XNAS:CSFL Centerstate Banks Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

 

¨ Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from              to             

Commission file number 000-32017

 

 

CENTERSTATE BANKS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Florida   59-3606741

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

42745 U.S. Highway 27

Davenport, Florida 33837

(Address of Principal Executive Offices)

(863) 419-7750

(Issuer’s Telephone Number, Including Area Code)

 

 

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    YES  x    NO  ¨

Check whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    NO  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    YES  ¨    NO  x

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Common stock, par value $.01 per share

 

30,076,427 shares

(class)   Outstanding at August 1, 2012

 

 

 


Table of Contents

CENTERSTATE BANKS, INC. AND SUBSIDIARIES

INDEX

 

         Page  

PART I.

 

FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  

Condensed consolidated balance sheets at June 30, 2012 (unaudited) and December 31, 2011 (audited)

     2   

Condensed consolidated statements of earnings and comprehensive income for for the three and six months ended June 30, 2012 and 2011 (unaudited)

     3   

Condensed consolidated statements of changes in stockholders’ equity for the six months ended June 30, 2012 and 2011 (unaudited)

     5   

Condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011 (unaudited)

     6   

Notes to condensed consolidated financial statements (unaudited)

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     38   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     63   

Item 4.

 

Controls and Procedures

     63   

PART II.

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     64   

Item 1A.

 

Risk Factors

     64   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     64   

Item 3.

 

Defaults Upon Senior Securities

     64   

Item 4.

 

[Removed and Reserved]

     64   

Item 5.

 

Other Information

     64   

Item 6.

 

Exhibits

     64   

SIGNATURES

     65   

CERTIFICATIONS

     66   

 

1


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands of dollars, except per share data)

 

     As of
June 30, 2012
(unaudited)
    As of
December 31, 2011
 

ASSETS

    

Cash and due from banks

   $ 23,444      $ 17,893   

Federal funds sold and Federal Reserve Bank deposits

     93,361        133,202   
  

 

 

   

 

 

 

Cash and cash equivalents

     116,805        151,095   

Trading securities, at fair value

     1,061        —     

Investment securities available for sale, at fair value

     474,105        591,164   

Loans held for sale, at lower of cost or fair value

     1,692        3,741   

Loans covered by FDIC loss share agreements

     327,325        164,051   

Loans, excluding those covered by FDIC loss share agreements

     1,128,263        1,119,715   

Less allowance for loan losses

     (25,183     (27,944
  

 

 

   

 

 

 

Net Loans

     1,430,405        1,255,822   

Bank premises and equipment, net

     100,902        94,358   

Accrued interest receivable

     6,507        6,929   

Federal Home Loan Bank and Federal Reserve Bank stock

     9,770        10,804   

Goodwill

     46,785        38,035   

Core deposit intangible

     6,522        5,203   

Trust intangible

     1,481        —     

Bank owned life insurance

     47,241        36,520   

Other repossessed real estate owned covered by FDIC loss share agreements

     30,243        9,469   

Other repossessed real estate owned (“OREO”)

     6,855        8,712   

FDIC indemnification asset

     141,057        50,642   

Deferred income taxes, net

     325        3,451   

Prepaid expense and other assets

     18,722        18,514   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 2,440,478      $ 2,284,459   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Deposits:

    

Demand – non-interest bearing

   $ 500,871      $ 423,128   

Demand – interest bearing

     408,877        344,303   

Savings and money market accounts

     569,141        545,440   

Time deposits

     577,208        606,918   
  

 

 

   

 

 

 

Total deposits

     2,056,097        1,919,789   

Securities sold under agreement to repurchase

     23,767        14,652   

Federal funds purchased

     45,337        54,624   

Note payable

     10,000        —     

Corporate debentures

     16,958        16,945   

Accrued interest payable

     918        778   

Settlement payments due FDIC

     3,442        2,599   

Accounts payable and accrued expenses

     14,644        12,439   
  

 

 

   

 

 

 

Total liabilities

     2,171,163        2,021,826   

Stockholders’ equity:

    

Common stock, $.01 par value: 100,000,000 shares authorized; 30,074,927 and 30,055,499 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

     301        301   

Additional paid-in capital

     228,755        228,342   

Retained earnings

     32,645        28,277   

Accumulated other comprehensive income

     7,614        5,713   
  

 

 

   

 

 

 

Total stockholders’ equity

     269,315        262,633   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 2,440,478      $ 2,284,459   
  

 

 

   

 

 

 

See notes to the accompanying condensed consolidated financial statements

 

2


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)

 

     Three months ended     Six months ended  
     June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011  

Interest income:

        

Loans

   $ 20,921      $ 16,254      $ 40,465      $ 32,581   

Investment securities available for sale:

        

Taxable

     3,064        3,945        6,433        7,514   

Tax-exempt

     350        341        700        688   

Federal funds sold and other

     144        165        295        299   
  

 

 

   

 

 

   

 

 

   

 

 

 
     24,479        20,705        47,893        41,082   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     2,004        2,982        4,235        6,191   

Securities sold under agreement to repurchase

     25        23        45        47   

Federal funds purchased

     7        12        15        32   

Federal Home Loan Bank advances and other borrowings

     111        46        198        93   

Corporate debentures

     157        103        321        206   
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,304        3,166        4,814        6,569   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     22,175        17,539        43,079        34,513   

Provision for loan losses

     1,894        11,645        4,626        22,921   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after loan loss provision

     20,281        5,894        38,453        11,592   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non interest income:

        

Service charges on deposit accounts

     1,595        1,417        3,078        2,973   

Income from correspondent banking and bond sales division

     9,966        5,759        17,750        10,229   

Commissions from sale of mutual funds and annuities

     631        322        1,291        761   

Debit card and ATM fees

     1,017        714        1,932        1,370   

Loan related fees

     85        306        285        471   

Bank owned life insurance income

     363        235        721        474   

Gain on sale of securities

     726        3,120        1,328        3,129   

Trading securities revenue

     133        106        277        267   

Bargain purchase gain

     —          —          453        11,129   

FDIC indemnification income

     1,229        585        1,793        1,721   

FDIC indemnification asset accretion/(amortization)

     (290     (47     (786     421   

Trust fees

     319        —          527        —     

Other non interest revenue and fees

     825        701        1,636        1,179   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     16,599        13,218        30,285        34,124   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to the accompanying condensed consolidated financial statements.

