CenterState Bank Corporation Announces First Quarter 2020 Results

(all amounts are in thousands, except per share data, or unless otherwise noted)

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CenterState Bank Corporation

Apr 23, 2020, 17:04 ET

WINTER HAVEN, Fla., April 23, 2020 /PRNewswire/ -- CenterState Bank Corporation (Nasdaq: CSFL) (the "Company" or "CenterState") announced first quarter 2020 results.  Highlights for the period ended March 31, 2020 and selected performance metrics are set forth below.

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LOAN PRODUCTION
LOAN PRODUCTION

Earnings Highlights: The Company reported first quarter 2020 net income of $35.4 million compared to $71.1 million for the fourth quarter 2019.  Diluted Earnings per Share ("EPS") was $0.28 in the first quarter 2020 compared to $0.56 in the fourth quarter 2019.  Return on Average Assets ("ROAA") for the current quarter was 0.82% compared to 1.63% for the fourth quarter 2019 while Return on Tangible Average Common Equity ("ROTCE") (non-GAAP(1)) and adjusted ROTCE (non-GAAP(1)) for the current quarter were each 9.9% compared to 18.8% and 19.1%, respectively, for the fourth quarter 2019. 

 

During the current quarter, the Company repurchased a total of 1.45 million shares or 1.2% of its outstanding shares, resulting in Tangible Book Value per share ("TBV") (non-GAAP(1)) of $12.68 and Tangible Common Equity ("TCE") ratio of 9.1%, after the adoption of CECL on January 1, 2020 and higher Q1 2020 provision for credit losses for loans held for investment and credit loss expense for unfunded commitments.

  • Other Financial Results:
    • Adjusted pre-tax pre-provision income (non-GAAP(1)): $90.4 million for the current quarter compared to $95.0 for the fourth quarter 2019 on record revenue(2) of $209.1 million, up $889 or 0.4% from fourth quarter 2019
    • Net Interest Margin, tax equivalent ("NIM") (Non-GAAP(1)): decreased 8 bps to 4.17% from the fourth quarter 2019; core NIM excluding all loan accretion (Non-GAAP(1)) of 3.74%, a decrease of 3 bps from the fourth quarter 2019 reflecting, in part, the declining interest rate environment and volatility following the onset of the COVID-19 pandemic
    • Non-interest income(3): 1.29% of average assets for the current quarter compared with 1.15% in the fourth quarter 2019
    • Efficiency ratio (Non-GAAP(1)): 58.5% reported, 54.9% adjusted for the first quarter 2020 compared to 54.3% and 52.1%, respectively, in the fourth quarter 2019
    • Loan growth: loan growth of $43.3 million or 1% annualized
    • Deposit growth: non-CD deposits growth of $348 million or 13% annualized; DDA growth of $271 million or 17% annualized
  • CECL and Provision for Credit Losses:
    • CECL adopted January 1, 2020, with initial Allowance for Credit Losses ("ACL") of $115.3 million, and a $6.0 million reserve for unfunded commitments (reported as other liability on the balance sheet); reflects a combined $80.7 million increase in these reserves at adoption compared to fiscal year-end 2019 levels; the March 31, 2020 ending ACL and reserve for unfunded commitments increased by $125.2 million over the balance at December 31, 2019
    • $44.9 million provision for credit losses on loans during the first quarter of 2020, bringing the ACL to $158.7 million, reflecting an increase of 37.7% above the level at adoption; $1.0 million provision for credit losses on unfunded commitments leaving a $7.1 million reserve for unfunded commitments; total expense for reserve build of $45.9 million during the quarter, the vast majority of which was associated with the effects of COVID-19
    • Net charge-off of $1,444 in the first quarter 2020 compared to $4,384 in the fourth quarter 2019
  • Small Business Administration ("SBA") Paycheck Protection Program ("PPP"): In April 2020, the Company generated over 6,700 loans for a total loan amount over $1.1 billion in the SBA system through April 16, 2020
  • Quarterly Dividend Declaration: On April 23rd, 2020, the Board of Directors declared a quarterly cash dividend on the Company's common stock of $0.14 per share. The dividend is payable on May 15th, 2020 to shareholders of record as of May 8th, 2020















Three Months Ended March 31,





2020



2019







Adjusted (4)





Adjusted (4)





Reported


(Non-GAAP)



Reported


(Non-GAAP)



Net income


$35,432


$35,491



$44,643


$49,463



ROAA


0.82%


0.82%



1.47%


1.63%



ROTCE (Non-GAAP)(1)  and adjusted ROTCE (Non-GAAP)(1)


9.9%


9.9%



16.8%


18.5%



EPS (diluted)


$0.28


$0.28



$0.46


$0.51



Efficiency ratio, tax equivalent (Non-GAAP)(1)


58.5%


54.9%



58.7%


52.3%
















(1)

See reconciliation tables starting on page 9, Explanation of Certain Unaudited Non-GAAP Financial Measures.

(2)

Revenue is defined as net interest income plus non-interest income.

(3)

Non-interest income excludes gain or loss on sale of available for sale securities.

(4)

Performance metrics presented above are adjusted for gain or loss on sale of available for sale securities, merger-related expenses, deferred tax asset write down and other tax benefit adjustments, and amortization of intangible assets, which for the three months ended March 31, 2020, represent direct severance, system terminations, and legal and professional fees, that are not duplicative of current operations, and other items.  See reconciliation tables starting on page 9, Explanation of Certain Unaudited Non-GAAP Financial Measures.

