U.S. SECURTIES 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, 2014
¨ | 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 x 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 | | 35,539,299 shares |
(class) | | Outstanding at April 30, 2014 |
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
INDEX
2
CenterState Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | |
ASSETS | | March 31, 2014 | | | December 31, 2013 | |
Cash and due from banks | | $ | 29,862 | | | $ | 21,581 | |
Federal funds sold and Federal Reserve Bank deposits | | | 190,399 | | | | 153,308 | |
| | | | | | | | |
Cash and cash equivalents | | | 220,261 | | | | 174,889 | |
Investment securities available for sale, at fair value | | | 617,143 | | | | 457,086 | |
Loans held for sale, at lower of cost or fair value | | | 1,017 | | | | 1,010 | |
Loans, excluding purchased credit impaired | | | 1,564,834 | | | | 1,242,758 | |
Purchased credit impaired loans | | | 250,800 | | | | 231,421 | |
Allowance for loan losses | | | (20,096 | ) | | | (20,454 | ) |
| | | | | | | | |
Net Loans | | | 1,795,538 | | | | 1,453,725 | |
Bank premises and equipment, net | | | 95,103 | | | | 96,619 | |
Accrued interest receivable | | | 7,669 | | | | 6,337 | |
Federal Home Loan Bank and Federal Reserve Bank stock, at cost | | | 8,019 | | | | 8,189 | |
Goodwill | | | 76,440 | | | | 44,924 | |
Core deposit intangible | | | 8,800 | | | | 4,958 | |
Trust intangible | | | 1,113 | | | | 1,158 | |
Bank owned life insurance | | | 54,574 | | | | 49,285 | |
Other repossessed real estate owned covered by FDIC loss share agreements | | | 13,892 | | | | 19,111 | |
Other repossessed real estate owned | | | 9,895 | | | | 6,409 | |
FDIC indemnification asset | | | 64,719 | | | | 73,433 | |
Deferred income tax asset, net | | | 7,910 | | | | 5,296 | |
Bank property held for sale | | | 6,049 | | | | 1,582 | |
Prepaid expense and other assets | | | 17,555 | | | | 11,556 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 3,005,697 | | | $ | 2,415,567 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Deposits: | | | | | | | | |
Demand - non-interest bearing | | $ | 838,764 | | | $ | 644,915 | |
Demand - interest bearing | | | 558,845 | | | | 483,842 | |
Savings and money market accounts | | | 717,041 | | | | 542,599 | |
Time deposits | | | 444,054 | | | | 384,875 | |
| | | | | | | | |
Total deposits | | | 2,558,704 | | | | 2,056,231 | |
Securities sold under agreement to repurchase | | | 26,116 | | | | 20,457 | |
Federal funds purchased | | | 45,183 | | | | 29,909 | |
Corporate debentures | | | 23,785 | | | | 16,996 | |
Accrued interest payable | | | 394 | | | | 333 | |
Payables and accrued expenses | | | 18,351 | | | | 18,262 | |
| | | | | | | | |
Total liabilities | | | 2,672,533 | | | | 2,142,188 | |
Stockholders’ equity: | | | | | | | | |
Common stock, $.01 par value: 100,000,000 shares authorized; 35,535,530 and 30,112,475 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively | | | 355 | | | | 301 | |
Additional paid-in capital | | | 287,449 | | | | 229,544 | |
Retained earnings | | | 48,716 | | | | 48,018 | |
Accumulated other comprehensive loss | | | (3,356 | ) | | | (4,484 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 333,164 | | | | 273,379 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 3,005,697 | | | $ | 2,415,567 | |
| | | | | | | | |
See notes to the accompanying condensed consolidated financial statements
3
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 | |
| | March 31, 2014 | | | March 31, 2013 | |
