditions, including receipt of all applicable regulatory approvals and shareholder approval of each company. The Company’s primary reason for the transaction is to create a leading Southeastern-based regional bank, which diversifies each company’s geographies into a contiguous six-state footprint, spanning from Florida to Virginia. The transaction will also expand both companies’ customer base which will enhance deposit fee income and leverage operating cost through economies of scale. The combined company will operate under the South State Bank name and will trade under the South State ticker symbol SSB on the Nasdaq stock market. The company will be headquartered in Winter Haven, Florida and will maintain a significant presence in Columbia and Charleston, South Carolina; Charlotte, North Carolina; and Atlanta, Georgia. South State is a bank holding company headquartered in Columbia, South Carolina. South State’s bank subsidiary South State Bank operates 157 banking locations. South State reported total assets of $16,642,911, total loans of $11,506,890 and total deposits of $12,344,547 as of March 31, 2020.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 10: Interest Rate Swap Derivatives

Fair Value Hedge

The Company enters into interest rate swaps in order to provide commercial loan clients the ability to swap from variable to fixed interest rates. Under these agreements, the Company enters into a variable rate loan with a client in addition to a swap agreement. This swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company then enters into a matching swap agreement with a third party dealer in order to offset its exposure on the customer swap. At March 31, 2020 and December 31, 2019, the notional amount of such arrangements were $12,408,888 and $10,596,427, respectively. The Company pledged $550,101 and $140,913 of cash as collateral to the third party dealers at March 31, 2020 and December 31, 2019, respectively. The Company also pledged $605,100 and $361,127 of securities to the third party dealers and clearinghouse exchanges at March 31, 2020 and December 31, 2019, respectively. As the interest rate swaps with the clients and third parties are not designated as hedges under ASC 815, changes in market values are reported in earnings.

Summary information about the interest rate swap derivative instruments is as follows:

	March 31, 2020			December 31, 2019
Notional amount	$	12,408,888		$	10,596,427
Weighted average pay rate on interest-rate swaps		2.70	%		3.20	%
Weighted average receive rate on interest rate swaps		2.70	%		3.20	%
Weighted average maturity (years)		11			11
Fair value of interest rate swap derivatives (asset)	$	831,891		$	273,068
Fair value of interest rate swap derivatives (liability)	$	833,977		$	274,216

Cash Flow Hedge

The following table reflects the cash flow hedge included in the Condensed Consolidated Balance Sheets as of March 31, 2020:

	March 31, 2020
Notional amount	$	150,000
Fair value of interest rate swap derivatives (asset)		—
Fair value of interest rate swap derivatives (liability)		8,474

	March 31, 2020
	Amount of			Amount of gain / (loss)		Location of gain / (loss)
	loss			reclassified from OCI		reclassified from AOCI
	recognized in OCI			to interest income		to income
Interest rate contracts - pay fixed, receive floating	$	(5,740	)	$	—	Interest expense: Federal funds purchased and other borrowings

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

During the three-month ended March 31, 2020, the derivative position designed as a cash flow hedge was not discontinued and none of the losses reported in Accumulated Other Comprehensive Income were reclassified into earnings as a result of the discontinuance of a cash flow hedge or because of the early extinguishment of the borrowing.

NOTE 11: Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Subsequently, amendments ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements were issued. ASC 842 established a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

ASC 842 was effective on January 1, 2019. The Company leases certain properties and equipment under operating leases that resulted in the recognition of ROU Lease Assets of $20,311 and Lease Liabilities of $22,795 on the Company’s Condensed Consolidated Balance Sheets. The one-time transition impact to retained earnings from measurement differences was approximately $1,093 as disclosed on the Company’s Condensed Consolidated Statements of Changes in Stockholders’ Equity.

ASC 842 provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. The practical expedient pertaining to land easements was not applicable to the Company.