Condensed Consolidated Income Statement (unaudited)


Condensed consolidated income statements (unaudited) are shown below for the periods indicated.




Three Months Ended




Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019


Interest income












Loans


$160,675


$167,685


$166,479


$167,676


$116,285


Investment securities


14,271


13,404


13,472


14,453


14,002


Federal Funds sold and other


1,813


2,783


3,974


3,124


1,995


Total interest income


176,759


183,872


183,925


185,253


132,282


Interest expense












Deposits


19,836


22,276


24,463


23,037


13,323


Securities sold under agreement to repurchase


252


278


293


299


236


Other borrowed funds


2,321


2,364


3,164


2,166


3,978


Corporate and subordinated debentures


997


1,029


1,058


1,070


570


Interest expense


23,406


25,947


28,978


26,572


18,107


Net interest income


153,353


157,925


154,947


158,681


114,175


Provision for credit losses


44,914


3,048


3,692


2,792


1,053


Net interest income after credit loss provision


108,439


154,877


151,255


155,889


113,122














Gain (loss) on sale of securities available for sale


—


13


—


(5)


17


All other non-interest income


55,790


50,316


48,488


37,948


29,283


Total non-interest income


55,790


50,329


48,488


37,943


29,300














Merger related expenses


3,051


159


16,994


15,739


6,365


All other non-interest expense


119,721


113,250


110,042


106,250


78,108


Total non-interest expense


122,772


113,409


127,036


121,989


84,473














Income before income tax


41,457


91,797


72,707


71,843


57,949


Income tax provision


6,025


20,665


17,006


16,721


13,306


Net income before earnings attributable to noncontrolling interest


35,432


71,132


55,701


55,122


44,643


Earnings attributable to noncontrolling interest


—


—


603


599


—


Net income


$35,432


$71,132


$55,098


$54,523


$44,643


Net income attributable to CenterState Bank Corporation


$35,424


$71,109


$55,077


$54,502


$44,620














Earnings per share - Basic


$0.28


$0.57


$0.43


$0.42


$0.47


Earnings per share - Diluted


$0.28


$0.56


$0.43


$0.42


$0.46


Dividends per share


$0.14


$0.11


$0.11


$0.11


$0.11


Average common shares outstanding (basic)


124,799


125,147


127,840


129,848


95,741


Average common shares outstanding (diluted)


125,341


126,082


128,739


130,768


96,501


Common shares outstanding at period end


124,131


125,174


126,037


129,006


95,913


Effective tax rate


14.53%


22.51%


23.59%


23.47%


22.96%



Note:  Certain prior period amounts have been reclassified to conform to the current period presentation format.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


Presented below are condensed consolidated balance sheets for the periods indicated.




Ending Balance

Condensed Consolidated Balance Sheets


Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Assets











Cash and due from banks


$685,439


$326,168


$598,808


$399,952


$256,580

Fed funds sold and Fed Reserve Bank deposits


461,252


163,890


238,470


437,386


339,223

Trading securities


8,432


4,987


4,273


651


—

Investment securities:











Available for sale


2,138,442


1,886,724


1,779,956


1,792,757


1,701,396

Held to maturity, net of allowance


195,948


202,903


207,209


210,756


214,240

Total investment securities


2,334,390


2,089,627


1,987,165


2,003,513


1,915,636

Loans held for sale


188,316


142,801


125,182


95,108


49,474

Loans:











Originated loans


6,331,914


5,922,879


5,494,738


4,888,357


4,349,627

Acquired loans


5,544,995


5,925,596


6,278,686


6,667,101


3,850,312

Purchased Credit Deteriorated ("PCD") loans


150,322


135,468


142,982


157,303


149,456

Total gross loans


12,027,231


11,983,943


11,916,406


11,712,761


8,349,395

Allowance for credit losses


(158,733)


(40,655)


(41,991)


(40,653)


(40,052)

Loans, net of allowance


11,868,498


11,943,288


11,874,415


11,672,108


8,309,343

Premises, equipment and right of use assets, net


329,533


328,869


327,977


324,974


248,625

Goodwill


1,204,417


1,204,417


1,204,417


1,204,417


802,880

Core deposit intangible


87,295


91,157


95,175


99,200


63,511

Bank owned life insurance


331,713


330,155


328,736


326,689


269,144

OREO


9,942


5,092


6,558


5,881


5,981

Deferred income tax asset, net


37,687


28,786


37,921


44,637


38,030

Market value of derivatives hedged


831,891


273,068


367,950


229,735


130,122

Other assets


217,487


209,720


223,329


192,346


159,088

Total Assets


$18,596,292


$17,142,025


$17,420,376


$17,036,597


$12,587,637












Liabilities and Equity











Deposits:











     Non-interest bearing


$4,164,091


$3,929,183


$4,081,078


$3,990,883


$3,152,251

     Interest bearing


2,650,252


2,613,933


2,430,149


2,493,870


1,813,028

Total checking accounts


6,814,343


6,543,116


6,511,227


6,484,753


4,965,279

Money market accounts


3,519,441


3,525,571


3,648,449


3,569,025


2,156,667

Savings deposits


894,332


811,150


780,052


725,124


703,949

Time deposits


2,893,383


2,256,555


2,423,335


2,433,183


1,921,130

Total deposits


14,121,499


13,136,392


13,363,063


13,212,085


9,747,025

Federal funds purchased


255,433


379,193


259,077


276,963


303,017

Other borrowings


364,092


325,484


423,662


310,595


302,534

Reserve for unfunded commitments


7,110


—


—


—


—

Market value of derivatives hedged


842,451


275,033


371,889


231,735


130,790

Other liabilities


135,455


129,205


144,983


114,707


76,719

Stockholders' equity:











Common stockholders' equity


2,870,252


2,896,718


2,857,702


2,878,377


2,027,552

Noncontrolling interest


—


—


—


12,135


—

Total equity


2,870,252


2,896,718


2,857,702


2,890,512


2,027,552












Total Liabilities and Equity


$18,596,292


$17,142,025


$17,420,376


$17,036,597


$12,587,637


Note:  Certain prior period amounts have been reclassified to conform to the current period presentation format.