Interest income: | | | | | | | | |
Loans | | $ | 25,729 | | | $ | 21,435 | |
Investment securities available for sale: | | | | | | | | |
Taxable | | | 3,478 | | | | 2,388 | |
Tax-exempt | | | 336 | | | | 357 | |
Federal funds sold and other | | | 239 | | | | 198 | |
| | | | | | | | |
| | | 29,782 | | | | 24,378 | |
| | | | | | | | |
Interest expense: | | | | | | | | |
Deposits | | | 1,337 | | | | 1,383 | |
Securities sold under agreement to repurchase | | | 23 | | | | 18 | |
Federal funds purchased | | | 6 | | | | 5 | |
Corporate debentures | | | 223 | | | | 150 | |
| | | | | | | | |
| | | 1,589 | | | | 1,556 | |
| | | | | | | | |
Net interest income | | | 28,193 | | | | 22,822 | |
Provision for loan losses | | | (41 | ) | | | (360 | ) |
| | | | | | | | |
Net interest income after loan loss provision | | | 28,234 | | | | 23,182 | |
| | | | | | | | |
Non interest income: | | | | | | | | |
Income from correspondent banking and bond sales division | | | 3,136 | | | | 6,140 | |
Other correspondent banking related revenue | | | 795 | | | | 865 | |
Service charges on deposit accounts | | | 2,262 | | | | 1,819 | |
Debit, prepaid, ATM and merchant card related fees | | | 1,506 | | | | 1,285 | |
Wealth management related revenue | | | 1,217 | | | | 1,070 | |
FDIC indemnification income | | | 1,268 | | | | 628 | |
FDIC indemnification asset amortization | | | (5,185 | ) | | | (2,199 | ) |
Bank owned life insurance income | | | 352 | | | | 339 | |
Other service charges and fees | | | 409 | | | | 302 | |
Net gain on sale of securities available for sale | | | — | | | | 30 | |
| | | | | | | | |
Total other income | | | 5,760 | | | | 10,279 | |
| | | | | | | | |
See notes to the accompanying condensed consolidated financial statements.
4
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 | |
| | March 31, 2014 | | | March 31, 2013 | |
Non interest expense: | | | | |
Salaries, wages and employee benefits | | $ | 15,681 | | | $ | 16,240 | |
Occupancy expense | | | 1,960 | | | | 1,892 | |
Depreciation of premises and equipment | | | 1,478 | | | | 1,497 | |
Supplies, stationary and printing | | | 227 | | | | 288 | |
Marketing expenses | | | 620 | | | | 528 | |
Data processing expense | | | 1,039 | | | | 884 | |
Legal, audit and other professional fees | | | 775 | | | | 783 | |
Core deposit intangible (CDI) amortization | | | 331 | | | | 253 | |
Postage and delivery | | | 268 | | | | 285 | |
ATM and debit card related expenses | | | 474 | | | | 511 | |
Bank regulatory expenses | | | 631 | | | | 581 | |
Loss (gain) on sale of repossessed real estate (“OREO”) | | | 77 | | | | (1 | ) |
Valuation write down of repossessed real estate (“OREO”) | | | 1,020 | | | | 987 | |
(Gain) loss on repossessed assets other than real estate | | | (2 | ) | | | 242 | |
Foreclosure related expenses | | | 729 | | | | 793 | |
Merger and acquisition related expenses | | | 2,347 | | | | — | |
Branch closure and efficiency initiatives | | | 3,158 | | | | — | |
Other expenses | | | 1,590 | | | | 1,327 | |
| | | | | | | | |
Total other expenses | | | 32,403 | | | | 27,090 | |
| | | | | | | | |
Income before provision for income taxes | | | 1,591 | | | | 6,371 | |
Provision for income taxes | | | 538 | | | | 1,795 | |
| | | | | | | | |
Net income | | $ | 1,053 | | | $ | 4,576 | |
| | | | | | | | |
Other comprehensive income, net of tax: | | | | | | | | |
Unrealized securities holding gain (loss), net of income taxes | | $ | 1,128 | | | $ | (1,812 | ) |