Lessee Leases

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

	Three-month periods ended
	March 31, 2020			March 31, 2019
Amortization of ROU Assets - Finance Leases	$	55		$	38
Interest on Lease Liabilities - Finance Leases		72			50
Operating Lease Cost (Cost resulting from lease payments)		2,141			1,287
Short-term Lease Cost		1			—
Variable Lease Cost (Cost excluded from lease payments)		296			235
Total Lease Cost	$	2,565		$	1,610
Finance Lease - Operating Cash Flows		65			57
Finance Lease - Financing Cash Flows		78			91
Operating Lease - Operating Cash Flows (Fixed Payments)		2,191			1,241
Operating Lease - Operating Cash Flows (Liability Reduction)		3,974			1,181
New ROU Assets - Operating Leases		4,749			21,351
Weighted Average Lease Term (Years) - Finance Leases		10.64			19.22
Weighted Average Lease Term (Years) - Operating Leases		6.59			7.65
Weighted Average Discount Rate - Finance Leases		5.83	%		5.95	%
Weighted Average Discount Rate - Operating Leases		3.25	%		3.65	%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of March 31, 2020 is as follows:

	March 31, 2020
Operating lease payments due:
Within one year	$	8,380
After one but within two years		7,165
After two but within three years		5,667
After three but within four years		4,823
After four years but within five years		3,932
After five years		9,401
Total undiscounted cash flows		39,368
Discount on cash flows		(4,200	)
Total operating lease liabilities	$	35,168

The following is a schedule of future minimum annual rentals under operating leases as of December 31, 2019:

	December 31, 2019
Operating lease payments due:
Within one year	$	7,577
After one but within two years		6,693
After two but within three years		5,358
After three but within four years		4,419
After four years but within five years		3,723
After five years		11,410
Total undiscounted cash flows		39,180
Discount on cash flows		(4,695	)
Total operating lease liabilities	$	34,485

Lessor Leases

Similar to the above lessee leases, the Company elected the ‘package of practical expedients,’ which allows the Company not to reassess the Company’s prior conclusions under ASC 842 about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. Lastly, the practical expedient pertaining to land easements is not applicable to the Company.

CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)

Substantially, all of the Company’s lessor leases are related to unused real estate office space owned by the Company. Most have defined terms, though some leases have gone month-to-month once the initial term has passed. The impact of subleases was not material. Income from operating leases are reported within Occupancy Expense as an offset to Non-interest Expense in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.

	Three-month periods ended
	March 31, 2020		March 31, 2019
Operating Lease Income from Lease Payments	$	476	$	212
Direct Financing Lease Income		25		173
Total Lease Income	$	501	$	385

Net Investment in Direct Financing Leases	$	1,167	$	15,785
Unguaranteed Residual Assets		—		—
Deferred Selling Profit on Direct Financing Leases		—		—

Maturity Analysis of Operating Lease Receivables
0 - 12 Months	$	2,089	$	962
13 - 24 Months		1,609		551
25 - 36 Months		710		341
37 - 48 Months		124		166
48 - 60 Months		—		6
Over 60 Months		—		—

Maturity Analysis of Finance Lease Receivables
0 - 12 Months	$	912	$	1,392
13 - 24 Months		251		1,841
25 - 36 Months		—		1,618
37 - 48 Months		—		1,356
48 - 60 Months		—		1,355
Over 60 Months		—		12,543

NOTE 12: Recently Issued Accounting Standards

Adoption of ASU 2016-13:

On January 1, 2020, The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to Off-Balance Sheet (“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments and leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write down on available for sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and OBS credit exposures. Results for periods reporting beginning after and January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The January 1, 2020 transition to ASC 326 required an increase of $74,608 to the ACL, including a reclassification of $17,004 from loan discount to allowance for credit losses due to the transition of its PCI loans to PCD loans. This reclassification from loan discount to ACL for PCD loans did not impact retained earnings. The post-transition CECL Method ACL is $115,270 compared to the December 31, 2019 Incurred Loss Method ALLL of $40,652. CECL requires a Company to consider a credit reserve on HTM securities; however, the strong credit quality of the portfolio resulted in a minimal ACL of $10. CECL requires a Company to consider a reserve for unfunded commitments and to record this exposure as a liability separate from the ACL. Upon adoption of ASC 326, the Company recorded a $6,084 reserve for unfunded commitments. The increase to the ACL for loans, excluding the reclassification of loan discount for PCD loans, plus the reserve for unfunded commitments and allowance for credit losses for HTM debt securities resulted in a reduction to retained earnings of $47,751, net of $15,947 for deferred taxes.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The Company adopted ASC 326 using the prospective transition approach for PCD financial assets that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $17,230 of the ACL. The remaining non-credit discount for PCD loans was allocated to each individual PCD loans and will be accreted into interest income at the effective interest rate as of January 1, 2020.