SELECTED CONSOLIDATED FINANCIAL DATA


The table below summarizes selected financial data for the periods presented.




Three Months Ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Selected financial data











Return on average assets (annualized)


0.82%


1.63%


1.27%


1.30%


1.47%

Adjusted return on average assets (annualized) (Non-GAAP) (1)


0.82%


1.66%


1.57%


1.59%


1.63%












Return on average common equity (annualized)


4.94%


9.80%


7.56%


7.63%


9.05%

Adjusted return on average common equity (annualized) (Non-GAAP) (1)


4.95%


9.95%


9.34%


9.31%


10.03%












Return on average tangible equity (annualized) (Non-GAAP) (1)


9.87%


18.77%


14.61%


14.95%


16.80%

Adjusted return on average tangible equity (annualized) (Non-GAAP) (1)


9.88%


19.05%


17.85%


18.04%


18.54%












Efficiency ratio (tax equivalent) (Non-GAAP) (1)


58.5%


54.3%


62.3%


61.9%


58.7%

Adjusted efficiency ratio, tax equivalent (Non-GAAP) (1)


54.9%


52.1%


51.9%


51.7%


52.3%












Dividend payout


50.0%


19.6%


25.6%


26.2%


23.9%

Loan / deposit ratio


85.2%


91.2%


89.2%


88.7%


85.7%

Common stockholders' equity (to total assets)


15.4%


16.9%


16.4%


16.9%


16.1%

Common equity per common share


$23.12


$23.14


$22.67


$22.31


$21.14

Common tangible equity per common share (Non-GAAP) (1)


$12.68


$12.76


$12.32


$12.17


$12.08

Common tangible equity (to total tangible assets) (Non-GAAP) (1)


9.1%


10.1%


9.6%


10.0%


9.9%

Tier 1 capital (to average assets)


9.7%


9.7%


9.5%


9.9%


10.3%



(1)

See reconciliation tables starting on page 9, Explanation of Certain Unaudited Non-GAAP Financial Measures.

IMPACT OF ADOPTION OF CURRENT EXPECTED CREDIT LOSSES ("CECL")

CECL Impact on Adoption Date

The Company adopted CECL effective January 1, 2020.  The final adoption model resulted in an increase to ACL as a percentage of total loans by 62 bps.  This increase included the reclassification of the credit mark on PCD loans from loan discount to ACL.  In addition, the Company recorded a reserve for credit losses on unfunded commitments of $6 million and a reserve for credit losses on held to maturity securities of $10 thousand.  The impact to retained earnings, net of deferred taxes, of the increase in ACL, reserve for the unfunded commitments and credit losses on debt securities held to maturity was $48 million, resulting in 28 bps reduction in tangible common equity as a percentage of total tangible assets (non-GAAP). See table on page 12, Explanation of Certain Unaudited Non-GAAP Financial Measures for the impact of CECL adoption on the tangible common equity ratio.

The table below summarizes the CECL impact on ACL as a percentage of total loans.

 Loan Balance


Dec. 31, 2019



Non-PCD loans


$11,848,475



PCD loans


135,468



Total loans


$11,983,943







Impact of CECL

 ACL


Dec. 31, 2019


Adoption

Non-PCD loans


$40,429


$57,604

PCD loans


226


17,004

Total ACL on loans


$40,655


$74,608







ACL increase over total loans post CECL implementation


0.62%







Loan Portfolio


The table below summarizes the Company's loan portfolio over the most recent five-quarter ends.