Less: reclassified adjustments for gain included in net income, net of income taxes, of $12 | | | — | | | | (18 | )[1] |
| | | | | | | | |
Net unrealized gain (loss) on available for sale securities, net of income taxes | | | 1,128 | | | | (1,830 | ) |
Total comprehensive income | | $ | 2,181 | | | $ | 2,746 | |
| | | | | | | | |
Earnings per share: | | | | | | | | |
Basic | | $ | 0.03 | | | $ | 0.15 | |
Diluted | | $ | 0.03 | | | $ | 0.15 | |
Common shares used in the calculation of earnings per share: | | | | | | | | |
Basic | | | 34,465,022 | | | | 30,089,726 | |
Diluted | | | 34,862,703 | | | | 30,159,188 | |
(1) | Amounts are included in net gain on sale of securities available for sale in total non interest income. Provision for income taxes associated with the reclassification adjustment for the three month period ended March 31, 2013 was $12. |
See notes to the accompanying condensed consolidated financial statements
5
CenterState Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2014 and 2013 (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | | |
| | Number of | | | | | | Additional | | | | | | Other | | | Total | |
| | common | | | Common | | | paid in | | | Retained | | | comprehensive | | | stockholders’ | |
| | shares | | | stock | | | capital | | | earnings | | | income (loss) | | | equity | |
Balances at January 1, 2013 | | | 30,079,767 | | | $ | 301 | | | $ | 228,952 | | | $ | 36,979 | | | $ | 7,299 | | | $ | 273,531 | |
Net income | | | | | | | | | | | | | | | 4,576 | | | | | | | | 4,576 | |
Change in unrealized holding gain on available for sale securities, net of deferred income tax of $1,132 | | | | | | | | | | | | | | | | | | | (1,830 | ) | | | (1,830 | ) |
Dividends paid - common ($0.01 per share) | | | | | | | | | | | | | | | (301 | ) | | | | | | | (301 | ) |
Stock grants issued | | | 15,753 | | | | | | | | 171 | | | | | | | | | | | | 171 | |
Stock based compensation expense | | | | | | | | | | | 78 | | | | | | | | | | | | 78 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2013 | | | 30,095,520 | | | $ | 301 | | | $ | 229,201 | | | $ | 41,254 | | | $ | 5,469 | | | $ | 276,225 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balances at January 1, 2014 | | | 30,112,475 | | | $ | 301 | | | $ | 229,544 | | | $ | 48,018 | | | $ | (4,484 | ) | | $ | 273,379 | |
Net income | | | | | | | | | | | | | | | 1,053 | | | | | | | | 1,053 | |
Change in unrealized holding gain on available for sale securities, net of deferred income tax of $708 | | | | | | | | | | | | | | | | | | | 1,128 | | | | 1,128 | |
Dividends paid - common ($0.01 per share) | | | | | | | | | | | | | | | (355 | ) | | | | | | | (355 | ) |
Stock grants issued | | | 19,856 | | | | | | | | 216 | | | | | | | | | | | | 216 | |
Stock based compensation expense | | | | | | | | | | | 67 | | | | | | | | | | | | 67 | |
Stock options exercised, including tax benefit | | | 207,658 | | | | 2 | | | | 907 | | | | | | | | | | | | 909 | |
Stock issued pursuant to Gulfstream acquisition | | | 5,195,541 | | | | 52 | | | | 53,098 | | | | | | | | | | | | 53,150 | |
Stock options acquired and converted pursuant to Gulfstream acquisition | | | | | | | | | | | 3,617 | | | | | | | | | | | | 3,617 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2014 | | | 35,535,530 | | | $ | 355 | | | $ | 287,449 | | | $ | 48,716 | | | $ | (3,356 | ) | | $ | 333,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
See notes to the accompanying condensed consolidated financial statements
6
CenterState Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | |
| | Three months ended March 31, | |
| | 2014 | | | 2013 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 1,053 | | | $ | 4,576 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Recovery for loan losses | | | (41 | ) | | | (360 | ) |
Depreciation of premises and equipment | | | 1,478 | | | | 1,497 | |
Accretion of purchase accounting adjustments | | | (8,092 | ) | | | (7,858 | ) |
Net amortization of investment securities | | | 1,175 | | | | 1,899 | |
Net deferred loan origination fees | | | (162 | ) | | | (241 | ) |
Gain on sale of securities available for sale | | | — | | | | (30 | ) |
Trading securities revenue | | | (27 | ) | | | (146 | ) |
Purchases of trading securities | | | (28,809 | ) | | | (61,878 | ) |
Proceeds from sale of trading securities | | | 28,836 | | | | 67,072 | |
Repossessed real estate owned valuation write down | | | 1,020 | | | | 987 | |
Loss (gain) on sale of repossessed real estate owned | | | 77 | | | | (1 | ) |
Repossessed assets other than real estate valuation write down | | | — | | | | 47 | |
(Gain) loss on sale of repossessed assets other than real estate | | | (2 | ) | | | 195 | |
Gain on sale of loans held for sale | | | (76 | ) | | | (87 | ) |
Loans originated and held for sale | | | (4,610 | ) | | | (4,842 | ) |
Proceeds from sale of loans held for sale | | | 4,926 | | | | 5,507 | |
Gain on disposal of and or sale of fixed assets | | | (7 | ) | | | (5 | ) |
Gain on disposal of bank property held for sale | | | — | | | | (31 | ) |
Impairment on bank property held for sale | | | 2,506 | | | | — | |
Deferred income taxes | | | 3,724 | | | | 1,188 | |
Stock based compensation expense | | | 187 | | | | 146 | |
Bank owned life insurance income | | | (352 | ) | | | (339 | ) |
Net cash from changes in: | | | | | | | | |
Net changes in accrued interest receivable, prepaid expenses, and other assets | | | (3,234 | ) | | | 1,484 | |
Net change in accrued interest payable, accrued expense, and other liabilities | | | (3,946 | ) | | | (1,008 | ) |
| | | | | | | | |
Net cash (used in)/provided by operating activities | | | (4,376 | ) | | | 7,772 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchases of investment securities available for sale | | | — | | | | (31,133 | ) |
Purchases of mortgage backed securities available for sale | | | (176,583 | ) | | | (50,737 | ) |
Proceeds from maturities of investment securities available for sale | | | — | | | | 165 | |
Proceeds from called investment securities available for sale | | | — | | | | 3,200 | |
Proceeds from pay-downs of mortgage backed securities available for sale | | | 17,187 | | | | 29,271 | |
Proceeds from sales of investment securities available for sale | | | 19,583 | | | | — | |
Proceeds from sales of mortgage backed securities available for sale | | | 41,233 | | | | 9,789 | |
Proceeds from sales of FHLB and FRB stock | | | 1,055 | | | | 1,279 | |
Net decrease in loans | | | 22,898 | | | | 19,139 | |
Cash received from FDIC loss sharing agreements | | | 5,299 | | | | 20,694 | |
Purchases of premises and equipment, net | | | 3,470 | | | | (489 | ) |
Proceeds from sale of repossessed real estate | | | 6,762 | | | | 5,992 | |
Proceeds from sale of fixed assets | | | 7 | | | | 5 | |
Proceeds from sale of bank property held for sale | | | — | | | | 931 | |
Net cash from bank acquisitions | | | 77,005 | | | | — | |
| | | | | | | | |
Net cash provided by investing activities | | | 17,916 | | | | 8,106 | |
| | | | | | | | |
See notes to the accompanying condensed consolidated financial statements.
