CenterState Bank (CSFL) 10-Q 2006 Q1 Quarterly report

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 March 31, 2006

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

For the transition period from            to            

Commission file number 333-95087

CENTERSTATE BANKS OF FLORIDA, 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.)

1101 First Street South, Suite 202

Winter Haven, Florida 33880

(Address of Principal Executive Offices)

(863) 293-2600

(Issuer’s Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section 12, 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, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  ¨ Accelerated filer  x Non-accelerated filer  ¨

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 Equity, as of the latest practicable date:

Common stock, par value $.01 per share	5,550,273
(class)	Outstanding at March 31, 2006

CENTERSTATE BANKS OF FLORIDA, INC. AND SUBSIDIARIES

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets – March 31, 2006 and December 31, 2005 (unaudited)	2
Condensed consolidated statements of earnings for the three months ended March 31, 2006 and 2005 (unaudited)	3
Condensed consolidated statements of cash flows – three months ended March 31, 2006 and 2005 (unaudited)	4
Notes to condensed consolidated financial statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and qualitative disclosures about market risk	20
Item 4. Controls and procedures	20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	22
Item 1a. Risk Factors	22
Item 2. Unregistered sales of Equity Securities and Use of Proceeds	22
Item 3. Defaults Upon Senior Securities	22
Item 4. Submission of Matters to a Vote of Shareholders	22
Item 5. Other Information	22
Item 6. Exhibits	22
SIGNATURES	23
CERTIFICATIONS

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Centerstate Banks of Florida, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

	(unaudited) As of March 31, 2006			As of December 31, 2005
ASSETS
Cash and due from banks	$	35,165		$	41,949
Federal funds sold and money market account		91,294			52,977
Cash and cash equivalents		126,459			94,926
Securities available for sale, at fair value		222,305			218,841
Loans		599,884			516,658
Less allowance for loan losses		(7,095	)		(6,491	)
Net Loans		592,789			510,167
Premises and equipment, net		34,859			28,909
Accrued interest receivable		4,157			3,610
Other real estate owned		—			—
Deferred income taxes, net		2,560			2,712
Goodwill		10,080			4,675
Core deposit intangible		3,580			479
Bank owned life insurance		6,108			6,043
Other assets		1,816			1,159
TOTAL ASSETS	$	1,004,713		$	871,521
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand - non-interest bearing	$	220,541		$	219,444
Demand - interest bearing		123,214			89,309
Savings and money market accounts		153,348			143,432
Time deposits		332,564			265,152
Total deposits		829,667			717,337
Securities sold under agreement to repurchase		46,973			41,811
Corporate debenture		10,000			10,000
Other borrowings		—			1,000
Payable to shareholders		4,350			—
Accrued interest payable		688			582
Accrued expenses and other liabilities		3,108			3,430
Total liabilities		894,786			774,160
Minority interest		—			120
Stockholders’ equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized
No shares issued or outstanding		—			—
Common stock, $.01 par value: 20,000,000 shares authorized; 5,550,273 and 5,250,386 shares issued and outstanding at March 31, 2006 and December 31, 2005 respectively		56			52
Additional paid-in capital		86,383			75,001
Retained earnings		25,396			23,954
Accumulated other comprehensive loss		(1,908	)		(1,766	)
Total stockholders’ equity		109,927			97,241
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,004,713		$	871,521

See notes to the accompanying condensed consolidated financial statements

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Centerstate Banks of Florida, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

(in thousands of dollars, except per share data)

	Three months ended
	Mar 31, 2006		Mar 31, 2005
Interest income:
Loans	$	9,617	$	7,135
Securities available for sale		1,973		1,219
Federal funds sold and money market account		601		332
		12,191		8,686
Interest expense:
Deposits		3,289		2,123
Securities sold under agreement to repurchase		439		138
Corporate debenture		199		150
Other borrowings		—		2
		3,927		2,413
Net interest income		8,264		6,273
Provision for loan losses		240		285
Net interest income after loan loss provision		8,024		5,988
Other income:
Service charges on deposit accounts		748		805
Commissions from mortgage broker activities		85		107
Loan related fees		79		72
Commissions on sale of mutual funds and annuities		270		88
Rental income		50		55
Other service charges and fees		263		213
Gain (loss) on sale of other real estate owned		—		1
		1,495		1,341
Other expenses:
Salaries, wages and employee benefits		3,876		2,908
Occupancy expense		768		634
Depreciation of premises and equipment		456		412
Supplies, stationary and printing		146		131
Marketing expenses		132		96
Data processing expense		252		234
Legal, auditing and other professional fees		131		137
Bank regulatory related expenses		58		60
Postage and delivery		79		76
ATM related expenses		116		90
Other expenses		576		543
Total other expenses		6,590		5,321
Income before provision for income taxes		2,929		2,008
Provision for income taxes		1,119		746
Net income	$	1,810	$	1,262
Earnings per share:
Basic	$	0.34	$	0.31
Diluted	$	0.34	$	0.30
Common shares used in the calculation of earnings per share:
Basic		5,254,437		4,071,525
Diluted		5,394,512		4,216,408

See notes to the accompanying condensed consolidated financial statements.