Ending Balance



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Real estate loans











     Residential


$2,580,019


$2,558,339


$2,530,119


$2,536,324


$1,818,228

     Commercial


6,484,256


6,406,684


6,297,425


6,153,379


4,481,375

     Land, development and construction loans


934,461


1,004,578


1,061,701


1,057,532


658,373

Total real estate loans


9,998,736


9,969,601


9,889,245


9,747,235


6,957,976

Commercial loans


1,788,282


1,762,416


1,772,266


1,714,121


1,181,628

Consumer and other loans


235,259


247,407


250,225


247,049


206,754

Total loans before unearned fees and costs


12,022,277


11,979,424


11,911,736


11,708,405


8,346,358

Unearned fees and costs


4,954


4,519


4,670


4,356


3,037












Total Loans


$12,027,231


$11,983,943


$11,916,406


$11,712,761


$8,349,395

Loan production

DEPOSITS




Ending Balance

Deposit mix


Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Checking accounts











     Non-interest bearing


$4,164,091


$3,929,183


$4,081,078


$3,990,883


$3,152,251

     Interest bearing


2,650,252


2,613,933


2,430,149


2,493,870


1,813,028

Savings deposits


894,332


811,150


780,052


725,124


703,949

Money market accounts


3,519,441


3,525,571


3,648,449


3,569,025


2,156,667

Time deposits


2,893,383


2,256,555


2,423,335


2,433,183


1,921,130

Total deposits


$14,121,499


$13,136,392


$13,363,063


$13,212,085


$9,747,025












Non time deposits as percentage of total deposits


80%


83%


82%


82%


80%

Time deposits as percentage of total deposits


20%


17%


18%


18%


20%

Total deposits


100%


100%


100%


100%


100%

NET INTEREST MARGIN

The Company's NIM decreased 8 bps from 4.25% in the previous quarter to 4.17% during the current quarter, primarily as a result of reduced accretion (5 bps) and a decline in loan yields due to a reduction in the federal funds rate and in LIBOR rates.  The first quarter 2020 loan accretion of $15,834 impacted NIM by 43 bps, as compared with the previous quarter's $18,093, which increased NIM by 48 bps.  Interest earning assets yield excluding loan accretion in the current quarter decreased by 10 bps compared with the previous quarter, which was offset by a decrease of 7 bps in cost of deposits. 

The table below summarizes yields and costs by various interest earning asset and interest bearing liability account types for the current quarter, the previous calendar quarter and the same quarter last year. 


Three Months Ended


Mar. 31, 2020



Dec. 31, 2019



Mar. 31, 2019



Average


Interest


Average



Average


Interest


Average



Average


Interest


Average



Balance


Inc/Exp


Rate



Balance


Inc/Exp


Rate



Balance


Inc/Exp


Rate


Originated loans (1)

$6,196,409


$72,890


4.73%



$5,819,393


$71,101


4.85%



$4,243,258


$50,907


4.87%


Acquired loans (1)

5,733,217


76,683


5.38%



6,115,107


88,716


5.76%



3,964,231


55,561


5.68%


PCD loans

153,738


11,544


30.20%



138,584


8,224


23.54%



155,584


10,140


26.43%


Taxable securities

1,895,781


12,534


2.66%



1,803,467


11,664


2.57%



1,707,002


12,286


2.92%


Tax-exempt securities (1)

220,310


1,980


3.61%



221,438


1,948


3.49%



220,244


1,940


3.57%


Fed funds sold and other

673,552


1,813


1.08%



681,768


2,783


1.62%



289,347


1,995


2.80%


Total interest earning assets (1)

$14,873,007


$177,444


4.80%



$14,779,757


$184,436


4.95%



$10,579,666


$132,829


5.09%























Non-interest earnings assets

2,554,559







2,531,319







1,747,886






Total assets

$17,427,566







$17,311,076







$12,327,552



























Interest bearing deposits

$9,224,690


$19,836


0.86%



$9,207,290


$22,276


0.96%



$6,430,085


$13,323


0.84%


Fed funds purchased

300,539


1,133


1.52%



304,489


1,330


1.73%



259,590


1,618


2.53%


Other borrowings

310,298


1,440


1.87%



271,812


1,312


1.92%



402,624


2,596


2.61%


Corporate and subordinated debentures

71,348


997


5.62%



71,335


1,029


5.72%



32,459


570


7.12%


Total interest bearing liabilities

$9,906,875


$23,406


0.95%



$9,854,926


$25,947


1.04%



$7,124,758


$18,107


1.03%























Non-interest bearing deposits

4,035,991







4,081,634







3,032,471






All other liabilities

602,056







494,914







169,912






Total equity

2,882,644







2,879,602







2,000,411






Total liabilities and equity

$17,427,566







$17,311,076







$12,327,552



























Net Interest Spread (1)





3.85%







3.91%







4.06%


Net Interest Margin (1)





4.17%







4.25%







4.40%























Cost of Total Deposits





0.60%







0.67%







0.57%




(1)

Tax equivalent yield (Non-GAAP); see reconciliation tables starting on page 9, Explanation of Certain Unaudited Non-GAAP Financial Measures.


Note:  Certain prior period amounts have been reclassified to conform to the current period presentation format.

The table below summarizes accretion income for the periods presented.


Three Months Ended


Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

PCD accretion

$9,157


$5,908


$5,418


$5,248


$7,904

Non-PCD accretion

6,677


12,185


8,151


10,335


4,951

Total loan accretion

$15,834


$18,093


$13,569


$15,583


$12,855

The table below compares the unpaid principal balance and the carrying balance (book balance) of the Company's total Acquired and PCD loans at March 31, 2020. 



Principal


Carrying


Total Loan





Balance


Balance


Discount(1)


Percentage

Acquired loans


$5,589,475


$5,544,995


($44,480)


0.8%

PCD loans


187,020


150,322


(36,698)


19.6%

Total purchased loans


$5,776,495


$5,695,317


($81,178)


1.4%




(1)     Represents a non-credit discount.

NON-INTEREST INCOME

Non-interest income increased $5,461 to $55,790 during the current quarter compared to $50,329 in the previous quarter.  The increase is mainly attributable to higher interest rate swap and fixed income revenue in the correspondent banking division and mortgage banking revenue.  The table below summarizes the Company's non-interest income for the periods indicated. 