 

3


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)

(continued)

 

     Three months ended     Six months ended  
     June 30, 2012      June 30, 2011     June 30, 2012      June 30, 2011  

Non interest expenses:

          

Salaries, wages and employee benefits

     19,050         13,820        36,511         27,326   

Occupancy expense

     2,481         2,114        4,542         4,208   

Depreciation of premises and equipment

     1,416         996        2,683         1,995   

Supplies, stationary and printing

     303         366        618         670   

Marketing expenses

     609         760        1,193         1,488   

Data processing expense

     962         1,625        1,967         2,917   

Legal, auditing and other professional fees

     601         623        1,221         1,317   

Core deposit intangible (CDI) amortization

     299         201        577         391   

Postage and delivery

     264         200        587         431   

ATM and debit card related expenses

     256         424        518         740   

Bank regulatory expenses

     658         645        1,358         1,445   

Loss (gain) on sale of repossessed real estate (“OREO”)

     229         (463     501         55   

Valuation write down of repossessed real estate (“OREO”)

     835         1,235        1,090         3,270   

Loss on repossessed assets other than real estate

     40         82        138         103   

Foreclosure and other credit related expenses

     1,094         2,008        2,060         2,995   

Acquisition and conversion related expenses

     614         469        2,482         870   

Other expenses

     1,947         1,424        3,698         2,957   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other expenses

     31,658         26,529        61,744         53,178   

Income (loss) before income taxes

     5,222         (7,417     6,994         (7,462

Provision (benefit) for income taxes

     1,542         (3,071     2,025         (3,281
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 3,680       $ (4,346   $ 4,969       $ (4,181
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income, net of tax:

          

Change in unrealized holding gain on available for sale securities, net of reclassifications and deferred income tax of $1,316, $1,085, $1,147 and $1,382, respectively

     2,182         1,798        1,901         2,290   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss)

   $ 5,862       $ (2,548   $ 6,870       $ (1,891
  

 

 

    

 

 

   

 

 

    

 

 

 

Earnings (loss) per share:

          

Basic

   $ 0.12       $ (0.14   $ 0.16       $ (0.14

Diluted

   $ 0.12       $ (0.14   $ 0.16       $ (0.14

Common shares used in the calculation of earnings (loss) per share:

          

Basic

     30,072,395         30,037,556        30,069,013         30,028,844   

Diluted

     30,140,009         30,037,556        30,138,992         30,028,844   

See notes to the accompanying condensed consolidated financial statements.

 

4


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the six months ended June 30, 2012 and 2011 (unaudited)

(in thousands of dollars, except per share data)

 

     Number of
common
shares
     Common
stock
     Additional
paid in
capital
     Retained
earnings
    Accumulated
other
comprehensive
income
     Total
stockholders’
equity
 

Balances at January 1, 2011

     30,004,761       $ 300       $ 227,464       $ 21,569      $ 2,916       $ 252,249   

Comprehensive income:

                

Net loss

              (4,181        (4,181

Change in unrealized holding gain on available for sale securities, net of deferred income tax benefit of $1,382

                2,290         2,290   
                

 

 

 

Total comprehensive loss

                   (1,891

Dividends paid – common ($0.02 per share)

              (600        (600

Stock options exercised, including tax benefit

     14,903            95              95   

Stock grants issued

     19,428            216              216   

Stock based compensation expense

           217              217   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balances at June 30, 2011

     30,039,092       $ 300       $ 227,992       $ 16,788      $ 5,206       $ 250,286   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balances at January 1, 2012

     30,055,499       $ 301       $ 228,342       $ 28,277      $ 5,713       $ 262,633   

Comprehensive income:

                

Net income

              4,969           4,969   

Change in unrealized holding gain on available for sale securities, net of deferred income tax benefit of $1,147

                1,901         1,901   
                

 

 

 

Total comprehensive loss

                   6,870   

Dividends paid – common ($0.02 per share)

              (601        (601

Stock grants issued

     19,428            216              216   

Stock based compensation expense

           197              197   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balances at June 30, 2012

     30,074,927       $ 301       $ 228,755       $ 32,645      $ 7,614       $ 269,315   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

     Three months ended     Six months ended  

Disclosure of reclassification amounts:

   June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011  

Unrealized holding gain arising during the period, net of income taxes

   $ 2,635      $ 3,744      $ 2,729      $ 4,242   

Less: reclassified adjustments for gain included in net income, net of income taxes of $273, $1,174, $500 and $1,177, respectively

     (453     (1,946     (828     (1,952
  

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized gain on securities, net of income taxes

   $ 2,182      $ 1,798      $ 1,901      $ 2,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to the accompanying condensed consolidated financial statements

 

5


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)

 

     Six months ended June,  
     2012     2011  

Cash flows from operating activities:

    

Net income (loss)

   $ 4,969      $ (4,181

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     4,626        22,921   

Depreciation of premises and equipment

     2,683        1,995   

Accretion of purchase accounting adjustments

     (12,336     (6,636

Net amortization/accretion of investment securities

     4,634        3,526   

Net deferred loan origination fees

     5        (64

Gain on sale of securities available for sale

     (1,328     (3,129

Trading securities revenue

     (277     (267

Purchases of trading securities

     (191,078     (118,082

Proceeds from sale of trading securities

     190,294        119,325   

Repossessed real estate owned valuation write down

     1,090        3,270   

Loss on sale of repossessed real estate owned

     501        55   

Repossessed assets other than real estate valuation write down

     89        77   

Loss on sale of repossessed assets other than real estate

     49        26   

Gain on sale of loans held for sale

     (119     (52

Loans originated and held for sale

     (7,342     (3,140

Proceeds from sale of loans held for sale

     9,510        2,966   

Gain on disposal of and or sale of fixed assets

     (7     (28

Impairment of bank property held for sale

     165        —     

Deferred income taxes

     1,979        (3,157

Stock based compensation expense

     318        372   

Bank owned life insurance income

     (721     (474

Bargain purchase gain from acquisition

     (453     (11,129

Net cash from changes in:

    

Net changes in accrued interest receivable, prepaid expenses, and other assets

     712        (716

Net change in accrued interest payable, accrued expense, and other liabilities

     2,378        3,340   
  

 

 

   

 

 

 

Net cash provided by operating activities

     10,341        6,818   
  

 

 

   

 

 

 

See notes to the accompanying condensed consolidated financial statements.