As allowed by ASC 326, the Company elected to maintain pools of loans accounted for under ASC 310-30 for ACL purposes. CECL does not provide for the PCD pool accounting due to individual allocation of the non-credit-related discount, but does allow for the maintenance of existing pools upon the transition from PCI to PCD for ACL purposes. The Company elected to retain these pools, and consolidated them into ten pools of similar risk characteristics consistent with those segments and sub-segments of non-PCD loans. PCD loans may also be individually analyzed in a manner comparable to non-PCD loans with significant deterioration. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption. The principal balance of pooled PCD loans for ACL purposes totaled $170,921, and the principal balance for individually analyzed PCD loans totaled $31,380 as of January 1, 2020.

The following table illustrates the impact of ASC 326.

	January 1, 2020
	As reported under ASC 326		Pre-ASC 326 adoption		Impact of ASC 326 adoption
Assets:
Allowance for credit losses on
debt securities held to maturity
Mortgage-backed	$	—	$	—	$	—
Municipal		10		—		10
Loans non-PCD
Residential	$	15,669	$	4,257	$	11,412
Commercial		54,148		18,552		35,596
Construction & land development		9,251		2,319		6,932
Comm., industrial & factored receivables		14,277		11,282		2,995
Consumer & other		4,688		4,019		669
Loans PCD
Residential	$	3,021	$	—	$	3,021
Commercial		11,966		—		11,966
Construction & land development		256		177		79
Commercial & industrial		1,924		—		1,924
Factored commercial receivables		—		—		—
Consumer & other		63		49		14

Liabilities:
Allowance for credit losses
on OBS exposures	$	6,084	$	—	$	6,084

Debt Securities

Allowance for Credit Losses - Available for Sale Debt Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether or not it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the securities amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected are less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provisions for or reversal of credit loss expense. Losses are charged against the allowance when management believes an available-for-sale security is uncollectible or when either of the criteria regarding intent to sell or required to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $6,058 as of March 31, 2020 and is excluded from the estimate of credit losses.

Allowance for Credit Losses – Held to Maturity Debt Securities: Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities totaled $1,536 and is excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: Mortgage-backed and municipal.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

All of the mortgage-backed securities held by the Company are issued by US government entities and agencies. The securities are either explicitly or implicitly guaranteed by the US government, and are highly rated by major rating agencies and have a long history of no credit losses. After reviewing the portfolio and the potential for loss, management determined no allowance for credit losses is required.

Other securities are comprised primarily of investments in municipal bonds. Management utilizes historical research conducted by Moody’s Investor Services to determine expected credit losses, particularly default and recovery from 2009 to 2018. Using the more recent data captures the aforementioned emerging risks in public finance. After reviewing the portfolio and the potential for loss, management determined a $10 in allowance for credit losses on adoption date.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balance net of purchase premiums and discounts, deferred loan fees and costs, and an allowance for credit losses. Interest income is accrued on the unpaid principal balance. The recorded investment in a loan excludes accrued interest receivable, deferred fees, and deferred costs because they are not considered material.

Loan segment risks:

Residential, Commercial, and Other Real Estate: A significant portion of our loan portfolio is secured by real estate, a substantial majority of which is located in Florida, and events that negatively impact the real estate market could hurt our resultant business. A substantial majority of our loans are concentrated in Florida and subject to the volatility of the state’s economy and real estate market. With our loans concentrated in Florida, declines in local economic conditions will adversely affect the values of our real estate collateral. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of other financial institutions whose real estate loan portfolios are more geographically diverse.