Condensed Consolidated Non-Interest Income (unaudited)




Three Months Ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Correspondent banking revenue


$27,808


$23,346


$21,018


$11,534


$9,000

Mortgage banking revenue


10,973


9,113


9,444


6,803


4,193

SBA revenue


1,403


1,785


1,411


1,252


688

Wealth management related revenue


831


878


801


875


607

Service charges on deposit accounts


7,522


7,993


7,990


7,507


6,678

Debit, prepaid, ATM and merchant card related fees


3,667


3,082


3,923


6,376


5,018

Other non-interest income


3,586


4,119


3,901


3,601


3,099

Subtotal


$55,790


$50,316


$48,488


$37,948


$29,283

Gain (loss) on sale of securities available for sale


—


13


—


(5)


17

Total Non-Interest Income


$55,790


$50,329


$48,488


$37,943


$29,300


Note:  Certain prior period amounts have been reclassified to conform to the current period presentation format.

NON-INTEREST EXPENSES

Excluding merger-related expenses, non-interest expense increased $6,471 in the first quarter to $119,721 compared to the previous quarter.  The increase was primarily driven by a $4,104 increase in salary, wage and benefit expenses which were largely due to increases of approximately $3.0 million and $1.2 million in health insurance and payroll taxes, respectively.  Bank regulatory related expenses increased by $1,084.  The Company also recorded $1,027 in credit loss expense for unfunded commitments during the current quarter as a result of increase in potential credit losses resulting from the COVID-19 pandemic.  The table below summarizes the Company's non-interest expense for the periods indicated.

Condensed Consolidated Non-Interest Expense (unaudited)




Three Months Ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Salaries, wages and employee benefits


$77,077


$72,973


$71,352


$67,516


$48,393

Occupancy expense


7,346


7,267


7,729


7,752


5,602

Depreciation of premises and equipment


4,045


4,151


3,887


3,550


2,850

Marketing expenses


2,158


1,958


1,765


1,797


2,020

Data processing expenses


5,617


5,242


5,182


5,525


3,656

Legal, auditing and other professional fees


2,682


2,958


2,364


2,106


1,442

Bank regulatory related expenses


1,807


723


635


2,074


1,616

Debit, ATM and merchant card related expenses


1,598


1,362


1,382


1,304


1,453

Credit related expenses


944


879


795


760


729

Amortization of intangibles


4,535


4,552


4,229


4,435


2,814

Impairment on bank property held for sale


31


808


506


315


107

Credit loss expense for unfunded commitments


1,027


—


—


—


—

Other expenses


10,854


10,377


10,216


9,116


7,426

Subtotal


$119,721


$113,250


$110,042


$106,250


$78,108

Merger-related expenses


3,051


159


16,994


15,739


6,365

Total Non-Interest Expense


$122,772


$113,409


$127,036


$121,989


$84,473


Note:  Certain prior period amounts have been reclassified to conform to the current period presentation format.

CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

Non-performing assets ("NPAs") totaled $89,762 at March 31, 2020, compared to $43,870 at December 31, 2019.  NPAs as a percentage of total assets increased to 0.48% at March 31, 2020, compared to 0.26% at December 31, 2019 and 0.33% at March 31, 2019.  With the adoption of ASC 326 and the new accounting treatment for PCD loans, the Company began to include non-accrual PCD loans in its non-performing assets and related credit metrics starting with the current quarter.  Previous periods do not include PCD loans as these loans were not considered non-performing under ASC 310-30.

The table below summarizes selected credit quality data for the periods indicated. 



Ending Balance

Non-Performing Assets (1)


Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Non-accrual loans, non-PCD loans


$45,305


$36,916


$39,048


$26,334


$35,181

Non-accrual loans, PCD loans


33,893


—


—


—


—

Past due loans 90 days or more and still accruing interest


535


1,692


473


—


—

Total non-performing loans ("NPLs")


79,733


38,608


39,521


26,334


35,181

Other real estate owned ("OREO")


9,942


5,092


6,558


5,881


5,981

Repossessed assets other than real estate


87


170


258


236


313

Total non-performing assets


$89,762


$43,870


$46,337


$32,451


$41,475














Three Months Ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019












Asset Quality Ratios (1)











Non-performing loans as percentage of total loans


0.66%


0.33%


0.34%


0.23%


0.43%

Non-performing assets as percentage of total assets


0.48%


0.26%


0.27%


0.19%


0.33%

Non-performing assets as percentage of loans and OREO plus other repossessed assets


0.75%


0.37%


0.39%


0.28%


0.51%

Loans past due 30 thru 89 days and accruing interest as a percentage of total loans


0.53%


0.48%


0.52%


0.44%


0.42%

Allowance for credit losses as percentage of NPLs


199%


105%


106%


154%


113%

Net charge-offs


$1,444


$4,384


$2,354


$2,191


$771

Net charge-offs as a percentage of average loans for the period on an annualized basis


0.05%


0.15%


0.08%


0.08%


0.04%



(1)

The three months ended December 31, September 30, June 30, and March 31, 2019 exclude PCD (formally PCI) loans.

The ACL totaled $158,733 at March 31, 2020, compared to $40,655 at December 31, 2019, an increase of $118,078 due to the effect of CECL adoption of $74,608, provision for credit losses of $44,914 and net charge-offs of $1,444.  The changes in the Company's ACL components between March 31, 2020 and December 31, 2019 are summarized in the table below (unaudited).