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Centerstate Banks of Florida, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)

	Three months ended March 31,
	2006			2005
Cash flows from operating activities:
Net Income	$	1,810		$	1,262
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		240			285
Depreciation of premises and equipment		456			412
Amortization of purchase accounting adjustments		13			(5	)
Net amortization/accretion of investments securities		65			46
Net deferred origination fees		56			65
BOLI income		(65	)		—
Loss on sale of fixed asset		—			2
Gain on sale of other real estate owned		—			(1	)
Employee stock option expense		130			—
Deferred income taxes		94			200
Cash provided by (used in) changes in:
Net changes in accrued interest receivable		(277	)		(402	)
Net change in other assets		(871	)		(372	)
Net change in accrued interest payable		38			79
Net change in accrued expenses and other liabilities		(365	)		635
Net cash provided by operating activities		1,324			2,206
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale		29,200			23,500
Purchases of investment securities available for sale		(3,978	)		(16,155	)
Purchases of mortgage back securities available for sale		(23,534	)		(19,901	)
Proceeds from pay-downs of mortgage back securities available for sale		5,646			3,975
Increase in loans, net of repayments		(30,230	)		(20,756	)
Purchases of premises and equipment		(3,061	)		(1,620	)
Proceeds from sale of other real estate owned		—			320
Net cash from acquisition of Mid FL bank		17,853			—
Net cash used in investing activities		(8,104	)		(30,637	)
Cash flows from financing activities:
Net increase in deposits		34,232			20,899
Net increase in securities sold under agreement to repurchase		5,162			9,443
Net (decrease) increase in other borrowings		(1,000	)		4,500
Stock options exercised		287			130
Dividends paid		(368	)		(244	)
Net cash provided by financing activities		38,313			34,728
Net increase in cash and cash equivalents		31,533			6,297
Cash and cash equivalents, beginning of period		94,926			90,115
Cash and cash equivalents, end of period	$	126,459		$	96,412

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Centerstate Banks of Florida, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)

(continued)

	Three months ended March 31,
	2006		2005
Cash paid during the period for:
Interest	$	3,812	$	2,325
Income taxes	$	1,330	$	20

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks of Florida, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: Nature of Operations and basis of presentation

Our consolidated financial statements include the accounts of CenterState Banks of Florida, Inc. (the “Parent Company” or “CSFL”), and our wholly owned subsidiary banks and wholly owned subsidiary, C. S. Processing. Our four subsidiary banks operate through 29 locations in eight Counties throughout Central Florida, providing traditional deposit and lending products and services to their commercial and retail customers.

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, 2005. 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 period ended March 31, 2006 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. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented (dollars are in thousands, except per share data).

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			For the three months ended March 31,
	2006					2005
	Earnings		Weighted Average Shares	Per Share Amount		Earnings		Weighted Average Shares	Per Share Amount
Basic EPS
Net earnings available to common Shareholders	$	1,810	5,254,437	$	0.34	$	1,262	4,071,525	$	0.31
Effect of dilutive securities:
Incremental shares from assumed exercise of stock Options		—	140,075		—		—	144,883		—
Diluted EPS
Net earnings available to common shareholders and assumed Conversions	$	1,810	5,394,512	$	0.34	$	1,262	4,216,408	$	0.30

NOTE 3: Comprehensive income

Under Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” certain transactions and other economic events that bypass our income statement must be displayed as other comprehensive income. Our comprehensive income consists of net earnings and unrealized gains and losses on securities available-for-sale, net of deferred income taxes.

The table below sets forth our comprehensive income for the periods indicated (in thousands of dollars).

	Three months ended
	Mar 31, 2006			Mar 31, 2005
Net income	$	1,810		$	1,262
Other comprehensive (loss) income, net of tax:
Unrealized holding (loss) gain arising during the period		(142	)		(647	)
Other comprehensive (loss) income, net of tax		(142	)		(647	)
Comprehensive income	$	1,668		$	615

NOTE 4 – Stock-based compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), that requires companies to expense the value of employee stock purchase plans, stock option grants and similar awards at the beginning of their next fiscal year that begins after June 15, 2005 and requires the use of either the modified prospective or the modified retrospective application method. We adopted SFAS 123R on January 1, 2006 under the modified prospective method; as such, prior periods do not include share-based compensation expense related to SFAS 123R. The modified prospective method requires the application of SFAS 123R to new awards and to awards modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for the portion of outstanding awards for which service has not been rendered (such as unvested options) that are outstanding as of the date of adoption are recognized as the remaining services are rendered. We recognize the fair value of stock-based compensation awards in salaries and benefits in the condensed consolidated statement of earnings on a straight line basis over the vesting period.

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Our shareholders have authorized 365,000 common shares for employees of the Company under an incentive stock option and non-statutory stock option plan (the “1999 Plan”). Options are granted at fair market value of the underlying stock at date of grant. Each option expires ten years from the date of grant. Options become 25% vested immediately as of the grant date and will continue to vest at a rate of 25% on each anniversary date thereafter. At March 31, 2006, there were 68,130 shares available for future grants. In addition to the 1999 Plan, we have assumed and converted the stock option plans of our subsidiary banks consistent with the terms and conditions of their respective merger agreements. These options are all vested and exercisable.