 

6


Table of Contents

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)

(continued)

 

     Six months ended June 30,  
     2012     2011  

Cash flows from investing activities:

    

Purchases of investment securities available for sale

     (14,147     (35,767

Purchases of mortgage backed securities available for sale

     (99,503     (177,866

Purchases of FHLB and FRB stock

     (855     —     

Proceeds from maturities of investment securities available for sale

     204        419   

Proceeds from called investment securities available for sale

     56,550        53,520   

Proceeds from pay-downs of mortgage backed securities available for sale

     64,068        55,572   

Proceeds from sale of investment securities available for sale

     12,812        10,621   

Proceeds from sales of mortgage backed securities available for sale

     102,265        142,572   

Proceeds from sale of FHLB and FRB stock

     3,683        971   

Net decrease in loans

     24,590        27,538   

Cash received from FDIC loss sharing agreements

     4,193        —     

Purchases of premises and equipment, net

     (8,038     (4,340

Proceeds from sale of repossessed real estate

     10,172        10,005   

Proceeds from insurance claims related to repossessed real estate

     —          263   

Proceeds from sale of fixed assets

     37        71   

Purchase of bank owned life insurance

     (10,000     —     

Net cash from bank acquisitions

     81,061        4,349   
  

 

 

   

 

 

 

Net cash provided by investing activities

     227,092        87,928   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net decrease in deposits

     (280,950     (34,061

Net increase in securities sold under agreement to repurchase

     9,115        4,863   

Net (decrease) increase in federal funds purchased

     (9,287     18,940   

Net increase (decrease) in FHLB advances and other borrowings

     10,000        (12,000

Stock options exercised, including tax benefit

     —          95   

Dividends paid

     (601     (600
  

 

 

   

 

 

 

Net cash used by financing activities

     (271,723     (22,763
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (34,290     71,983   

Cash and cash equivalents, beginning of period

     151,095        177,515   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 116,805      $ 249,498   
  

 

 

   

 

 

 

Transfer of loans to other real estate owned

   $ 13,015      $ 11,230   
  

 

 

   

 

 

 

Cash paid during the period for:

    

Interest

   $ 5,710      $ 7,612   
  

 

 

   

 

 

 

Income taxes

   $ —        $ 147   
  

 

 

   

 

 

 

See notes to the accompanying condensed consolidated financial statements.

 

7


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

NOTE 1: Nature of Operations and basis of presentation

Our consolidated financial statements include the accounts of CenterState Banks, Inc. (the “Parent Company,” “Company” or “CSFL”), and our wholly owned subsidiary bank, CenterState Bank of Florida, N.A. and our non bank subsidiary, R4ALL, Inc. Our subsidiary bank operates through 59 full service banking locations in 18 counties throughout Central Florida, providing traditional deposit and lending products and services to their commercial and retail customers. R4ALL, Inc. is a separate non bank subsidiary of CSFL. Its purpose is to purchase troubled loans from our subsidiary bank and manage their eventual disposition. Our prior subsidiary bank, Valrico State Bank, was merged into CenterState Bank of Florida, N.A. during June 2012.

In addition, we also operate a correspondent banking and bond sales division. The division is integrated with and part of our subsidiary bank located in Winter Haven, Florida, although the majority of our bond salesmen, traders and operational personnel are physically housed in leased facilities located in Birmingham, Alabama, Atlanta, Georgia and Winston Salem, North Carolina. The business lines of this division are primarily divided into three inter-related revenue generating activities. The first, and largest, revenue generator is commissions earned on fixed income security sales. The second category includes correspondent bank deposits (i.e. federal funds purchased) and correspondent bank checking account deposits. The third revenue generating category includes fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services. The customer base includes small to medium size financial institutions primarily located in Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. In our opinion, all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods have been made. The results of operations of the three month and six month periods ended June 30, 2012 are not necessarily indicative of the results expected for the full year.

 

NOTE 2: Common stock outstanding and earnings per share data

Basic earnings per share is based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the periods and the further dilution from stock options using the treasury method. There were 1,133,315 and 1,155,304 stock options that were anti dilutive at June 30, 2012 and 2011, respectively. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

 

     Three months ended June 30,     Six months ended June 30,  
     2012      2011     2012      2011  

Numerator for basic and diluted earnings per share:

          

Net income (loss)

   $ 3,680       $ (4,346   $ 4,969       $ (4,181

Denominator:

          

Denominator for basic earnings per share

          

– weighted-average shares

     30,072,395         30,037,556        30,069,013         30,028,844   

Effect of dilutive securities:

          

Stock options and stock grants

     67,614         —          69,979         —     
  

 

 

    

 

 

   

 

 

    

 

 

 

Denominator for diluted earnings per share

          

– adjusted weighted-average shares

     30,140,009         30,037,556        30,138,992         30,028,844   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic (loss) earnings per share

   $ 0.12       $ (0.14   $ 0.16       $ (0.14

Diluted (loss) earnings per share

   $ 0.12       $ (0.14   $ 0.16       $ (0.14

 

NOTE 3: Fair value

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

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

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

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

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

The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to June 30, 2012 but have not settled (date of sale) until after such date, the sales price is used as the fair value; and, (2) for those securities which have not traded as of June 30, 2012, the fair value was determined by broker price indications of similar or same securities.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The mortgage back securities held by the Company were issued by U. S. government sponsored entities and agencies. Assets and liabilities measured at fair value on a recurring basis are summarized below.