7
CenterState Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars, except per share data)
(continued)
| | | | | | | | |
| | Three months ended March 31, | |
| | 2014 | | | 2013 | |
Cash flows from financing activities: | | | | | | | | |
Net increase in deposits | | $ | 23,629 | | | $ | 16,543 | |
Net (decrease) increase in securities sold under agreement to repurchase | | | (1,917 | ) | | | 1,629 | |
Net increase in federal funds purchased | | | 15,274 | | | | 6,198 | |
Net decrease in other borrowings | | | (5,708 | ) | | | — | |
Stock options exercised, including tax benefit | | | 909 | | | | — | |
Dividends paid | | | (355 | ) | | | (301 | ) |
| | | | | | | | |
Net cash provided by financing activities | | | 31,832 | | | | 24,069 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 45,372 | | | | 39,947 | |
Cash and cash equivalents, beginning of period | | | 174,889 | | | | 136,748 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 220,261 | | | $ | 176,695 | |
| | | | | | | | |
Transfer of loans to other real estate owned | | $ | 3,432 | | | $ | 8,940 | |
| | | | | | | | |
Transfers of bank property to held for sale | | $ | 4,647 | | | $ | — | |
| | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest | | $ | 1,727 | | | $ | 1,799 | |
| | | | | | | | |
Income taxes | | $ | 1,520 | | | $ | 185 | |
| | | | | | | | |
See notes to the accompanying condensed consolidated financial statements.
8
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. (“CenterState”), and our non bank subsidiary, R4ALL, Inc. Our subsidiary bank operates through 51 full service banking locations in 19 counties throughout Florida, providing traditional deposit and lending products and services to its 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.
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 the Southeastern United States.
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 statements 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, 2013. 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, 2014 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. Average stock options outstanding that were anti dilutive during the three month periods ending March 31, 2014 and 2013 were 1,016,949 and 1,121,942, respectively. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented.
9
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | |
| | Three months ended March 31, | |
| | 2014 | | | 2013 | |
Numerator for basic and diluted earnings per share: | | | | | | | | |
Net income | | $ | 1,053 | | | $ | 4,576 | |
Denominator: | | | | | | | | |
Denominator for basic earnings per share - weighted-average shares | | | 34,465,022 | | | | 30,089,726 | |
Effect of dilutive securities: | | | | | | | | |
Stock options and stock grants | | | 397,681 | | | | 69,462 | |
| | | | | | | | |
Denominator for diluted earnings per share - adjusted weighted-average shares | | | 34,862,703 | | | | 30,159,188 | |
| | | | | | | | |
Basic earnings per share | | $ | 0.03 | | | $ | 0.15 | |
Diluted earnings per share | | $ | 0.03 | | | $ | 0.15 | |
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 and 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 the date of the consolidated balance sheet 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 the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.
10
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2). Assets and liabilities measured at fair value on a recurring basis are summarized below.
| | | | | | | | | | | | | | | | |
| | | | | Fair value measurements using | |
| | Carrying value | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
at March 31, 2014 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Trading securities | | $ | — | | | | — | | | $ | — | | | | — | |
Available for sale securities | | | | | | | | | | | | | | | | |
U.S. government sponsored entities and agencies | | | 4 | | | | — | | | | 4 | | | | — | |
Mortgage backed securities | | | 576,663 | | | | — | | | | 576,663 | | | | — | |
Municipal securities | | | 40,476 | | | | — | | | | 40,476 | | | | — | |
Interest rate swap derivatives | | | 2,874 | | | | — | | | | 2,874 | | | | — | |
Liabilities: Interest rate swap derivatives | | | 3,015 | | | | — | | | | 3,015 | | | | — | |
| | | | |
at December 31, 2013 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Trading securities | | $ | — | | | | — | | | $ | — | | | | — | |
Available for sale securities | | | | | | | | | | | | | | | | |
U.S. government sponsored entities and agencies | | | 4 | | | | — | | | | 4 | | | | — | |
Mortgage backed securities | | | 416,881 | | | | — | | | | 416,881 | | | | — | |
Municipal securities | | | 40,201 | | | | — | | | | 40,201 | | | | — | |
Interest rate swap derivatives | | | 2,603 | | | | — | | | | 2,603 | | | | — | |
Liabilities: | | | | | | | | | | | | | | | | |
Interest rate swap derivatives | | | 2,496 | | | | — | | | | 2,496 | | | | — | |
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. 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 March 31, 2014, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8% to 11%. Adjustments to appraisals 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 3 in the fair value hierarchy.