Three Months Ended

Allowance for credit losses (unaudited)


Mar. 31, 2020


Dec. 31, 2019

Loans, excluding PCD loans





Allowance at beginning of period


$40,429


$41,758

Effect of adopting ASC 326 (CECL)


57,604


—

Charge-offs


(2,350)


(5,324)

Recoveries


1,201


940

Net charge-offs


(1,149)


(4,384)

Provision for credit losses


43,919


3,055

Allowance at end of period for loans other than PCD loans


$140,803


$40,429






PCD loans





Allowance at beginning of period


$226


$233

Effect of adopting ASC 326 (CECL)


17,004


—

Charge-offs


(1,257)


—

Recoveries


962


—

Net charge-offs


(295)


—

Provision (recovery) for credit losses


995


(7)

Allowance at end of period for





     PCD loans


$17,930


$226

Total allowance at end of period


$158,733


$40,655

EXPLANATION OF CERTAIN UNAUDITED NON-GAAP FINANCIAL MEASURES  

This press release contains financial information determined by methods other than U.S. Generally Accepted Accounting Principles ("GAAP"), including adjusted net income, adjusted pre-tax pre-provision income, adjusted net income per share diluted, adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, adjusted efficiency ratio, adjusted non-interest income, adjusted non-interest expense, adjusted net-interest income, tangible common equity, tangible common equity to tangible assets, common tangible equity per common share, tax equivalent yields on loans, securities and earning assets, and tax equivalent net interest spread and margin, which we refer to "Non-GAAP financial measures." The tables below provide reconciliations between these Non-GAAP measures and net income, interest income, net interest income and tax equivalent basis interest income and net interest income, return on average assets, return on average equity, the efficiency ratio, total stockholders' equity and tangible common equity, as applicable.  

Management uses these Non-GAAP financial measures in its analysis of the Company's performance and believes these presentations provide useful supplemental information, and enhance investors' understanding of the Company's core business and performance without the impact of merger-related expenses and provision for credit losses.  Management believes it is appropriate to exclude merger-related expenses because those costs are specific to each acquisition, vary based upon the size, complexity and other specifics of each acquisition, and are not indicative of the costs to operate the Company's core business.  In addition, management excludes provision for credit losses from pre-tax income to present the periods on a more comparable basis without the effect of the higher provision for credit losses resulting from the adoption of CECL and COVID-19 pandemic. 

Non-GAAP measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. The Company provides reconciliations between GAAP and these Non-GAAP measures.  These disclosures should not be considered an alternative to GAAP.   

Reconciliation of GAAP to non-GAAP Measures (unaudited):




Three months ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Adjusted net income (Non-GAAP)











Net income (GAAP)


$35,432


$71,132


$55,098


$54,523


$44,643

(Gain) loss on sale of securities available for sale, net of tax


—


(10)


—


4


(13)

Merger-related expenses, net of tax


2,332


122


12,939


11,962


4,833

Deferred tax asset write down


—


987


—


—


—

Tax benefit adjustments(1)


(2,273)


—


—


—


—

Adjusted net income (Non-GAAP)


$35,491


$72,231


$68,037


$66,489


$49,463












Adjusted pre-tax pre-provision income (Non-GAAP)











Net income (GAAP)


$35,432


$71,132


$55,098


$54,523


$44,643

Income tax provision


6,025


20,665


17,006


16,721


13,306

Provision for credit losses


44,914


3,048


3,692


2,792


1,053

Credit loss for unfunded commitments


1,027


—


—


—


—

Gross gain (loss) on sale of securities available for sale


—


13


—


(5)


17

Gross merger-related expenses


3,051


159


16,994


15,739


6,365

Adjusted pre-tax pre-provision income (Non-GAAP)


$90,449


$95,017


$92,790


$89,770


$65,384












Adjusted net income per share - Diluted











Earnings per share - Diluted (GAAP)


$0.28


$0.56


$0.43


$0.42


$0.46

Effect to adjust for merger-related expenses, net of tax


0.02


—


0.10


0.09


0.05

Effect to adjust for deferred tax asset write down


—


0.01


—


—


—

Effect to adjust for tax benefit adjustments(1)


(0.02)


—


—


—


—

Adjusted net income per share - Diluted (Non-GAAP)


$0.28


$0.57


$0.53


$0.51


$0.51












Adjusted return on average assets (Non-GAAP)











Return on average assets (GAAP)


0.82%


1.63%


1.27%


1.30%


1.47%

Effect to adjust for merger-related expenses, net of tax


0.05%


—


0.30%


0.29%


0.16%

Effect to adjust for deferred tax asset write down


—


0.03%


—


—


—

Effect to adjust for tax benefit adjustments(1)


(0.05)%


—


—


—


—

Adjusted return on average assets (Non-GAAP)


0.82%


1.66%


1.57%


1.59%


1.63%



(1)

Tax benefit adjustment on net operating loss carryback available under the CARES Act.

Explanation of Certain Unaudited Non-GAAP Financial Measures (continued)




Three months ended



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Adjusted return on average equity (Non-GAAP)











Return on average equity (GAAP)


4.94%


9.80%


7.56%


7.63%


9.05%

Effect to adjust for merger and acquisition related expenses, net of tax


0.33%


0.02%


1.78%


1.68%


0.98%

Effect to adjust for deferred tax asset write down


—


0.13%


—


—


—

Effect to adjust for tax benefit adjustments(1)


(0.32)%


—


—


—


—

Adjusted return on average equity (Non-GAAP)


4.95%


9.95%


9.34%


9.31%


10.03%












Return on average tangible equity (non-GAAP)











Net income (GAAP)


$35,432


$71,132


$55,098


$54,523


$44,643

Amortization of intangibles, net of tax


3,466


3,491


3,220


3,371


2,136

Adjusted net income for average tangible equity (Non-GAAP)


$38,898


$74,623


$58,318


$57,894


$46,779












Average stockholders' equity (GAAP)