 

            Fair value measurements using  
            Quoted prices in
active  markets for
identical assets
(Level 1)
     Significant
Other
observable
Inputs
(Level 2)
     Significant
unobservable
inputs

(Level 3)
 

at June 30, 2012

           

Assets:

           

Trading securities

   $ 1,061         —         $ 1,061         —     

Available for sale securities

           

U.S. government sponsored entities and agencies

     26,817         —           26,817         —     

Mortgage backed securities

     404,073         —           404,073         —     

Municipal securities

     43,215         —           43,215         —     

at December 31, 2011

           

Assets:

           

Trading securities

   $ —           —         $ —           —     

Available for sale securities

           

U.S. government sponsored entities and agencies

     78,877         —           78,877         —     

Mortgage backed securities

     470,994         —           470,994         —     

Municipal securities

     41,293         —           41,293         —     

The fair value of impaired loans with specific valuation allowance for loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At June 30, 2012, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8% to 11%. Adjustments to comparable sales may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans and other real estate owned are considered a Level III in the fair value hierarchy.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

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

 

            Fair value measurements using  
            Quoted prices in
active  markets for
identical assets
(Level 1)
     Significant
other
observable
Inputs
(Level 2)
     Significant
unobservable
inputs
(Level 3)
 

at June 30, 2012

           

Assets:

           

Impaired loans

           

Residential real estate

   $ 6,176         —           —         $ 6,176   

Commercial real estate

     411         —           —           411   

Land, land development and construction

     332         —           —           332   

Commercial

     10         —           —           10   

Consumer

     418         —           —           418   

Other real estate owned

           

Residential real estate

   $ 781         —           —         $ 781   

Commercial real estate

     2,313         —           —           2,313   

Land, land development and construction

     2,718         —           —           2,718   

at December 31, 2011

           

Assets:

           

Impaired loans

           

Residential real estate

   $ 6,462         —           —         $ 6,462   

Commercial real estate

     171         —           —           171   

Land, land development and construction

     2,775         —           —           2,775   

Commercial

     11         —           —           11   

Consumer

     480         —           —           480   

Other real estate owned

           

Residential real estate

   $ 1,733         —           —         $ 1,733   

Commercial real estate

     2,948         —           —           2,948   

Land, land development and construction

     2,767         —           —           2,767   

Impaired loans with specific valuation allowances had a recorded investment of $7,981, with a valuation allowance of $634, at June 30, 2012, and a recorded investment of $13,203, with a valuation allowance of $3,304, at December 31, 2011. The Company recorded a provision for loan loss expense of $297 and $504 on these loans during the three and six month period ending June 30, 2012, respectively.

Other real estate owned had a decline in fair value of $835 and $1,090 during the three and six month period ending June 30, 2012, respectively. Changes in fair value were recorded directly as an adjustment to current earnings through non interest expense.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

Fair Value of Financial Instruments

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

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

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

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts from third party investors resulting in a Level 2 classification.

Loans, net: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

FDIC Indemnification Asset: It is not practical to determine the fair value of the FDIC indemnification asset due to restrictions placed on its transferability.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value and is classified as Level 3.

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

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

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

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

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

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

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

 

            Fair value measurements         

at June 30, 2012

   Carrying amount      Level 1      Level 2      Level 3      Total  

Financial assets:

              

Cash and cash equivalents

   $ 116,805       $ 116,805       $ —         $ —         $ 116,805   

Trading securities

     1,061         —           1,061         —           1,061   

Investment securities available for sale

     474,105         —           474,105         —           474,105   

FHLB and FRB stock

     9,770         —           —           —           n/a   

Loans held for sale

     1,692         —           1,692         —           1,692   

Loans, less allowance for loan losses of $25,183

     1,430,405         —           —           1,442,747         1,442,747   

FDIC indemnification asset

     141,057         —           —           —           n/a   

Accrued interest receivable

     6,507         —           —           6,507         6,507   

Financial liabilities:

              

Deposits – without stated maturities

   $ 1,478,889       $ 1,478,889       $ —         $ —         $ 1,478,889   

Deposits – with stated maturities

     577,208         —           585,970         —           585,970   

Securities sold under agreement to repurchase

     23,767         —           23,767         —           23,767   

Federal funds purchased (correspondent bank deposits)

     45,337         —           45,337         —           45,337   

Note payable

     10,000         —           10,000         —           10,000   

Corporate debentures

     16,958         —           —           8,525         8,525   

Accrued interest payable

     918         —           918         —           918   

 

At December 31, 2011

   Carrying
Amount
     Fair
Value
 

Financial assets:

     

Cash and cash equivalents

   $ 151,095       $ 151,095   

Trading securities

     —           —     

Investment securities available for sale

     591,164         591,164   

FHLB and FRB stock

     10,804         n/a   

Loans held for sale

     3,741         3,741   

Loans, less allowance for loan losses of $27,944

     1,255,822         1,185,089   

FDIC indemnification asset

     50,642         50,642   

Accrued interest receivable

     6,929         6,929   

Financial liabilities:

     

Deposits – without stated maturities

   $ 1,312,871       $ 1,312,871   

Deposits – with stated maturities

     606,918         616,238   

Securities sold under agreement to repurchase

     14,652         14,652   

Federal funds purchased (correspondent bank deposits)

     54,624         54,624   

Note payable

     —           —     

Corporate debentures

     16,945         8,367   

Accrued interest payable

     778         778   

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

NOTE 4: Reportable segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The table below is a reconciliation of the reportable segment revenues, expenses, and profit to the Company’s consolidated total for the six and three month periods ending June 30, 2012 and 2011.