11
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 | |
| | Carrying value | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
at March 31, 2014 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired loans | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 3,076 | | | | — | | | | — | | | $ | 3,076 | |
Commercial real estate | | | 6,950 | | | | — | | | | — | | | | 6,950 | |
Land, land development and construction | | | 596 | | | | — | | | | — | | | | 596 | |
Commercial | | | 1,234 | | | | — | | | | — | | | | 1,234 | |
Consumer | | | 152 | | | | — | | | | — | | | | 152 | |
Other real estate owned | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 1,456 | | | | — | | | | — | | | $ | 1,456 | |
Commercial real estate | | | 4,793 | | | | — | | | | — | | | | 4,793 | |
Land, land development and construction | | | 3,403 | | | | — | | | | — | | | | 3,403 | |
Bank owned real estate held for sale | | | 4,811 | | | | — | | | | — | | | | 4,811 | |
| | | | |
at December 31, 2013 | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Impaired loans | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 3,191 | | | | — | | | | — | | | $ | 3,191 | |
Commercial real estate | | | 7,515 | | | | — | | | | — | | | | 7,515 | |
Land, land development and construction | | | 290 | | | | — | | | | — | | | | 290 | |
Commercial | | | 731 | | | | — | | | | — | | | | 731 | |
Consumer | | | 157 | | | | — | | | | — | | | | 157 | |
Other real estate owned | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 27 | | | | — | | | | — | | | $ | 27 | |
Commercial real estate | | | 3,837 | | | | — | | | | — | | | | 3,837 | |
Land, land development and construction | | | 3,949 | | | | — | | | | — | | | | 3,949 | |
Bank owned real estate held for sale | | | 1,582 | | | | — | | | | — | | | | 1,582 | |
Impaired loans with specific valuation allowances and/or partial charge-offs had a recorded investment of $13,807 with a valuation allowance of $1,799, at March 31, 2014, and a recorded investment of $13,528, with a valuation allowance of $1,644, at December 31, 2013. The Company recorded a provision for loan loss expense of $380 on these loans during the three month period ending March 31, 2014.
Other real estate owned had a decline in fair value of $1,020 and $987 during the three month periods ending March 31, 2014 and 2013, respectively. Changes in fair value were recorded directly to current earnings through non interest expense.
12
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Bank owned real estate held for sale represents certain branch office buildings which the Company has closed and consolidated to other existing branches. The real estate was transferred out of the Bank Premises and Equipment category into bank owned property held for sale and included in Prepaid and Other Assets category in the Company’s Condensed Consolidated Balance Sheet. The real estate was transferred at the lower of amortized cost or fair value less estimated costs to sell. The fair values were based upon comparative sales data provided by real estate brokers. The Company closed eight bank branch offices in April 2014, seven owned by the Company and one leased. Five of the properties owned by the Company were transferred to held-for-sale, the remaining two are being used as loan production offices, back office support staff offices and a portion of the second floor of one of the buildings is leased to an existing tenant. The Company recognized an impairment charge of $2,326 during the three month period ending March 31, 2014 related to the transfer to held-for-sale. Also during the first quarter of 2014, the Company recognized an additional impairment of $180 on a property previously transferred to held-for-sale in 2012.
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 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.
13
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, 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 2 classification.
Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.
Off-balance Sheet Instruments: The fair value ofoff-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 March 31, 2014 | | Carrying amount | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 220,261 | | | $ | 220,261 | | | $ | — | | | $ | — | | | $ | 220,261 | |
Trading securities | | | — | | | | — | | | | — | | | | — | | | | — | |
Investment securities available for sale | | | 617,143 | | | | — | | | | 617,143 | | | | — | | | | 617,143 | |
FHLB and FRB stock | | | 8,019 | | | | — | | | | — | | | | — | | | | n/a | |
Loans held for sale | | | 1,017 | | | | — | | | | 1,017 | | | | — | | | | 1,017 | |
Loans, less allowance for loan losses of $20,096 | | | 1,795,538 | | | | — | | | | — | | | | 1,797,640 | | | | 1,797,640 | |
FDIC indemnification asset | | | 64,719 | | | | — | | | | — | | | | — | | | | n/a | |
Interest rate swap derivatives | | | 2,874 | | | | — | | | | 2,874 | | | | — | | | | 2,874 | |
Accrued interest receivable | | | 7,669 | | | | — | | | | — | | | | 7,669 | | | | 7,669 | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits- without stated maturities | | $ | 2,114,650 | | | $ | 2,114,650 | | | $ | — | | | $ | — | | | $ | 2,114,650 | |
Deposits- with stated maturities | | | 444,054 | | | | — | | | | 451,143 | | | | — | | | | 451,143 | |
Securities sold under agreement to repurchase | | | 26,116 | | | | — | | | | 26,116 | | | | — | | | | 26,116 | |
Federal funds purchased | | | 45,183 | | | | — | | | | 45,183 | | | | — | | | | 45,183 | |
Corporate debentures | | | 23,785 | | | | — | | | | — | | | | 19,509 | | | | 19,509 | |
Interest rate swap derivatives | | | 3,015 | | | | — | | | | 3,015 | | | | — | | | | 3,015 | |
Accrued interest payable | | | 394 | | | | — | | | | 394 | | | | — | | | | 394 | |
14
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | | | | | | | | | | | | | |
| | | | | Fair value measurements | |
at December 31, 2013 | | Carrying amount | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 174,889 | | | $ | 174,889 | | | $ | — | | | $ | — | | | $ | 174,889 | |
Trading securities | | | — | | | | — | | | | — | | | | — | | | | — | |
Investment securities available for sale | | | 457,086 | | | | — | | | | 457,086 | | | | — | | | | 457,086 | |
FHLB and FRB stock | | | 8,189 | | | | — | | | | — | | | | — | | | | n/a | |
Loans held for sale | | | 1,010 | | | | — | | | | 1,010 | | | | — | | | | 1,010 | |
Loans, less allowance for loan losses of $20,454 | | | 1,453,725 | | | | — | | | | — | | | | 1,456,295 | | | | 1,456,295 | |
FDIC indemnification asset | | | 73,433 | | | | — | | | | — | | | | — | | | | n/a | |
Interest rate swap derivatives | | | 2,603 | | | | — | | | | 2,603 | | | | — | | | | 2,603 | |
Accrued interest receivable | | | 6,337 | | | | — | | | | — | | | | 6,337 | | | | 6,337 | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits- without stated maturities | | $ | 1,671,356 | | | $ | 1,671,356 | | | $ | — | | | $ | — | | | $ | 1,671,356 | |
Deposits- with stated maturities | | | 384,875 | | | | — | | | | 389,115 | | | | — | | | | 389,115 | |
Securities sold under agreement to repurchase | | | 20,457 | | | | — | | | | 20,457 | | | | — | | | | 20,457 | |
Federal funds purchased | | | 29,909 | | | | — | | | | 29,909 | | | | — | | | | 29,909 | |
Corporate debentures | | | 16,996 | | | | — | | | | — | | | | 11,091 | | | | 11,091 | |
Interest rate swap derivatives | | | 2,496 | | | | — | | | | 2,496 | | | | — | | | | 2,496 | |
Accrued interest payable | | | 333 | | | | — | | | | 333 | | | | — | | | | 333 | |
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 three month periods ending March 31, 2014 and 2013.