$2,882,644


$2,879,606


$2,902,333


$2,876,244


$2,000,411

Average noncontrolling interest


—


—


(11,723)


(11,844)


—

Average goodwill


(1,204,417)


(1,204,417)


(1,204,417)


(1,203,052)


(802,880)

Average core deposit intangible


(89,175)


(93,355)


(97,483)


(103,369)


(65,116)

Average other intangibles


(4,275)


(4,644)


(4,682)


(4,602)


(2,934)

Average tangible equity (Non-GAAP)


$1,584,777


$1,577,190


$1,584,028


$1,553,377


$1,129,481












Return on average tangible equity (annualized) (Non-GAAP)


9.87%


18.77%


14.61%


14.95%


16.80%












Adjusted return on average tangible equity (non-GAAP)











Return on average tangible equity (Non-GAAP)


9.87%


18.77%


14.61%


14.95%


16.80%

Effect to adjust for merger-related expenses, net of tax


0.59%


0.03%


3.24%


3.09%


1.74%

Effect to adjust for deferred tax asset write down


—


0.25%


—


—


—

Effect to adjust for tax benefit adjustments(1)


(0.58)%


—


—


—


—

Adjusted return on average tangible equity (Non-GAAP)


9.88%


19.05%


17.85%


18.04%


18.54%












Efficiency ratio (tax equivalent) (Non-GAAP)











Non-interest income (GAAP)


$55,790


$50,329


$48,488


$37,943


$29,300












Net interest income before provision (GAAP)


$153,353


$157,925


$154,947


$158,681


$114,175

Total tax equivalent adjustment


685


564


491


495


547

Adjusted net interest income (Non-GAAP)


$154,038


$158,489


$155,438


$159,176


$114,722












Non-interest expense (GAAP)


$122,772


$113,409


$127,036


$121,989


$84,473

Amortization of intangibles


(4,535)


(4,552)


(4,229)


(4,435)


(2,814)

Merger and acquisition related expenses


(3,051)


(159)


(16,994)


(15,739)


(6,365)

Adjusted non-interest expense (Non-GAAP)


$115,186


$108,698


$105,813


$101,815


$75,294












Efficiency ratio (tax equivalent) (Non-GAAP)


58.5%


54.3%


62.3%


61.9%


58.7%












Adjusted efficiency ratio, tax equivalent (Non-GAAP)


54.9%


52.1%


51.9%


51.7%


52.3%



(1)

Tax benefit adjustment on net operating loss carryback available under the CARES Act.

Explanation of Certain Unaudited Non-GAAP Financial Measures (continued)




Ending Balance



Mar. 31, 2020


Dec. 31, 2019


Sep. 30, 2019


Jun. 30, 2019


Mar. 31, 2019

Tangible common equity (Non-GAAP)











Total common stockholders' equity (GAAP)


$2,870,252


$2,896,718


$2,857,702


$2,878,377


$2,027,552

Goodwill


(1,204,417)


(1,204,417)


(1,204,417)


(1,204,417)


(802,880)

Core deposit intangible


(87,295)


(91,157)


(95,175)


(99,200)


(63,511)

Other intangibles


(4,131)


(4,507)


(4,700)


(4,620)


(2,996)

Common tangible equity (Non-GAAP)


$1,574,409


$1,596,637


$1,553,410


$1,570,140


$1,158,165












Total assets (GAAP)


$18,596,292


$17,142,025


$17,420,376


$17,036,597


$12,587,637

Goodwill


(1,204,417)


(1,204,417)


(1,204,417)


(1,204,417)


(802,880)

Core deposit intangible


(87,295)


(91,157)


(95,175)


(99,200)


(63,511)

Other intangibles


(4,131)


(4,507)


(4,700)


(4,620)


(2,996)

Total tangible assets (Non-GAAP)


$17,300,449


$15,841,944


$16,116,084


$15,728,360


$11,718,250












Common tangible equity to tangible assets (Non-GAAP)


9.1%


10.1%


9.6%


10.0%


9.9%

Common tangible equity per common share (Non-GAAP)


$12.68


$12.76


$12.32


$12.17


$12.08














Three months ended







Mar. 31, 2020


Dec. 31, 2019


Mar. 31, 2019





Tax equivalent yields (Non-GAAP)











Originated loans


$72,489


$70,784


$50,621





Acquired loans


76,642


88,677


55,524





PCD loans


11,544


8,224


10,140





Taxable securities


12,534


11,665


12,286





Tax-exempt securities


1,737


1,739


1,716





Fed funds sold and other


1,813


2,783


1,995





Interest income (GAAP)


$176,759


$183,872


$132,282





Tax equivalent adjustment for originated loans


401


316


286





Tax equivalent adjustment for acquired loans


41


39


37





Tax equivalent adjustment for tax-exempt securities


243


209


224





Tax equivalent adjustments


685


564


547





Interest income (tax equivalent) (Non-GAAP)


$177,444


$184,436


$132,829
















Net interest income (GAAP)


$153,353


$157,925


$114,175





Tax equivalent adjustments


685


564


547





Net interest income (tax equivalent) (Non-GAAP)


$154,038


$158,489


$114,722
















Yield on originated loans


4.71%


4.83%


4.84%





Effect from tax equivalent adjustment


0.02%


0.02%


0.03%





Yield on originated loans - tax equivalent (Non-GAAP)


4.73%


4.85%


4.87%
















Yield on acquired loans


5.38%


5.75%


5.68%





Effect from tax equivalent adjustment


—


—


—





Yield on acquired loans - tax equivalent (Non-GAAP)