Six month period ending June 30, 2012

 

     Commercial
and retail
banking
    Correspondent
banking and
bond sales
division
    Corporate
overhead
and
administration
    Elimination
entries
    Total  

Interest income

   $ 45,658      $ 2,235      $ —          $ 47,893   

Interest expense

     (4,283     (15     (516       (4,814
  

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

     41,375        2,220        (516       43,079   

Provision for loan losses

     (4,626     —          —            (4,626

Non interest income

     11,221        19,061        3          30,285   

Non interest expense

     (45,307     (14,864     (1,573       (61,744
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income before taxes

     2,663        6,417        (2,086       6,994   

Income tax benefit (provision)

     (379     (2,415     769          (2,025
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

   $ 2,284      $ 4,002      $ (1,317     $ 4,969   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,288,868      $ 146,703      $ 299,868      $ (294,961   $ 2,440,478   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three month period ending June 30, 2012

 

     Commercial
and retail
banking
    Correspondent
banking and
bond sales
division
    Corporate
overhead
and
administration
    Elimination
entries
    Total  

Interest income

   $ 23,430      $ 1,049      $ —          $ 24,479   

Interest expense

     (2,028     (7     (269       (2,304
  

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

     21,402        1,042        (269       22,175   

Provision for loan losses

     (1,894     —          —            (1,894

Non interest income

     5,889        10,707        3          16,599   

Non interest expense

     (22,985     (7,896     (777       (31,658
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income before taxes

     2,412        3,853        (1,043       5,222   

Income tax benefit (provision)

     (476     (1,450     384          (1,542
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income

   $ 1,936      $ 2,403      $ (659     $ 3,680   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,288,868      $ 146,703      $ 299,868      $ (294,961   $ 2,440,478   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

Six month period ending June 30, 2011

 

     Commercial
and retail
banking
    Correspondent
banking and
bond sales
division
    Corporate
overhead
and
administration
    Elimination
entries
    Total  

Interest income

   $ 39,276      $ 1,806        —          $ 41,082   

Interest expense

     (6,332     (31     (206       (6,569
  

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

     32,944        1,775        (206       34,513   

Provision for loan losses

     (22,915     (6     —            (22,921

Non interest income

     22,835        11,289        —            34,124   

Non interest expense

     (41,065     (10,704     (1,409       (53,178
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income before taxes

     (8,201     2,354        (1,615       (7,462

Income tax benefit (provision)

     3,574        (885     592          3,281   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income

   $ (4,627   $ 1,469      $ (1,023     $ (4,181
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,960,804      $ 192,882      $ 265,670      $ (262,830   $ 2,156,526   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three month period ending June 30, 2011

 

     Commercial
and retail
banking
    Correspondent
banking and
bond sales
division
    Corporate
overhead
and
administration
    Elimination
entries
    Total  

Interest income

   $ 19,581      $ 1,124        —          $ 20,705   

Interest expense

     (3,052     (11     (103       (3,166
  

 

 

   

 

 

   

 

 

     

 

 

 

Net interest income

     16,529        1,113        (103       17,539   

Provision for loan losses

     (11,639     (6     —            (11,645

Non interest income

     6,913        6,305        —            13,218   

Non interest expense

     (20,174     (5,726     (629       (26,529
  

 

 

   

 

 

   

 

 

     

 

 

 

Net income before taxes

     (8,371     1,686        (732       (7,417

Income tax benefit (provision)

     3,437        (634     268          3,071   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net (loss) income

   $ (4,934   $ 1,052      $ (464     $ (4,346
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,960,804      $ 192,882      $ 265,670      $ (262,830   $ 2,156,526   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial and retail banking: The Company’s primary business is commercial and retail banking. Currently, the Company operates its subsidiary bank and a non bank subsidiary, R4ALL, with 59 locations in 18 counties throughout Central Florida providing traditional deposit and lending products and services to its commercial and retail customers.

Corresponding banking and bond sales division: Operating as a division of our subsidiary bank, its primary revenue generating activities are as follows: 1) the first, and largest, revenue generator is commissions earned on fixed income security sales; 2) the second category includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and service fees on correspondent bank checking accounts; and, 3) the third revenue generating category, includes fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services. The customer base includes small to medium size financial institutions primarily located in Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

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

 

NOTE 5: Investment Securities Available for Sale

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

 

     June 30, 2012  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

Obligations of U.S. government sponsored entities and agencies

   $ 26,640       $ 177       $ 0       $ 26,817   

Mortgage backed securities

     394,186         9,887         0         404,073   

Municipal securities

     41,071         2,202         58         43,215   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 461,897       $ 12,266       $ 58       $ 474,105   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  

Obligations of U.S. government sponsored entities and agencies

   $ 78,455       $ 422       $ —         $ 78,877   

Mortgage backed securities

     464,237         7,309         552         470,994   

Municipal securities

     39,312         2,141         160         41,293   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 582,004       $ 9,872       $ 712       $ 591,164   
  

 

 

    

 

 

    

 

 

    

 

 

 

The cost of securities sold is determined using the specific identification method. Sales of available for sale securities were as follows:

 

For the six months ended:

   June 30,
2012
     June 30,
2011
 

Proceeds

   $ 115,077       $ 153,193   

Gross gains

     1,610         3,260   

Gross losses

     282         131   

The tax provision related to these net realized gains was $500 and $1,177, respectively.

 

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CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The fair value of available for sale securities at June 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

Investment securities available for sale    Fair
Value
     Amortized
Cost
 

Due in one year or less

   $ —         $ —     

Due after one year through five years

     1,947         1,828   

Due after five years through ten years

     21,408         20,723   

Due after ten years through thirty years

     46,676         45,160   

Mortgage backed securities

     404,074         394,186   
  

 

 

    

 

 

 
   $ 474,105       $ 461,897   
  

 

 

    

 

 

 

Securities pledged at June 30, 2012 and December 31, 2011 had a carrying amount (estimated fair value) of $139,766 and $147,620 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.

At June 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities and agencies, in an amount greater than 10% of stockholders’ equity.

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011.

