CenterState Bank Corporation Announces First Quarter 2020 Results

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April 23, 2020 5:04 PM EDT

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.

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

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.

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SOURCE CenterState Bank Corporation


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