5.38%


5.76%


5.68%
















Yield on tax exempted securities


3.17%


3.12%


3.16%





Effect from tax equivalent adjustment


0.44%


0.37%


0.41%





Yield on tax exempted securities - tax equivalent (Non-GAAP)


3.61%


3.49%


3.57%
















Yield on interest earning assets (GAAP)


4.78%


4.94%


5.07%





Effect from tax equivalent adjustments


0.02%


0.01%


0.02%





Yield on interest earning assets - tax equivalent (Non-GAAP)


4.80%


4.95%


5.09%
















Net interest spread (GAAP)


3.83%


3.90%


4.04%





Effect for tax equivalent adjustments


0.02%


0.01%


0.02%





Net interest spread (Non-GAAP)


3.85%


3.91%


4.06%
















Net interest margin (GAAP)


4.15%


4.24%


4.38%





Effect from tax equivalent adjustments


0.02%


0.01%


0.02%





Net interest margin - tax equivalent (Non-GAAP)


4.17%


4.25%


4.40%
















Net interest margin - tax equivalent (Non-GAAP)


4.17%


4.25%


4.40%





Effect of loan accretion


(0.43%)


(0.48%)


(0.50%)





Net interest margin excluding loan accretion (Non-GAAP)


3.74%


3.77%


3.90%





Explanation of Certain Unaudited Non-GAAP Financial Measures (continued)


Adjusted Common Tangible Equity per Common Share (Non-GAAP) post CECL Adoption







Total common stockholders' equity (GAAP) at Dec. 31, 2019

2,896,718


Goodwill

(1,204,417)


Core deposit intangible

(91,157)


Other intangibles

(4,507)


Common tangible equity (Non-GAAP) at Dec. 31, 2019

1,596,637


CECL impact

(47,751)


Adjusted Common tangible equity (Non-GAAP) at Jan. 1, 2020

1,548,886





Total assets (GAAP) at Dec. 31, 2019

17,142,025


Goodwill

(1,204,417)


Core deposit intangible

(91,157)


Other intangibles

(4,507)


Total tangible assets (Non-GAAP) at Dec. 31, 2019

15,841,944


Increase in ACL (excluding PCD loans)

(57,614)


Increase in deferred tax asset

15,947


Adjusted Total tangible assets (Non-GAAP) at Jan. 1, 2020

15,800,277





TCE ratio post CECL implementation

9.80%


Actual TCE ratio at Dec. 31, 2019

10.08%


Net change

(0.28)%

About CenterState Bank Corporation

CenterState operates as one of the leading Southeastern regional bank franchises headquartered in the state of Florida.  Both CenterState and its nationally chartered bank subsidiary, CenterState Bank, N.A. (the "Bank"), are based in Winter Haven, Florida, between Orlando and Tampa.  With over $18 billion in assets, 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 also has a national footprint, serving clients coast to coast through its correspondent banking division.

For additional information contact John C. Corbett (CEO), Stephen D. Young (COO) or William E. Matthews (CFO) at 863-293-4710.

Forward Looking Statements

Information in this Press Release, other than statements of historical facts, may constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, but are not limited to, statements about the benefits of the proposed merger of South State and CenterState, including future financial and operating results (including the anticipated impact of the transaction on South State's and CenterState's respective earnings and tangible book value), statements related to the expected timing of the completion of the merger, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts.  Forward-looking statements may be identified by terminology such as "may," "will," "should," "scheduled," "plans," "intends," "anticipates," "expects," "believes," "estimates," "potential," or "continue" or negatives of such terms or other comparable terminology. 

All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of South State or CenterState to differ materially from any results expressed or implied by such forward-looking statements.  Such factors include, among others, (1) the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (2) disruption to the parties' businesses as a result of the announcement and pendency of the merger, (3) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (4) the risk that the integration of each party's operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party's businesses into the other's businesses, (5) the failure to obtain the necessary approvals by the shareholders of South State or CenterState, (6) the amount of the costs, fees, expenses and charges related to the merger, (7) the ability by each of South State and CenterState to obtain required governmental approvals of the merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), (8) reputational risk and the reaction of each company's customers, suppliers, employees or other business partners to the merger, (9) the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in closing the merger, (10) the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (11) the dilution caused by South State's issuance of additional shares of its common stock in the merger, (12) a material adverse change in the financial condition of South State or CenterState, (13) general competitive, economic, political and market conditions, (14) major catastrophes such as earthquakes, floods or other natural or human disasters, including infectious disease outbreaks, including the recent outbreak of a novel strain of coronavirus, a respiratory illness, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on South State or CenterState and its customers and other constituencies, and (15) other factors that may affect future results of CenterState and South State including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.  Additional factors which could affect future results of CenterState and South State can be found in the registration statement on Form S-4, as amended, as well as South State's Annual Report on Form 10-K, as amended, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and CenterState's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, in each case filed with the SEC and available on the SEC's website at http://www.sec.gov.  CenterState and South State disclaim any obligation and do not intend to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

Important Information About the Merger and Where to Find It

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

South State Corporation

CenterState Bank Corporation

520 Gervais Street

1101 First Street South, Suite 202

Columbia, SC 29201-3046

Winter Haven, FL 33880

Attention:  Investor Relations

Attention:  Investor Relations

(800) 277-2175

(863) 293-4710

Participants in Solicitation

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

SOURCE CenterState Bank Corporation