 

     June 30, 2012  
     Less than 12 months      12 months or more      Total  
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Obligations of U.S. government sponsored entities and agencies

   $ —         $ —         $ —         $ —         $ —         $ —     

Mortgage backed securities

     —           —           —           —           —           —     

Municipal securities

     4,119         58         —           —           4,119         58   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 4,119       $ 58       $ —         $ —         $ 4,119       $ 58   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2011  
     Less than 12 months      12 months or more      Total  
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
 

Obligations of U.S. government sponsored entities and agencies

   $ —         $ —         $ —         $ —         $ —         $ —     

Mortgage backed securities

     96,004         552         —           —           96,004         552   

Municipal securities

     4,426         152         597         8         5,023         160   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 100,430       $ 704       $ 597       $ 8       $ 101,027       $ 712   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

Municipal securities: Unrealized losses on municipal securities have not been recognized into income because the issuers bonds are of high quality, and because management does not intend to sell these investments or more likely than not will not be required to sell these investments before their anticipated recovery. The fair value is expected to recover as the securities approach maturity.

 

18


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

NOTE 6: Loans

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.

 

     Jun 30, 2012     Dec 31, 2011  

Loans not covered by FDIC loss share agreements (note 2)

    

Real estate loans

    

Residential

   $ 422,687      $ 405,923   

Commercial

     461,405        447,459   

Construction, development, land

     66,890        89,517   
  

 

 

   

 

 

 

Total real estate

     950,982        942,899   

Commercial

     127,880        126,064   

Consumer and other loans, at fair value (note 1)

     2,072        1,392   

Consumer and other

     47,973        49,999   
  

 

 

   

 

 

 

Loans before unearned fees and cost

     1,128,907        1,120,354   

Unearned fees/costs

     (644     (639

Allowance for loan losses for noncovered loans

     (23,634     (27,585
  

 

 

   

 

 

 

Total loans not covered by FDIC loss share agreements

     1,104,629        1,092,130   
  

 

 

   

 

 

 

Loans covered by FDIC loss share agreements

    

Real estate loans

    

Residential

     168,786        99,270   

Commercial

     140,628        54,184   

Construction, development, land

     9,663        8,231   
  

 

 

   

 

 

 

Total real estate

     319,077        161,685   

Commercial

     8,248        2,366   
  

 

 

   

 

 

 

Total loans covered by FDIC loss share agreements

     327,325        164,051   

Allowance for loan losses for covered loans

     (1,549     (359
  

 

 

   

 

 

 

Net loans covered by FDIC loss share agreements

     325,776        163,692   
  

 

 

   

 

 

 

Total loans, net of allowance for loan losses

   $ 1,430,405      $ 1,255,822   
  

 

 

   

 

 

 

 

Note 1:    Consumer loans acquired pursuant to three FDIC assisted transactions of failed financial institutions during the third quarter of 2010 and two in the first quarter of 2012. These loans are not covered by an FDIC loss share agreement. The loans have been written down to estimated fair value and are being accounted for pursuant to ASC Topic 310-30.
Note 2:    Includes $74,617 of loans that are subject to a two year put back option with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank. This put back period ends January 20, 2013. Also includes $147,172 of loans that are subject to a one year put back option with The Hartford Insurance Group, Inc. (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford. This put back period ends November 1, 2012.

 

19


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The table below sets forth the activity in the allowance for loan losses for the periods presented.

 

     Loans not
covered by
FDIC loss
share
agreements
    Loans
covered by
FDIC loss
share
agreements
    Total  

Three months ended June 30, 2012

      

Balance at beginning of period

   $ 25,569      $ 441      $ 26,010   

Loans charged-off

     (3,322     —          (3,322

Recoveries of loans previously charged-off

     601        —          601   
  

 

 

   

 

 

   

 

 

 

Net charge-offs

     (2,721     —          (2,721

Provision for loan loss

     786        1,108        1,894   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 23,634      $ 1,549      $ 25,183   
  

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2012

      

Balance at beginning of period

   $ 27,585      $ 359      $ 27,944   

Loans charged-off

     (8,148     —          (8,148

Recoveries of loans previously charged-off

     761        —          761   
  

 

 

   

 

 

   

 

 

 

Net charge-offs

     (7,387     —          (7,387

Provision for loan losses

     3,436        1,190        4,626   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 23,634      $ 1,549      $ 25,183   
  

 

 

   

 

 

   

 

 

 

Three months ended June 30, 2011

      

Balance at beginning of period

   $ 28,245      $ —        $ 28,245   

Loans charged-off

     (12,303     (293     (12,596

Recoveries of loans previously charged-off

     124        —          124   
  

 

 

   

 

 

   

 

 

 

Net charge-offs

     (12,179     (293     (12,472

Provision for loan loss

     11,352        293        11,645   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 27,418      $ —        $ 27,418   
  

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2011

      

Balance at beginning of period

   $ 26,267      $ —        $ 26,267   

Loans charged-off

     (21,761     (293     (22,054

Recoveries of loans previously charged-off

     284        —          284   
  

 

 

   

 

 

   

 

 

 

Net charge-offs

     (21,477     (293     (21,770

Provision for loan losses

     22,628        293        22,921   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 27,418      $ —        $ 27,418   
  

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

 

     Real Estate Loans                    
     Residential     Commercial     Constr.,
develop., land
    Comm. &
industrial
    Consumer
& other
    Total  

Loans not covered by FDIC loss share agreements:

            

Three months ended June 30, 2012

            

Beginning of the period

   $ 5,633      $ 7,594      $ 9,737      $ 1,575      $ 1,030      $ 25,569   

Charge-offs

     (482     (491     (2,100     (17     (232     (3,322

Recoveries

     131        420        21        7        22        601   

Provisions

     (422     568        210        73        357        786   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 4,860      $ 8,091      $ 7,868      $ 1,638      $ 1,177      $ 23,634   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2012

            

