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Mergers and Acquisitions | 9 Months Ended
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Sep. 30, 2021
Mergers and Acquisitions |
Mergers and Acquisitions | Note 4 — Mergers and Acquisitions ​ CenterState Bank Corporation (“CSFL”) ​ On June 7, 2020, the Company acquired all of the outstanding common stock of CSFL, of Winter Haven, Florida, the bank holding company for CenterState Bank, N.A. (“CSB”), in a stock transaction. Pursuant to the Merger Agreement, (i) CSFL merged with and into the Company, with the Company continuing as the surviving corporation, and (ii) immediately following the merger, SouthState Bank, a South Carolina banking corporation and wholly owned bank subsidiary of the Company, merged with and into CSB, a national banking association and wholly owned bank subsidiary of CSFL, with CSB continuing as the surviving bank. In connection with the bank merger, CSB changed its name to “South State Bank, National Association” (hereinafter referred to as the “Bank” or “SouthState Bank”). CSFL common shareholders received 0.3001 shares of the Company’s common stock in exchange for each share of CSFL stock resulting in the Company issuing 37,271,069 shares of its common stock. In total, the purchase price for CSFL was $2.26 billion including the value of the conversion of CSFL’s outstanding warrants, stock options and restricted stock units totaling $10.3 million. During the fourth quarter 2020, the purchase price (consideration transferred) decreased by $5.2 million due to an update to the value for stock options assumed and converted in the merger from $15.5 million to $10.3 million. The stock options assumed reflect their intrinsic value based upon a Black Scholes valuation. ​ In the acquisition, the Company acquired $13.0 billion of loans, including Paycheck Protection Program (“PPP”) loans, at fair value, net of $239.5 million, or 1.82%, estimated discount, including a fair value adjustment of $29.8 million recorded during the third quarter 2020, to the outstanding principal balance, representing 113.9% of the Company’s total loans at December 31, 2019. Of the total loans acquired, Management identified $3.1 billion that had more than insignificantly deteriorated since origination and were thus determined to be PCD loans. ​ In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $125.9 million, which will be amortized utilizing a sum-of-the-years’-digit method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. During the third quarter 2020, the Company identified an additional intangible related to its correspondent banking business acquired in the CSFL merger of approximately $10.0 million. As a result of the various measurement period adjustments identified during 2020 and 2021, goodwill was reduced by $38.1 million to $562.4 million. ​ During the three and nine months ended September 30, 2021 and 2020, the Company incurred approximately $16.6 million and $59.6 million, respectively, and $21.6 million and $65.9 million, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in merger and branch consolidation related expenses on the Company’s Consolidated Statements of Income. ​ The CSFL transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date.
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Initial | ​ | Subsequent | ​ | ​ | ​
​ | ​ | As Recorded | ​ | Fair Value | ​ | Fair Value | ​ | As Recorded by | ​
(Dollars in thousands) |  | by CSFL |  | Adjustments |  | Adjustments | ​ | the Company |
Assets | ​ | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​
Cash and cash equivalents | ​ | $ | 2,566,450 | ​ | $ | — | ​ | $ | — | ​ | $ | 2,566,450 | ​
Investment securities | ​ | ​ | 1,188,403 | ​ | ​ | 5,507 | (a) | ​ | — | ​ | ​ | 1,193,910 | ​
Loans held for sale | ​ | ​ | 453,578 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 453,578 | ​
Loans, net of allowance and mark | ​ |  | 12,969,091 | ​ |  | (48,342) | (b) | ​ | 29,834 | (b) |  | 12,950,583 | ​
Premises and equipment | ​ |  | 308,150 | ​ |  | 2,392 | (c) | ​ | 2,893 | (c) |  | 313,435 | ​
Intangible assets | ​ | ​ | 1,294,211 | ​ | ​ | (1,163,349) | (d) | ​ | 10,000 | (d) | ​ | 140,862 | ​
OREO and repossessed assets | ​ | ​ | 10,849 | ​ | ​ | (791) | (e) | ​ | (49) | (e) | ​ | 10,009 | ​
Bank owned life insurance | ​ | ​ | 333,053 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 333,053 | ​
Deferred tax asset | ​ | ​ | 54,123 | ​ | ​ | (8,681) | (f) | ​ | (7,820) | (f) | ​ | 37,622 | ​
Other assets | ​ |  | 967,059 | ​ |  | (604) | (g) | ​ | (1,069) | (g) |  | 965,386 | ​
Total assets | ​ | $ | 20,144,967 | ​ | $ | (1,213,868) | ​ | $ | 33,789 | ​ | $ | 18,964,888 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Liabilities | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Deposits: | ​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