In 2004, our shareholders authorized an Employee Stock Purchase Plan (“ESPP”). The number of shares of common stock for which options may be granted under the ESPP is 200,000, which amount shall be increased on December 31 of each calendar year. At December 31, 2005 and March 31, 2006, there were no options outstanding pursuant to this plan, and no activity occurred during the quarter ending March 31, 2006 relating to our ESPP.

Our stock-based compensation consists solely of expense related to stock options. During the three months ended March 31, 2006, the Company recognized approximately $130,000 of stock-based compensation expense. As all of these options were incentive stock options (“ISO”) there was no related tax benefit. As of March 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options, net of forfeitures, was approximately $848,000 and is expected to be recognized over a weighted-average period of 0.9 years.

Prior to January 1, 2006, we accounted for stock options in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). As such, we did not recognize compensation expense in our consolidated financial statements for stock options as the exercise price was not less than 100% of the fair value of the underlying common stock on the date of grant.

The following table illustrates the effect on net income and net income per share had we recognized compensation expense consistent with the fair value provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” prior to the adoption of SFAS 123R (amounts are in thousands of dollars, except per share date).

	Three Months Ended March 31, 2005
Net income as reported	$	1,262
Deduct: Stock-based compensation expense determined under fair value based method		(118	)
Pro forma net income	$	1,144
Basic earnings per share as reported	$	0.31
Pro forma basic earnings per share		0.28
Diluted earnings per share as reported	$	0.30
Pro forma diluted earnings per share		0.27

There were no stock options granted during the three month periods ended March 31, 2006 and 2005. We did acquire stock options pursuant to the merger with CenterState Bank Mid Florida (“Mid FL”) as of

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the close of business March 31, 2006. These options vested immediately upon change of control, and their fair value was included as a portion of the purchase price paid for Mid FL.

SFAS 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. As a result, for most awards, recognized stock compensation would be reduced for estimated forfeitures prior to vesting. Based on historical data, we expect our annual forfeiture rates to be immaterial. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances. Prior to January 1, 2006, actual forfeitures were accounted for as they occurred for purposes of required pro forma stock compensation disclosures.

The table below presents information related to stock option activity for the quarters ended March 31, 2006 and 2005 (in thousands of dollars):

	Three Months Ended March 31,
	2005		2004
Total intrinsic value of stock options exercised	$	530	$	6
Cash received from stock option exercises		287		10
Gross income tax benefit from the exercise of stock options		—		—

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A summary of stock option activity for the three months ended March 31, 2006 is as follows (dollars are in thousands, except for per share data):

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Contractual Term	Aggregate Intrinsic Value
Options outstanding, January 1, 2006	353,459		$	20.86
Options granted	—			—
Options forfeited	—			—
Options exercised	(22,474	)		12.76
Options issued pursuant to Mid FL merger	38,728			25.23
Options outstanding, March 31, 2006	369,713		$	21.81	6.7 years	$	5,542
Options fully vested and expected to vest, March 31, 2006	369,713		$	21.81	6.7 years		5,542
Options exercisable, March 31, 2006	290,338		$	19.46	6.1 years		5,034

The total fair value of options vested during the quarter ended March 31, 2006 was approximately $23,000.

Common stock issued upon exercise of stock options are newly-issued shares. At March 31, 2006, options to purchase 68,130 shares were available for grant under the Company’s Stock Option Plan.

NOTE 5: Acquisition of CenterState Bank Mid Florida

On March 31, 2006, CSFL acquired 100% of the outstanding common stock of CenterState Bank Mid Florida. The assets acquired consisted principally of loans and securities and the liabilities principally of deposits. The Company accounted for the acquisition using the purchase method of accounting. The purchase price consisted of cash and stock. Specifically, each share of Mid FL common stock was exchanged for $4.35 cash and 0.2774 shares of CSFL common stock, resulting in a purchase price of $14,559,000, based on a CSFL share price of $36.80. Other costs include the value of the employee stock options acquired (approximately $760,000) and transaction expenses of approximately $279,000. Total cost of the transaction was approximately $15,598,000.

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The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

(in thousands of dollars)	Mar 31, 2006 fair value
Assets:
Cash and due from banks	$	1,813
Federal funds sold		16,240
Securities available for sale		11,090
Loans – net		52,689
Premises and equipment		3,345
Goodwill		5,405
Core deposit intangible		3,118
Other assets		316
Total assets	$	94,016
Liabilities:
Deposits	$	78,302
Other liabilities		116
Total liabilities		78,418
Net assets acquired		15,598
Total liabilities and net assets acquired	$	94,016

NOTE 6: Effect of new pronouncements

In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets,” which amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 156 requires an entity to separately recognize servicing assets and servicing liabilities and to report these balances at fair value upon inception, future methods of assessing values can be performed using either the amortization or fair value measurement techniques. Adoption of SFAS No. 156 is required for transactions occurring in fiscal years beginning after September 15, 2006. The adoption of this standard is not expected to have a material effect on the financial statements of the Company.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Combination of two subsidiary banks

During January 2006, we combined two of our four subsidiary banks, First National Bank of Polk County and CenterState Bank of Florida. Both banks operated in Polk County, Florida. The two banks were geographically close and their market overlaps continue to grow. The proximity of the two banks led to some confusion with customers and operating inefficiencies. We expect any redundancy and over staffing to cure itself through attrition and Company wide growth. The combined bank’s name is CenterState Bank of Florida, NA, and has twelve banking locations, all in Polk County, Florida.