Beginning of the period

   $ 6,700      $ 8,825      $ 9,098      $ 1,984      $ 978      $ 27,585   

Charge-offs

     (1,777     (1,579     (4,208     (61     (523     (8,148

Recoveries

     152        423        85        11        90        761   

Provisions

     (215     422        2,893        (296     632        3,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 4,860      $ 8,091      $ 7,868      $ 1,638      $ 1,177      $ 23,634   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three months ended June 30, 2011

            

Beginning of the period

   $ 7,456      $ 10,150      $ 8,069      $ 1,661      $ 909      $ 28,245   

Charge-offs

     (2,751     (5,954     (3,083     (368     (147     (12,303

Recoveries

     (30     62        10        4        78        124   

Provisions

     3,257        5,281        2,592        196        26        11,352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 7,932      $ 9,539      $ 7,588      $ 1,493      $ 866      $ 27,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2011

            

Beginning of the period

   $ 7,704      $ 8,587      $ 6,893      $ 2,182      $ 901      $ 26,267   

Charge-offs

     (5,523     (9,931     (5,184     (625     (498     (21,761

Recoveries

     78        74        12        15        105        284   

Provisions

     5,673        10,809        5,867        (79     358        22,628   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 7,932      $ 9,539      $ 7,588      $ 1,493      $ 866      $ 27,418   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

     Real Estate Loans              
     Residential      Commercial      Constr.,
develop., land
    Comm. &
industrial
    Total  

Loans covered by FDIC loss share agreements:

            

Three months ended June 30, 2012

            

Beginning of the period

   $ 82       $ 292       $ 40      $ 27      $ 441   

Charge-offs

     —           —           —          —          —     

Recoveries

     —           —           —          —          —     

Provisions

     —           1,163         (40     (15     1,108   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 82       $ 1,455       $ —        $ 12      $ 1,549   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2012

            

Beginning of the period

   $ 82       $ 223       $ 40      $ 14      $ 359   

Charge-offs

     —           —           —          —          —     

Recoveries

     —           —           —          —          —     

Provisions

     —           1,232         (40     (2     1,190   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 82       $ 1,455       $ —        $ 12      $ 1,549   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Three months ended June 30, 2011

            

Beginning of the period

   $ —         $ —         $ —        $ —        $ —     

Charge-offs

     —           —           (293     —          (293

Recoveries

     —           —           —          —          —     

Provisions

     —           —           293        —          293   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ —         $ —         $ —        $ —        $ —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2011

            

Beginning of the period

   $ —         $ —         $ —        $ —        $ —     

Charge-offs

     —           —           (293     —          (293

Recoveries

     —           —           —          —          —     

Provisions

     —           —           293        —          293   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ —         $ —         $ —        $ —        $ —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012 and December 31, 2011. Accrued interest receivable and unearned fees/costs are not included in the recorded investment because they are not material.

 

                                                                                                           
     Real Estate Loans                       

As of June 30, 2012

   Residential      Commercial      Constr.,
develop.,
land
     Comm. &
industrial
     Consumer
& other
     Total  

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 250       $ 217       $ 126       $ 1       $ 40       $ 634   

Collectively evaluated for impairment

     4,610         7,874         7,742         1,637         1,111         22,974   

Acquired with deteriorated credit quality

     82         1,455         —           12         26         1,575   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

     4,942         9,546         7,868         1,650         1,177         25,183   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

     9,987         31,539         2,942         3,169         458         48,095   

Loans collectively evaluated for impairment (1)

     412,700         429,866         63,948         124,711         47,515         1,078,740   

Loans acquired with deteriorated credit quality

     168,786         140,628         9,663         8,248         2,072         329,397   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 591,473       $ 602,033       $ 76,553       $ 136,128       $ 50,045       $ 1,456,232   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                           
     Real Estate Loans                       

As of December 31, 2011

   Residential      Commercial      Constr.,
develop.,
land
     Comm. &
industrial
     Consumer
& other
     Total  

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 783       $ 188       $ 2,292       $ 1       $ 40       $ 3,304   

Collectively evaluated for impairment

     5,917         8,637         6,806         1,983         912         24,255   

Acquired with deteriorated credit quality

     82         223         40         14         26         385   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 6,782       $ 9,048       $ 9,138       $ 1,998       $ 978       $ 27,944   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

     10,647         24,213         11,955         6,333         520         53,668   

Loans collectively evaluated for impairment (1)

     395,276         423,246         77,562         119,731         49,479         1,065,294   

Loans acquired with deteriorated credit quality

     99,270         54,184         8,231         2,366         1,392         165,443   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 505,193       $ 501,643       $ 97,748       $ 128,430       $ 51,391         1,284,405   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes $74,617 and $81,189, at June 30, 2012 and December 31, 2011, respectively, of loans that are subject to a two year put back option with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank. This put back period ends January 20, 2013. Also includes $147,172 and $152,723, at June 30, 2012 and December 31, 2011, respectively, of loans that are subject to a one year put back option with The Hartford Insurance Group, Inc. (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford. This put back period ends November 1, 2012.

 

23


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The table below summarizes impaired loan data for the periods presented.

 

     June 30,
2012
     Dec 31,
2011
 

Impaired loans with a specific valuation allowance

   $ 7,981       $ 13,203   

Impaired loans without a specific valuation allowance

     40,114         40,465   
  

 

 

    

 

 

 

Total impaired loans

   $ 48,095       $ 53,668   

Amount of allowance for loan losses allocated to impaired loans

     634       $ 3,304   

Performing TDRs

   $ 6,799       $ 6,554   

Non performing TDRs, included in NPLs

     4,923         5,807   
  

 

 

    

 

 

 

Total TDRs (TDRs are required to be included in impaired loans)

   $ 11,722       $ 12,361   

Impaired loans that are not TDRs

     36,373         41,307   
  

 

 

    

 

 

 

Total impaired loans

   $ 48,095       $ 53,668   

In this current real estate environment it has become more common to restructure or modify the terms of certain loans under certain conditions (i.e. troubled debt restructure or “TDRs”). In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about twelve months. We have not forgiven any material principal amounts on any loan modifications to date. We have approximately $11,722 of TDRs. Of this amount $6,799 are performing pursuant to their modified terms, and $4,923 are not performing and have been placed on non accrual status and included in our non performing loans (“NPLs”).