Noninterest-bearing | ​ | $ | 5,291,443 | ​ | $ | — | ​ | $ | — | ​ | $ | 5,291,443 | ​
Interest-bearing | ​ |  | 10,312,370 | ​ |  | 19,702 | (h) | ​ | — | ​ |  | 10,332,072 | ​
Total deposits | ​ |  | 15,603,813 | ​ |  | 19,702 | ​ | ​ | — | ​ |  | 15,623,515 | ​
Federal funds purchased and securities sold under agreements to repurchase | ​ | ​ | 401,546 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 401,546 | ​
Other borrowings | ​ | ​ | 278,900 | ​ | ​ | (7,401) | (i) | ​ | — | ​ | ​ | 271,499 | ​
Other liabilities | ​ |  | 977,725 | ​ |  | (4,592) | (j) | ​ | 857 | (j) |  | 973,990 | ​
Total liabilities | ​ | ​ | 17,261,984 | ​ | ​ | 7,709 | ​ | ​ | 857 | ​ | ​ | 17,270,550 | ​
Net identifiable assets acquired over (under) liabilities assumed | ​ | ​ | 2,882,983 | ​ | ​ | (1,221,577) | ​ | ​ | 32,932 | ​ | ​ | 1,694,338 | ​
Goodwill | ​ |  | — | ​ |  | 600,483 | ​ | ​ | (38,113) | ​ |  | 562,370 | ​
Net assets acquired over liabilities assumed | ​ | $ | 2,882,983 | ​ | $ | (621,094) | ​ | $ | (5,181) | ​ | $ | 2,256,708 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Consideration: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
SouthState Corporation common shares issued | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 37,271,069 | ​
Purchase price per share of the Company's common stock | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 60.27 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Company common stock issued ($2,246,327) and cash exchanged for fractional shares ($74) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 2,246,401 | ​
Stock option conversion | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 2,900 | ​
Restricted stock conversion | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 7,407 | ​
Fair value of total consideration transferred | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 2,256,708 | (k)
Explanation of fair value adjustments (a)— Represents the reversal of CSFL's existing fair value adjustments of $40.7 million and the adjustment to record securities at fair value (premium) totaling $46.2 million (includes reclassification of all securities held as HTM to AFS totaling $175.7 million). (b)— Represents approximately 2.04%, or $269.1 million, total mark of the loan portfolio including a 1.97%, or $259.7 million credit mark, based on a third party valuation. Also, includes the reversal of CSFL's ending allowance for credit losses of $158.2 million and fair value adjustments of $62.6 million. Fair value was subsequently adjusted by $29.8 million due to a reduction in the loan mark (discount). (c)— Represents the MTM adjustment of $4.0 million on leased assets partially offset by the write-off of deminimus fixed assets of $1.6 million. Subsequently, the fair value on certain bank premises was adjusted by $2.9 million based on updated appraisals received. (d)— Represents approximately a 1.28% core deposit intangible, or $125.9 million from a third party valuation. This amount is net of $84.9 million existing core deposit intangible and $1.2 billion of existing goodwill from CSFL’s prior transactions that was reversed. Approximately $10.0 million in a customer list intangible related to the correspondent banking business was subsequently identified and recorded in the third quarter of 2020. (e)— Represents the reversal of prior valuation reserves of $878,000 and recorded new valuation reserves of $1.7 million on both OREO and other repossessed assets. The fair value was subsequently adjusted based on gains and losses recognized from sales of OREO and other repossessed assets. (f)— Represents deferred tax assets related to fair value adjustments measured using an estimated tax rate of 22.0%. This includes an adjustment from the CSFL tax rate to our tax rate. The difference in tax rates relates to state income taxes. Additional deferred tax liability related to subsequent fair value adjustments identified and an updated estimated tax rate of 23.78% was approximately $7.8 million. (g)— Represents a valuation reserve of bank property held for sale of $4.4 million, a fair value adjustment of a lease receivable of $116,000 and a fair value adjustment of interest receivable of $501,000. These amounts are offset by positive fair value adjustment for investment in low income housing of $3.3 million. (h)— Represents estimated premium for fixed maturity time deposits of $20.2 million partially offset by the reversal of existing CSFL fair value adjustments related to time deposit marks from other merger transactions of $546,000. (i)— Represents the recording of a discount of $12.5 million on TRUPs from a third party valuation partially offset by the reversal of the existing CSFL discount on TRUPs and other debt of $5.1 million. (j)— Represents the reversal of an existing $7.1 million unfunded commitment reserve at purchase date partially offset by a fair value adjustment to increase lease liabilities associated with leased facilities totaling $2.5 million. The discount rate applied to the bank owned life insurance split dollar liability was subsequently adjusted resulting in an increase in the other liability of $857,000. (k)— The purchase price, or the fair value of total consideration transferred, decreased by $5.2 million to $2.9 million for stock options assumed and converted in the merger. The stock options assumed reflect their intrinsic value based upon a Black Sholes valuation. ​ Comparative and Pro Forma Financial Information for the CSFL Acquisition ​ Pro-forma data for the nine months period ending September 30, 2020 listed in the table below presents pro-forma information as if the CSFL acquisition occurred at the beginning of 2020. These results combine the historical results of CSFL in the Company’s Consolidated Statement of Net Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2020. ​ Merger-related costs of $65.9 million from the CSFL acquisition were incurred during the nine months period ending September 30, 2020 and were excluded from pro forma information below. No adjustments have been made to reduce the impact of any OREO write downs, investment securities sold or repayment of borrowings recognized by CSFL in 2020. The Company recorded expenses related to systems conversions and other costs of integration during the year 2020 and 2021 for the CSFL merger. The core system conversion for the CSFL merger was completed during second quarter of 2021. The expenses related to other costs of integration are expected to continue during the rest of 2021. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisitions which are not reflected in the pro forma amounts below. The total revenues presented below represent pro-forma net interest income plus pro-forma noninterest income: ​
​ | ​ | ​ | ​ | ​
​ | ​ | Pro Forma | ​
​ | ​ | Nine Months Ended | ​
(Dollars in thousands) | ​ | September 30, 2020 | ​
Total revenues (net interest income plus noninterest income) |  | $ | 1,163,057 |
Net interest income | ​ | $ | 799,727 | ​
Net adjusted income available to the common shareholder | ​ | $ | 240,838 | ​
EPS - basic | ​ | $ | 3.40 | ​
EPS - diluted | ​ | $ | 3.38 | ​
​ The disclosures regarding the results of operations for CSFL subsequent to the acquisition date are omitted as this information is not practical to obtain. The majority of the fixed costs and purchase accounting entries were booked on the Company’s core system making it impractical to determine CSFL’s results of operation on a stand-alone basis. ​ Duncan-Williams, Inc. (“Duncan-Williams”) ​ On February 1, 2021, the Company completed its previously announced acquisition of Duncan-Williams, a 52-year-old family- and employee-owned registered broker-dealer, headquartered in Memphis, Tennessee, serving primarily institutional clients across the U.S. in the fixed income business. Duncan-Williams firm became an operating subsidiary of the Bank immediately following the transaction. ​ In total, the purchase price for Duncan-Williams was $48.3 million, including an additional premium of $8.0 million that is payable after three years from the date of acquisition. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805. The Company recognized goodwill on this acquisition of $15.8 million. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. ​ Announcement of Merger between SouthState and Atlantic Capital Bancshares, Inc. (“Atlantic Capital”) ​ On July 23, 2021, the Company and Atlantic Capital, a Georgia corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Atlantic Capital will merge with and into the Company, with the Company continuing as the surviving corporation in the merger (the “Surviving Entity”). Immediately following the merger, Atlantic Capital’s wholly owned banking subsidiary, Atlantic Capital Bank, N.A. will merge with and into the Company’s wholly owned banking subsidiary, South State Bank, National Association, which will continue as the surviving bank in the bank merger. The Merger Agreement was unanimously approved by the Board of Directors of the Company and Atlantic Capital, and has been approved by the Office of the Comptroller of the Currency (“OCC”). The merger is still subject to the approval by the Federal Reserve Board and Atlantic Capital’s shareholders. Under the terms of the Merger Agreement, shareholders of Atlantic Capital will receive 0.36 shares of the Company’s common stock for each share of Atlantic Capital common stock they own. The transaction is expected to close during the first quarter of 2022. At September 30, 2021, Atlantic Capital reported $4.2 billion in total assets, $2.3 billion in loans and $3.7 billion in deposits.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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