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We have no plans to combine any of our remaining banks. CenterState Bank West Florida, NA operates through seven locations in Pasco, Citrus, Hernando and Sumter Counties. First National Bank of Osceola County operates through six locations in Osceola and Orange Counties.

Acquisition of CenterState Bank Mid Florida

At the close of business on March 31, 2006, we closed the previously announced acquisition of CenterState Bank Mid Florida (“Mid FL”). As such, Mid FL’s balance sheet is included in our consolidated balance sheet at March 31, 2006, but its results of operations are not included in our consolidated statement of earnings for the three month period ending March 31, 2006, consistent with generally accepted accounting principles. The purchase price (approximately $14,559,000) consisted of cash and stock. Specifically, each share of Mid FL common stock was exchanged for $4.35 cash and 0.2774 of CSFL common stock. At March 31, 2006, immediately prior to the merger, Mid FL had 1,000,050 shares of common stock outstanding, resulting in cash payments totaling $4,350,218 and the issuance of approximately 277,400 shares of CSFL common stock (fractional shares will be paid in cash consistent with the merger agreement). Other costs include the value of the employee stock options acquired (approximately $760,000) and transaction expenses of approximately $279,000. Total cost of the transaction was approximately $15,598,000. The transaction resulted in additional goodwill and core deposit intangible of approximately $8,523,000.

Prior to the Mid FL acquisition, C.S. Processing was 80% owned by our subsidiary banks. Mid FL was the 20% minority shareholder. As of the merger date, March 31, 2006, CSFL now owns 100% of this second tier subsidiary, and as such, minority interest, as previously reported on our consolidated balance sheet, will no longer exist. C.S. Processing provides item processing and statement rendering services for our subsidiary banks.

COMPARISON OF BALANCE SHEETS AT MARCH 31, 2006 AND DECEMBER 31, 2005

Overview

Total assets were $1,004,713,000 as of March 31, 2006, compared to $871,521,000 at December 31, 2005, an increase of $133,192,000 or 15%. The majority of this increase was due to the acquisition of Mid FL (approximately $94,016,000 in total post merger assets). The remaining increase resulted from internally generated loan growth and investment growth funded by an increase in deposits and retail repurchase agreements.

Federal funds sold and money market accounts

Federal funds sold and money market accounts were $91,294,000 at March 31, 2006 (approximately 9.1% of total assets) as compared to $52,977,000 at December 31, 2005 (approximately 6.1% of total assets). We use our available-for-sale securities portfolio, as well as federal funds sold and money market accounts for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding.

Investment securities

Securities available-for-sale, consisting primarily of U.S. Treasury and government agency securities, were $222,305,000 at March 31, 2006 (approximately 22% of total assets) compared to

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$218,841,000 at December 31, 2005 (approximately 25% of total assets), an increase of $3,464,000 or 1.6%. These securities have been recorded at fair value. We classify our securities as “available-for-sale” to provide for greater flexibility to respond to changes in interest rates as well as future liquidity needs. We use our available-for-sale securities portfolio, as well as federal funds sold and money market accounts for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding as discussed above, under the caption “Federal funds sold and money market accounts.”

Loans

Total loans were $599,884,000 at March 31, 2006, compared to $516,658,000 at December 31, 2005, an increase of $83,226,000 or 16%. Most of this increase was due to the acquisition of the Mid FL bank (approximately $53,336,000). The rest of the increase (approximately $29,890,000, or 5.8%) resulted from normal organic growth.

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated (dollars are in thousands).

	March 31, 2006			Dec 31, 2005
Real estate loans
Residential	$	172,895		$	148,090
Commercial		256,598			219,094
Construction		51,304			36,352
Total real estate		480,797			403,536
Commercial		65,173			63,475
Other		54,917			50,413
Gross loans before		600,887			517,424
Unearned fees/costs		(1,003	)		(766	)
Total loans net of unearned fees		599,884			516,658
Allowance for loan losses		(7,095	)		(6,491	)
Total loans net of unearned fees and allowance for loan losses	$	592,789		$	510,167

Credit quality and allowance for loan losses

The allowance for loan losses represents our estimate of an amount adequate to provide for probably incurred losses within the existing loan portfolio. Loans are charged against the allowance when we believe collection of the principal is unlikely. The allowance consists of amounts established for specific loans and is also based on historical loan loss experience, the volume and type of lending conducted, the amount of nonperforming loans, general economic conditions, particularly as they relate to the specific market areas, and other factors related to the collectibility of the loan portfolio. The specific reserve element is the result of a regular analysis of all loans based on credit rating classifications and other factors. At March 31, 2006, the allowance for loan losses was $7,095,000 or 1.18% of total loans outstanding, compared to $6,491,000 or 1.26%, at December 31, 2005.

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The following table sets forth information concerning the activity in the allowance for loan losses during the periods indicated (in thousands of dollars).

	Three month period end March 31,
	2006			2005
Allowance at beginning of period	$	6,491		$	5,685
Charge-offs
Commercial loans		(296	)		(37	)
Real estate loans		—			—
Consumer loans		(15	)		(22	)
Total charge-offs		(311	)		(59	)
Recoveries
Commercial loans		2			22
Real estate loans		3			1
Consumer loans		23			7
Total recoveries		28			30
Net charge-offs		(283	)		(29	)
Provision for loan losses		240			285
Adjustment relating to Mid FL merger		647			—
Allowance at end of period	$	7,095		$	5,532

Nonperforming assets

Nonperforming assets include (1) non-accrual loans; (2) accruing loans that are 90 days or more delinquent that are deemed by management to be adequately secured and in the process of collection; (3) OREO (i.e. real estate acquired through foreclosure or deed in lieu of foreclosure); and (4) other repossessed assets (not real estate). All delinquent loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the possibility of collecting additional interest is deemed insufficient to warrant further accrual. As a matter of policy, interest is not accrued on loans past due 90 days or more unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Additional interest income on such loans is recognized only when received. The following table sets forth information regarding the components of nonperforming assets at the dates indicated (in thousands of dollars).

	Mar 31 2005			Dec 31 2005
Non-accrual loans	$	647		$	852
Accruing loans past due over 90 days		551			658
Other real estate owned		—			—
Repossessed assets other than real estate		65			39
Total non-performing assets	$	1,263		$	1,549
As a percent of total assets		0.13	%		0.18	%
Allowance for loan losses	$	7,095		$	6,491
Allowance for loan losses to non-performing assets		562	%		419	%

We continually analyze our loan portfolio in an effort to recognize and resolve problem assets as quickly and efficiently as possible. As of March 31, 2006, we believe the allowance for loan losses was

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adequate. However, we recognize that many factors can adversely impact various segments of the market. Accordingly, there is no assurance that losses in excess of such reserves will not be incurred.

Bank premises and equipment

Bank premises and equipment was $34,859,000 at March 31, 2006 compared to $28,909,000 at December 31, 2005, an increase of $5,950,000 or 21%. This amount is the result of purchases totaling $6,406,000 less $456,000 of depreciation expense. A majority of the purchase amount ($3,345,000) is a result of the March 31, 2006 acquisition of the Mid FL bank. The remaining purchases ($3,061,000) include land in Polk County for a future branch site / corporate offices (approximately $1,700,000), land in Crystal River for a future branch site ($600,000), construction cost for finishing the second floor of our Lake Wales office (approximately $300,000), and construction in progress on a future branch office building in South Lakeland (approximately $200,000 to date). The remaining amount (approximately $261,000) relates to furniture, fixtures and equipment purchases during the three month period ended March 31, 2006.

Bank owned life insurance (“BOLI”)

On October 31, 2005, we purchased $6,000,000 of bank owned life insurance (“BOLI”) covering 18 of our officers. In January 2006, we entered into agreements with the 18 officers, whereby upon their death, while still employed, their beneficiary(s) will receive one half of the net life insurance proceeds as defined in the agreements. Further, if the officer meets the vesting requirements as defined in the agreement, upon termination or retirement, they may be entitled to a post retirement life insurance benefit equal to 10% of the net proceeds as defined in the agreement.

Deposits

Total deposits were $829,667,000 at March 31, 2006, compared to $717,337,000 at December 31, 2005, an increase of $112,330,000 or 15.7%. Most of this increase (approximately $78,302,000) was a result of the March 31, 2006 acquisition of the Mid FL bank. Exclusive of the Mid FL acquisition, our deposits grew $34,028,000, or 4.7% (18.8% annualized), during the quarter. This was a result of normal organic growth. The percentage of our time deposits to our total deposits increased from 37% at December 31, 2005, to 40% at March 31, 2006. Conversely, our non time deposits (demand accounts and money market accounts) decreased during this same period from 63% to 60%. Part of that shift relates to the Mid FL bank, where approximately 52% of total deposits are time deposits, but there does seem to be a slight shift in trend at our other banks as well, possibly due to the interest rate environment. The table below sets forth our deposits by type and as a percentage to total deposits at December 31, 2005 and March 31, 2006 (amounts shown in the table are in thousands of dollars).

	Mar 31, 2006		% of total		Dec 31, 2005		% of total
Demand - non-interest bearing	$	220,541	27	%	$	219,444	31	%
Demand - interest bearing		123,214	15	%		89,309	12	%
Savings and money market accounts		153,348	18	%		143,432	20	%
Time deposits		332,564	40	%		265,152	37	%
Total deposits	$	829,667	100	%	$	717,337	100	%

Securities sold under agreement to repurchase

Our subsidiary banks enter into borrowing arrangements with our retail business customers by agreements to repurchase (“securities sold under agreements to repurchase”) under which the banks pledge investment securities owned and under their control as collateral against the one-day borrowing arrangement. These short-term borrowings totaled $46,973,000 at March 31, 2006 compared to $41,811,000 at December 31, 2005, resulting in an increase of $5,162,000, or 12%.