 

Troubled debt restructured loans (“TDRs”):

   June 30,
2012
     Dec 31,
2011
 

Performing TDRs

   $ 6,799       $ 6,554   

Non performing TDRs

     4,923         5,807   
  

 

 

    

 

 

 

Total TDRs

   $ 11,722       $ 12,361   
  

 

 

    

 

 

 

TDRs as of June 30, 2012 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non performing loans) are presented in the table below.

 

TDRs

   Accruing      Non Accrual      Total  

Real estate loans:

        

Residential

   $ 4,932       $ 3,338       $ 8,270   

Commercial

     831         1,370         2,201   

Construction, development, land

     284         175         459   
  

 

 

    

 

 

    

 

 

 

Total real estate loans

     6,047         4,883         10,930   

Commercial

     334         —           334   

Consumer and other

     418         40         458   
  

 

 

    

 

 

    

 

 

 

Total TDRs

   $ 6,799       $ 4,923       $ 11,722   
  

 

 

    

 

 

    

 

 

 

Our policy is to return non accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. Our policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of $351 and $579 and partial charge offs of $326 and $588 on the TDR loans described above during the three and six month period ending June 30, 2012, respectively.

 

24


Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

Loans are modified to minimize loan losses when we believe the modification will improve the borrower’s financial condition and ability to repay the loan. We typically do not forgive principal. We generally either reduce interest rates or decrease monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. A summary of the types of concessions made are presented in the table below.

 

     June 30, 2012  

3 months interest only

   $ 132   

6 months interest only

     1,257   

12 months interest only

     2,734   

18 months interest only

     187   

payment reduction for 12 months

     1,935   

all other

     5,477   
  

 

 

 

Total TDRs

   $ 11,722   
  

 

 

 

While we do not have long-term experience with these types of activities, approximately 58% of our TDRs are current pursuant to their modified terms, and about $4,923, or approximately 42% of our total TDRs are not performing pursuant to their modified terms. Long-term success with our performing TDRs is an unknown, and will depend to a great extent on the future of our economy and our local real estate markets. Thus far, there does not appear to be any significant difference in success rates with one type of concession versus another. However, it appears that the longer the period from the loan modification date, the higher the probability of the loan will become non-performing pursuant to its modified terms. Non performing TDRs average approximately 22 months in age from their modification date through June 30, 2012. Performing TDRs average approximately 19 months in age from their modification date through June 30, 2012.

The following table presents loans by class modified for which there was a payment default within twelve months following the modification during the period ending June 30, 2012.

 

     Number of
Loans
     Recorded
Investment
 

Residential

     9       $ 678   

Commercial real estate

     —           —     

Construction, development, land

     —           —     

Commercial

     —           —     

Consumer and other

     —           —     
  

 

 

    

 

 

 

Total

     9       $ 678   
  

 

 

    

 

 

 

The Company recorded a provision for loan loss expense of $228 and $249 and partial charge offs of $233 and $280 on TDR loans that subsequently defaulted as described above during the three and six month period ending June 30, 2012, respectively.

 

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Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2012 and December 31, 2011. The recorded investment is less than the unpaid principal balance due to partial charge-offs.

 

As of June 30, 2012

   Unpaid
principal
balance
     Recorded
investment
     Allowance for
loan losses
allocated
 

With no related allowance recorded:

        

Residential real estate

   $ 4,369       $ 3,561       $ —     

Commercial real estate

     33,415         30,911         —     

Construction, development, land

     5,793         2,484         —     

Commercial

     3,253         3,158         —     

Consumer, other

     —           —           —     

With an allowance recorded:

        

Residential real estate

     6,875         6,426         250   

Commercial real estate

     678         628         217   

Construction, development, land

     665         458         126   

Commercial

     11         11         1   

Consumer, other

     464         458         40   
  

 

 

    

 

 

    

 

 

 

Total

   $ 55,523       $ 48,095       $ 634   
  

 

 

    

 

 

    

 

 

 

 

As of December 31, 2011

   Unpaid
principal
balance
     Recorded
investment
     Allowance for
loan losses
allocated
 

With no related allowance recorded:

        

Residential real estate

   $ 4,314       $ 3,402       $ —     

Commercial real estate

     26,966         23,854         —     

Construction, development, land

     11,665         6,888         —     

Commercial

     6,409         6,321         —     

Consumer, other

     —           —           —     

With an allowance recorded:

        

Residential real estate

     7,733         7,245         783   

Commercial real estate

     404         359         188   

Construction, development, land

     5,713         5,067         2,292   

Commercial

     12         12         1   

Consumer, other

     545         520         40   
  

 

 

    

 

 

    

 

 

 

Total

   $ 63,761       $ 53,668       $ 3,304   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

 

 

Three month period ending June 30, 2012

   Average of impaired
loans during the
period
     Interest income
recognized  during
impairment
     Cash basis
interest income
recognized
 

Real estate loans:

        

Residential

   $ 9,807       $ 76       $ —     

Commercial

     31,444         336         —     

Construction, development, land

     4,413         6         —     
  

 

 

    

 

 

    

 

 

 

Total real estate loans

     45,664         418         —     

Commercial loans

     4,768         30         —     

Consumer and other loans

     468         5         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 50,900       $ 453       $ —     
  

 

 

    

 

 

    

 

 

 

Six month period ending June 30, 2012

                    

Real estate loans:

        

Residential

   $ 9,972       $ 138       $ —     

Commercial

     29,613         661         —     

Construction, development, land

     6,666         15         —     
  

 

 

    

 

 

    

 

 

 

Total real estate loans

     42,251         814         —     

Commercial loans

     5,559         46         —     

Consumer and other loans

     483         10         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 52,293       $ 870       $ —     
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousa