Purchase Price Allocation On Acquisition Of Mercantile Bank Holdings Limited And Its Subsidiaries Capitec Bank Holdings Limited Registration number 1999/025903/06 Registered bank controlling company Incorporated in the Republic of South Africa JSE ordinary share code: CPI ISIN code: ZAE000035861 JSE preference share code: CPIP ISIN code: ZAE000083838 ("Capitec" or "the company") Capitec Bank Limited Incorporated in the Republic of South Africa Registration No. 1980/003695/06 Company code: BICAP Stock Code: CBL20 ISIN Code: ZAG000102245 Stock Code: CBL22 ISIN Code: ZAG000105305 Stock Code: CBL24 ISIN Code: ZAG000130881 Stock Code: CBL26 ISIN Code: ZAG000136128 Stock Code: CBL27 ISIN Code: ZAG000143884 Stock Code: CBL28 ISIN Code: ZAG000151333 Stock Code: CBL29 ISIN Code: ZAG000158874 (“Capitec Bank” or “the bank”) PURCHASE PRICE ALLOCATION ON ACQUISITION OF MERCANTILE BANK HOLDINGS LIMITED AND ITS SUBSIDIARIES (“MERCANTILE”) Capitec Bank concluded the purchase of Mercantile on 7 November 2019 for R3.56 billion. Shareholders are referred to the SENS announcement of the same date regarding the purchase and the payment of the purchase price. This announcement provides detail on the acquisition date accounts of Mercantile as well as the allocation of the purchase price to these accounts and other intangibles identified. Capitec Bank will consolidate Mercantile from the acquisition date and Capitec Bank’s results for the year ending 29 February 2020 will include the Mercantile earnings from 7 November 2019. Capitec Bank determined the acquisition date accounting of Mercantile through the following processes: 1. Obtaining the statement of financial position of Mercantile as at 7 November 2019 which reflects a net asset value of R2.69 billion. Shareholders are referred to the SENS announcement dated 31 October 2019 that disclosed Mercantile’s net asset value at R2.66 billion at 30 September 2019. This date was used to determine the purchase price. The net asset value of R2.69 billion as at 7 November 2019 was used to allocate the purchase price. The difference relates to Mercantile’s earnings for the month of October 2019. 2. Obtaining an unqualified special purpose reasonable assurance opinion from Mercantile’s auditors reflecting a net asset value of R2.69 billion. 3. Supplementing the Capitec accounting policies with those of Mercantile to the extent that they provide more granularity on the business banking segment. This did not result in adjustments to the net asset value of the acquisition date accounts. 4. Applying IFRS 3 – Business combinations in order to determine the allocation of the purchase price to the acquired assets, assumed liabilities and residual goodwill. The outcome of the purchase price allocation was as follows: 1. Fair value of assets and liabilities A fair value exercise was performed on all assets and liabilities. No material differences were noted between net asset value and fair value. 2. Identified intangible assets Core deposit and client relationship intangibles not previously recognised were identified. A value of R80.8 million and R17.7 million was placed on the core deposit and client relationship intangibles respectively. The brand value was considered to be immaterial as Mercantile has less than 1% of the market share in South Africa and their geographical footprint is limited. The intangible assets raised through the business combination will be amortised over 7 years. It is expected that this will result in a post-tax charge of R3.38 million to Capitec’s income statement for the year ending 29 February 2020. 3. Goodwill The net asset value of Mercantile of R2.69 billion as at 7 November 2019 was increased by R98.5 million for intangible assets and offset by an increase in deferred tax of R27.6 million. The resultant fair value of identifiable net assets of R2.76 billion compared to the purchase price of R3.56 billion results in goodwill of R794.5 million. This goodwill is attributable to future revenue expected to be generated from new business banking clients, the leveraging of the Capitec brand and the Mercantile business banking process. None of the goodwill recognised is expected to be deductible for tax purposes. R’000 Total consideration transferred 3 555 772 Net asset value as at 7 November 2019 (2 690 365) Consideration less net asset value 865 407 Core deposit intangible 80 780 Client relationship intangible 17 721 Deferred tax adjustment (27 580) Goodwill 794 486 Consideration less net asset value 865 407 The purchase price of R3.56 billion was paid in cash. Capitec Bank incurred acquisition related costs of R9.5 million (mainly Securities transfer tax) during the year and these will be included in operating expenses for the year ending 29 February 2020. Identifiable assets acquired and liabilities assumed at the date of acquisition Fair value R’000 Cash, cash equivalents and money market funds 4 592 930 Financial investments 786 290 Net loans and advances 10 141 010 Trade and other receivables 376 532 Derivative financial instruments 62 445 Financial assets 8 078 Property and equipment 239 579 Right-of-use asset 14 339 Intangible assets 96 836 Core deposit intangible 80 780 Client relationships intangible 17 721 Deferred income tax asset 42 434 Derivative financial instruments (59 412) Current income tax liability (34 654) Deposits (11 743 652) Other liabilities (396 373) Wholesale funding (1 244 970) Lease liability (14 971) Provisions (104 470) Deferred income tax liability (99 186) Fair value of identifiable net assets 2 761 286 including identified intangibles Capitec Bank is eager to be of service to Mercantile’s clients. The acquisition supports Capitec’s goal of expanding its offering as part of a broader banking strategy. 10 December 2019 Stellenbosch Sponsor PSG Capital Date: 10-12-2019 11:25:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.