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Corporate debenture

In September 2003, we formed CenterState Banks of Florida Statutory Trust I (the “Trust”) for the purpose of issuing trust preferred securities. On September 22, 2003, we issued a floating rate corporate debenture in the amount of $10,000,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 305 basis points). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by us or the Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. Related loan origination costs of $188,000 were capitalized and are being amortized to interest expense over a five year period ending September 2008. We have treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines, and the remainder as Tier 2 capital for federal regulatory purposes.

Payable to shareholders

This liability represents the amount of cash we are required to pay Mid FL shareholders pursuant to the acquisition of the Mid FL bank at 3/31/06. As the Mid FL shareholders send their old Mid FL certificates along with an executed transmittal letter to our transfer agent, we will pay them cash of $4.35 per share (1,000,050 shares x $4.35per share = $4,350,218) and issue 0.2774 shares of our common stock for each share of Mid FL common stock exchanged.

Stockholders’ equity

Shareholders’ equity at March 31, 2006, was $109,927,000, or 10.9% of total assets, compared to $97,241,000, or 11.2% of total assets at December 31, 2005. The increase in stockholders’ equity was due to the following items:

$97,241,000	Total stockholders’ equity at December 31, 2005
1,810,000	Net income during the period
(368,000)	Dividends declared and paid ($0.07 per share)
(142,000)	Net decrease in market value of securities available for sale, net of deferred taxes
287,000	Employee stock options exercised
130,000	Employee stock option expense consistent with SFAS #123(R)
10,969,000	Common stock deemed issue pursuant to the acquisition of the Mid FL bank
$109,927,000	Total stockholders’ equity at March 31, 2006

The federal bank regulatory agencies have established risk-based capital requirements for banks. These guidelines are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against such “off- balance sheet” activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity such as preferred stock that may be included in capital. As of March 31, 2006, each of our four subsidiary banks exceeded the minimum capital levels to be considered “well capitalized” under the terms of the guidelines.

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Selected consolidated capital ratios at March 31, 2006 and December 31, 2005 are presented in the table below.

	Actual				Well capitalized				Excess
	Amount		Ratio		Amount		Ratio		Amount
March 31, 2006
Total capital (to risk weighted assets)	$	115,270	17.2	%	$	66,942	> 10	%	$	48,328
Tier 1 capital (to risk weighted assets)		108,175	16.2	%		40,165	> 6	%		68,010
Tier 1 capital (to average assets)		108,175	12.6	%		43,031	> 5	%		65,144
December 31, 2005
Total capital (to risk weighted assets)	$	110,344	19.2	%	$	57,379	> 10	%	$	52,965
Tier 1 capital (to risk weighted assets)		103,853	18.1	%		34,427	> 6	%		69,426
Tier 1 capital (to average assets)		103,853	12.4	%		42,029	> 5	%		61,824

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005

Overview

Net income for the three months ended March 31, 2006 was $1,810,000 or $0.34 per share basic and diluted, compared to $1,262,000 or $0.31 per share basic and $0.30 per share diluted for the same period in 2005.

The return on average equity (“ROE”) and the return on average assets (“ROA”), calculated on an annualized basis, for the three month period ended March 31, 2006 was 7.36% and 0.83%, respectively, as compared to 8.69% and 0.66%, respectively, for the same period in 2005.

Net interest income/margin

Net interest income increased $1,991,000 or 32% to $8,264,000 during the three month period ended March 31, 2006 compared to $6,273,000 for the same period in 2005. The $1,991,000 increase was the result of a $3,505,000 increase in interest income less a $1,514,000 increase in interest expense.

Interest earning assets averaged $800,683,000 during the three month period ended March 31, 2006 as compared to $701,041,000 for the same period in 2005, an increase of $99,642,000, or 14%. The yield on average interest earning assets increased 1.13% to 6.09% during the three month period ended March 31, 2006, compared to 4.96% for the same period in 2005. The combined effects of the $99,642,000 increase in average interest earning assets and the 1.13% increase in yield on average interest earning assets resulted in the $3,505,000 increase in interest income between the two periods.

Interest bearing liabilities averaged $576,609,000 during the three month period ended March 31, 2006 as compared to $529,862,000 for the same period in 2005, an increase of $46,747,000, or 9%. The cost of average interest bearing liabilities increased 0.90% to 2.72% during the three month period ended March 31, 2006, compared to 1.82% for the same period in 2005. The combined effects of the $46,747,000 increase in average interest bearing liabilities and the 0.90% increase in cost on average interest bearing liabilities resulted in the $1,514,000 increase in interest expense between the two periods.

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The table below summarizes the analysis of changes in interest income and interest expense for the three month periods ended March 31, 2006 and 2005 (in thousands of dollars).