In addition to relying on the financial strength and cash flow characteristics of the borrower in each case, we often secure loans with real estate collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower but may deteriorate in value during the time credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.

Commercial and Commercial Real Estate: Commercial and commercial real estate loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans.

Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate or commercial project. If the cash flows from the project are reduced, a borrower’s ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, we may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may, to a greater extent than residential loans, be subject to adverse conditions in the real estate market or economy.

Commercial Receivables Factoring: The Company provides receivables factoring through its subsidiary for a variety of industries, the largest portfolio segments remain in the Oil and Gas, Truck and Freight, and Parts and Services sectors. These are dependent on the cash flow from these receivables from these industries which are exposed to volatility in demand and freight costs. Economic disruptions in demand, labor, or costs in these industries may adversely impact collectability of these loans.

Consumer and all other loans: While disclosed as a separate portfolio segment, many of the same events that negatively impact the real estate and commercial market could have a similar direct risk to consumer loans. While the borrower or collateral are for consumer loans, the employment and cash flow from these borrowers are similarly exposed to risk of declines in local economic conditions. Consequently, a decline in local economic conditions may have a greater effect on these loans.

A loan is considered a troubled debt restructured loan based on individual facts and circumstances. A modification may include either an increase or reduction in interest rate or deferral of principal payments or both. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings. The Company classifies troubled debt restructured loans as impaired and evaluates the need for an allowance for credit losses on a loan-by-loan basis. An allowance for credit losses is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral. Loans retain their accruing or non-accruing status at the time of modification.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Determining the contractual term: Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Nonaccrual loans: A loan is moved to non-accrual status in accordance with the Company’s policy typically after 90 days of non-payment, or less than 90 days of non-payment if management determines that the full timely collection of principal and interest becomes doubtful. For CBI’s factored receivables, which are commercial trade credits rather than promissory notes, the Company’s practice, in most cases, is to charge-off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. Past due status is based on the contractual terms of the loan. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Single family home loans, consumer loans and smaller commercial, land, development and construction loans (less than $500) are monitored by payment history, and as such, past due payments is generally the triggering mechanism to determine non-accrual status. Larger (greater than $500) commercial, land, development and construction loans are monitored on a loan level basis, and therefore in these cases it is more likely that a loan may be placed on non-accrual status before it becomes 90 days past due.

The Company, considering current information and events regarding the borrower’s ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the secondary market value of the loan, or the fair value of the collateral for collateral dependent loans. Interest income on impaired loans is recognized in accordance with the Company’s non-accrual policy. Impaired loans are written down to the extent that principal is judged to be uncollectible and, in the case of impaired collateral dependent loans where repayment is expected to be provided solely by the underlying collateral and there is no other available and reliable sources of repayment, are written down to the lower of cost or collateral value less estimated selling costs. Impairment losses are included in the allowance for credit losses. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled Debt Restructurings: A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. In certain circumstances, it may be beneficial to modify or restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable real estate market. When the Company modifies the terms of a loan, it usually either reduces the monthly payment and/or interest rate for generally twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan modifications to date. The Company has $11,863 of TDRs. Of this amount $7,215 are performing pursuant to their modified terms, and $4,648 are not performing and have been placed on non-accrual status and included in our non-performing loans (“NPLs”).

Purchased Credit Deteriorated (“PCD”) Loans: The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Examples of PCD loans generally include loans on non-accrual status, loans with insufficient cash flow, loans that are delinquent, loans with high loan-to-value ratios, loans in process of foreclosure or any TDR with loss potential in accordance with guidance outlined in ASC 310-30. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Upon adoption of ASC Topic 326, the ACL for PCD loans, except for PCD loans individually evaluated for impairment, is measured on a collective pool basis when similar risk characteristics exist. On adoption date, the credit discount on PCD loans was reclassified from loan discount to ACL, thereby establishing a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis on adoption date was non-credit discount and was subsequently allocated to each individual loan. This non-credit discount will be amortized into interest income using the effective yield method over the remaining life of the individual loans. Changes to the allowance for credit losses after adoption are recorded through provision for credit losses.