	Three months ended March 31,
	2006							2005
	Average Balance			Interest Inc / Exp		Average Rate		Average Balance			Interest Inc /Exp		Average Rate
Loans (1) (2) (3)	$	531,895		$	9,617	7.23	%	$	450,505		$	7,135	6.34	%
Securities (4)		268,788			2,574	3.83	%		250,536			1,551	2.48	%
Total earning assets		800,683			12,191	6.09	%		701,041			8,686	4.96	%
Allowance for loan losses		(6,524	)						(5,795	)
All other assets		80,120							67,511
Total assets	$	874,279						$	762,757
Deposits (5)		519,587			3,289	2.53	%		489,317			2,123	1.74	%
Borrowings (6)		47,022			439	3.73	%		30,545			140	1.83	%
Corporate debenture (7)		10,000			199	7.96	%		10,000			150	6.00	%
Total interest bearing liabilities		576,609			3,927	2.72	%		529,862			2,413	1.82	%
Demand deposits		195,670							172,696
Other liabilities		3,520							1,984
Minority shareholder interest		120							120
Stockholders’ equity		98,360							58,095
Total liabilities and stockholders’ equity	$	874,279						$	762,757
Net interest spread (8)						3.37	%						3.14	%
Net interest income				$	8,264						$	6,273
Net interest margin (9)						4.13	%						3.58	%

Note 1: Loan balances are net of deferred origination fees and costs.

Note 2: Interest income on average loans includes loan fee recognition of $86,000 and $65,000 for the three month periods ended March 31, 2006 and 2005.

Note 3: The average rates have not been presented on a tax equivalent basis, as this amount is not deemed material.

Note 4: Includes securities available-for-sale, federal funds sold and money market.

Note 5: Includes interest bearing deposits only. Non-interest bearing checking accounts are included in the demand deposits listed above.

Note 6: Includes securities sold under agreements to repurchase, federal funds purchased and federal home loan bank advances.

Note 7: Includes amortization of origination costs of $9,000 for the three month periods ended March 31, 2006 and 2005.

Note 8: Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.

Note 9: Represents net interest income divided by total interest earning assets.

Provision for loan losses

The provision for loan losses is charged to earnings to bring the total loan loss allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of

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lending conducted by us, the amount of nonperforming loans, general economic conditions, particularly as they relate to our market areas, and other factors related to the collectibility of our loan portfolio. As these factors change, the level of loan loss allowance changes. The allowance for loan loss account is then adjusted by the amount of the provision for loan losses charged to earnings. The provision was $240,000 for the three month period ended March 31, 2006 compared to $285,000 for the same period in 2005. Although our net charge-offs increased $254,000 to $283,000 during the current quarter compared to $29,000 during the same quarter last year, most of this increase relates to a $240,000 charge-off for a specific single customer. Prior to this current quarter, this particular loan had a specific loan loss reserve of $120,000.

Non-interest income

Non-interest income for the three months ended March 31, 2006 was $1,495,000 compared to $1,341,000 for the comparable period in 2005. This increase was the result of the following components listed in the table below (Amounts listed are in thousands of dollars).

Three month period ending: (in thousands of dollars)	Mar 31, 2006		Mar 31, 2005		$ increase (decrease)			% increase (decrease)
Service charges on deposit accounts	$	748	$	805	$	(57	)	(7.1	)%
Commissions from mortgage broker activities		85		107		(22	)	(20.6	)%
Loan related fees		79		72		7		9.7	%
Commissions from sale of mutual funds and annuities		270		88		182		206.8	%
Rental income		50		55		(5	)	(9.1	)%
Debit card and ATM fees		137		120		17		14.2	%
BOLI income		65		—		65		n/a
Gain on sale of other real estate owned		—		1		(1	)	n/a
Other service charges and fees		61		93		(32	)	(34.4	)%
Total non-interest income	$	1,495	$	1,341	$	154		11.5	%

As interest rates rise, the earnings credit on checking accounts has increased thereby reducing checking account service fees, contributing to the decrease in service charges on deposit accounts. In addition, we merged two of our subsidiary banks during January 2006. One of the banks had been charging customers for checking accounts. Subsequent to the merger, that product has been changed to free checking, which also contributed to lower service charges on deposit accounts. The reason we changed to free checking was to conform to our other banks and to better align ourselves to the local competition. Commission from sales of mutual funds and annuities increased significantly primarily as a result of one large transaction that occurred in February. We purchased our BOLI during the third quarter of 2005. As such, we had no comparative earnings credit during the first quarter of 2005.

Non-interest expense

Non-interest expense for the three months ended March 31, 2006 increased $1,269,000, or 23.8%, to $6,590,000, compared to $5,321,000 for the same period in 2005. The table below breaks down the individual components.

Our largest non-interest expense is employee and employee related expenses. Total salaries, wages and employee benefits for the three months ended March 31, 2006 ($3,876,000) accounted for 59% of our total non-interest expense, compared to 55% for the same period last year. Looking at the table below, employee salaries and wages increased by 16.5% to $2,748,000 for the three month period ending March 31, 2006 (“current quarter”), compared to $2,359,000 for the same period last year. Our average FTEs for the current quarter was approximately 275 which equates to an average annualized salary of approximately $39,970 compared to 256 FTEs, with an average annualized salary of approximately $36,860 for the comparable quarter last year. The increase is due to a combination of normal salary increases and mix of higher compensated employees versus lower compensated employees.

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We use a combination of performance incentive / bonus guidelines to motivate our employees to perform. These are primarily all tied to earnings performance metrics. As our net income increases, our employee incentive/bonus compensation also increases.

Effective January 1, 2006, we are required to expense employee stock options pursuant to Statement of Financial Accounting Standard No. 123(R). This expense during the current quarter was $130,000.

Incremental direct cost of loan origination, represents direct incremental cost of originating loans for our portfolio (successful efforts) that are required to be capitalized and amortized to interest income over the life of the related loan pursuant to Statement of Financial Accounting Standard No. 91. The amount that we capitalize is dependent on not just the cost, but the volume of loans successfully originated.

We added one new branch in October 2005, which is currently operating out of a temporary location until we construct a new permanent facility. As such this branch was operating during the current quarter, but not in the comparable quarter last year. This accounts for a few of the additional FTE’s quarter to quarter, the rest is due to the continual growth of our business. The increase in the remainder of our non-interest expenses, excluding employee related expenses, was primarily due to the continual growth of our business.

Components of are non-interest expenses are listed in the table below. Amounts are in thousands of dollars.

Three month period ending: (in thousands of dollars)	Mar 31, 2006			Mar 31, 2005			$ increase (decrease)			% increase (decrease)
Employee salaries and wages	$	2,748		$	2,359		$	389		16.5	%
Employee incentive/bonus compensation		438			205			233		113.7	%
Employee stock option expense		130			—			130		n/a
Health insurance and other employee benefits		372			269			103		38.3	%
Payroll taxes		289			210			79		37.6	%
Other employee related expenses		147			97			50		51.5	%
Incremental direct cost of loan origination		(248	)		(232	)		(16	)	6.5	%
Total salaries, wages and employee benefits	$	3,876		$	2,908		$	968		33.3	%
Occupancy expense		768			634			134		21.1	%
Depreciation of premises and equipment		456			412			44		10.7	%
Supplies, stationary and printing		146			131			15		11.5	%
Marketing expenses		132			96			36		37.5	%
Data processing expense		252			234			18		7.7	%
Legal, auditing and other professional fees		131			137			(6	)	(4.4	)%
Bank regulatory related expenses		58			60			(2	)	(3.3	)%
Postage and delivery		79			76			3		3.9	%
ATM related expenses		116			90			26		28.9	%
Other expenses		576			543			33		6.1	%
Total non-interest expense	$	6,590		$	5,321		$	1,269		23.8	%

Provision for income taxes

The income tax provision for the three months ended March 31, 2006 was $1,119,000 (an effective rate of 38.2%) compared to $746,000 (an effective rate of 37.2%) for the same period in 2005.

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The interest income capitalization relating to our BOLI effectively reduces our effective tax rate. However, our employee stock option expense is a permanent non tax deductible item which effectively increases our effective tax rate. The effect of the non deductible stock option expense is significantly larger than the effect of the non taxable income effect of our BOLI, which results in a higher effective tax rate. We expect our effective tax rate to increase.

Liquidity

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily and weekly basis.

Each of our subsidiary banks regularly assesses the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Each of our subsidiary bank’s asset/liability committee (ALCO) provides oversight to the liquidity management process and recommends guidelines, subject to board of director’s approval, and courses of action to address actual and projected liquidity needs.

Short term sources of funding and liquidity include cash and cash equivalents, net of federal requirements to maintain reserves against deposit liabilities; investment securities eligible for pledging to secure borrowings from customers pursuant to securities sold under repurchase agreements; loan repayments; deposits and certain interest rate-sensitive deposits; and borrowings under overnight federal fund lines available from correspondent banks. In addition to interest rate-sensitive deposits, the primary demand for liquidity is anticipated fundings under credit commitments to customers. We do not use off balance sheet financing.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES: MARKET RISK

Market risk

We believe interest rate risk is the most significant market risk impacting us. Each of our subsidiary banks monitors and manages its interest rate risk using interest rate sensitivity “gap” analysis to measure the impact of market interest rate changes on net interest income. See our 2005 annual report on Form 10-K for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 2005. There have been no changes in the assumptions used in monitoring interest rate risk as of March 31, 2006. The impact of other types of market risk, such as foreign currency exchange risk and equity price risk, is deemed immaterial. We do not maintain a portfolio of trading securities and do not intend to engage in such activities in the immediate future.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in rules 13a-15(e) or 15d-15(e)). Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in

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Securities and Exchange Commission rules and forms. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f)) during the quarter covered by this report that have materially effected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1a. Risk Factors

There has been no material changes in our risk factors from our disclosure in Item 7a of our December 31, 2005 annual report on Form 10-K

Item 2. Unregistered sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Shareholders

A special shareholders’ meeting was held on March 8, 2006 to consider the approval of the Agreement and Plan of Merger dated September 30, 2005 between CenterState Banks of Floirda, Inc. and CenterState Bank Mid Florida. The acquisition of CenterState Bank Mid Florida was approved. The vote was as follows:

FOR                   3,182,184

AGAINST             46,192

ABSTAIN               4,215

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit 31.1	The Chairman, President and Chief Executive Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	The Chief Financial Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	The Chairman, President and Chief Executive Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	The Chief Financial Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002

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CENTERSTATE BANKS OF FLORIDA, INC.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CENTERSTATE BANKS OF FLORIDA, INC.

(Registrant)

Date:    May 8, 2006	By:    /s/Ernest S. Pinner
	Ernest S. Pinner Chairman, President and Chief Executive Officer
Date:    May 8, 2006	By:    /s/James J. Antal
	James J. Antal Senior Vice President and Chief Financial Officer

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