Allowance for Credit Losses – Loans: The allowance for credit losses is a valuation account that is deducted from or added to the loans amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes a loan is uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Peer credit loss experience provides the basis for the estimation of expected credit losses. Given the Company’s size, complexity, and acquisitive history, loan-level loss data is not readily available to develop reasonable and supportable loss estimates. Rather, the Company is relying on peer data from Call Reports to develop models that forecast a periodic default rate for each of the portfolio segments.

Adjustments to historical loss information and reversion periods are made for differences in current loan specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, the national home price index, and other factors. The Company generally utilizes a four-quarter forecast with a four-quarter reversion period.

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. The company has identified the following portfolio segments: residential loans, commercial real estate loans, construction and land development loans, commercial and industrial and consumer and other.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Reserve for unfunded commitments: The company estimates expected credit losses over the contractual period in which the company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected credit losses are determined using historical funding rates by loan segment.

Other new accounting pronouncements

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,” to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company adopted the new accounting guidance effective January 1, 2020, but it did not have a material impact on the consolidated financial statements.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The following disclosure requirements were removed from Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The following disclosure requirements were modified in Topic 820: (1) in lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added to Topic 820: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company adopted the new accounting guidance effective January 1, 2020, but it did not have a material impact on the consolidated financial statements.

In March 2020, the FASB has issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. By way of background, as a response to concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk that the London Interbank Offer Rate (LIBOR) will no longer be used, regulators around the world have begun reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. Stakeholders raised certain operational challenges likely to arise in accounting for contract modifications and hedge accounting due to reference rate reform. Some of those challenges relate to the significant volume of contracts and other arrangements that will need to be modified to replace references to discontinued rates with references to the replacement rates. For accounting purposes, such contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts, which could prove quite costly and burdensome and undermine the intended continuation of such contracts and arrangements. Stakeholders also noted that the inability to apply hedge accounting because of reference rate reform would result in financial reporting outcomes that do not reflect entities' intended hedging strategies. The amendments, which are elective and apply to all entities, provide expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. The optional expedients for contract modifications apply consistently for all contracts or transactions within the relevant Codification Topic, Subtopic, or Industry Subtopic that contains the guidance that otherwise would be required to be applied, while those for hedging relationships can be elected on an individual hedging relationship basis. Because the guidance is intended to assist stakeholders during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020, through December 31, 2022. The Company established a LIBOR Committee and is currently evaluating the impact of adopting ASU 2020-04 on the consolidated financial statements.

CenterState Bank Corporation and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 13: Subsequent Events

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The COVID-19 pandemic has adversely affected, and may continue to adversely affect economic activity globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. Due to the COVID-19 pandemic, market interest rates have declined significantly, with the 10-year Treasury bond falling below 1.00 percent on March 3, 2020 for the first time. Such events also may adversely affect business and consumer confidence, generally, and the Company and its customers, and their respective suppliers, vendors and processors, may be adversely affected. On March 3, 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate range by 50 basis points to 1.00 percent to 1.25 percent. This range was further reduced to 0 percent to 0.25 percent on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 pandemic may adversely affect the Company's financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and the fair value of financial instruments that are carried at fair value. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act, among other things, temporarily adds a new product, titled the “Paycheck Protection Program, (“PPP”)” to the U.S. Small Business Administration’s (SBA’s) 7(a) Loan Program. The CARES Act provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP. The PPP and loan forgiveness are intended to provide economic relief to small businesses nationwide adversely impacted under the Coronavirus Disease 2019 (COVID-19) Emergency Declaration issued on March 13, 2020. As a result, the Company generated over 8,900 PPP loans for a total loan amount of approximately $1.3 billion in the SBA system through April 28, 2020. In addition, in the efforts of providing relief to the Bank customers affected by the COVID-19, the Company began offering various mitigation efforts, including a loan payment deferral program. The standard program offers a 90-day payment deferral. As of April 28, 2020, the Company has approved or processed loan deferrals for a total loan book balance, before loan discounts or premiums, of approximately $2.1 billion.