| | | | | | | | | | | | | | | | | | | | |
Three month period ending March 31, 2014 | |
| | Commercial and retail banking | | | Correspondent banking and bond sales division | | | Corporate overhead and administration | | | Elimination entries | | | Total | |
Interest income | | $ | 29,070 | | | $ | 712 | | | $ | — | | | | | | | $ | 29,782 | |
Interest expense | | | (1,361 | ) | | | (5 | ) | | | (223 | ) | | | | | | | (1,589 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net interest income (expense) | | | 27,709 | | | | 707 | | | | (223 | ) | | | | | | | 28,193 | |
Recovery of prior loan loss provision | | | 41 | | | | — | | | | — | | | | | | | | 41 | |
Non interest income | | | 1,829 | | | | 3,931 | | | | — | | | | | | | | 5,760 | |
Non interest expense | | | (27,167 | ) | | | (4,378 | ) | | | (858 | ) | | | | | | | (32,403 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) before taxes | | | 2,412 | | | | 260 | | | | (1,081 | ) | | | | | | | 1,591 | |
Income tax (provision) benefit | | | (849 | ) | | | (100 | ) | | | 411 | | | | | | | | (538 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 1,563 | | | $ | 160 | | | ($ | 670 | ) | | | | | | $ | 1,053 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,835,871 | | | $ | 164,599 | | | $ | 363,107 | | | ($ | 357,880 | ) | | $ | 3,005,697 | |
| | | | | | | | | | | | | | | | | | | | |
15
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | | | | | | | | | | | | | |
Three month period ending March 31, 2013 | |
| | | | | Correspondent | | | Corporate | | | | | | | |
| | Commercial | | | banking and | | | overhead | | | | | | | |
| | and retail | | | bond sales | | | and | | | Elimination | | | | |
| | banking | | | division | | | administration | | | entries | | | Total | |
Interest income | | $ | 23,598 | | | $ | 780 | | | | — | | | | — | | | $ | 24,378 | |
Interest expense | | | (1,400 | ) | | | (6 | ) | | | (150 | ) | | | — | | | | (1,556 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net interest income (expense) | | | 22,198 | | | | 774 | | | | (150 | ) | | | — | | | | 22,822 | |
Provision for loan losses | | | 360 | | | | — | | | | — | | | | — | | | | 360 | |
Non interest income | | | 3,274 | | | | 7,005 | | | | — | | | | — | | | | 10,279 | |
Non interest expense | | | (20,085 | ) | | | (6,075 | ) | | | (930 | ) | | | — | | | | (27,090 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income before taxes | | | 5,747 | | | | 1,704 | | | | (1,080 | ) | | | — | | | | 6,371 | |
Income tax (provision) benefit | | | (1,698 | ) | | | (657 | ) | | | 560 | | | | — | | | | (1,795 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 4,049 | | | $ | 1,047 | | | ($ | 520 | ) | | | — | | | $ | 4,576 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,224,471 | | | $ | 159,342 | | | $ | 297,826 | | | ($ | 292,400 | ) | | $ | 2,389,239 | |
| | | | | | | | | | | | | | | | | | | | |
Commercial and retail banking: The Company’s primary business is commercial and retail banking. Currently, the Company operates through its subsidiary bank and a non bank subsidiary, R4ALL, with 51 full service banking locations in 19 counties throughout Florida providing traditional deposit and lending products and services to its commercial and retail customers.
Correspondent 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 Southeastern United States.
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, certain merger related costs and other expenses.
16
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
NOTE 5: Investment Securities Available for Sale
All of the mortgage backed securities listed below were issued by U.S. government sponsored entities and agencies, primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support. 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:
| | | | | | | | | | | | | | | | |
| | March 31, 2014 | |
| | | | | Gross | | | Gross | | | | |
| | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | Cost | | | Gains | | | Losses | | | Value | |
Obligations of U.S. government sponsored entities and agencies | | $ | 4 | | | $ | — | | | $ | — | | | $ | 4 | |
Mortgage backed securities | | | 582,930 | | | | 4,842 | | | | 11,109 | | | | 576,663 | |
Municipal securities | | | 39,672 | | | | 1,088 | | | | 284 | | | | 40,476 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 622,606 | | | $ | 5,930 | | | $ | 11,393 | | | $ | 617,143 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | December 31, 2013 | |
| | | | | Gross | | | Gross | | | | |
| | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | Cost | | | Gains | | | Losses | | | Value | |
Obligations of U.S. government sponsored entities and agencies | | $ | 4 | | | $ | — | | | $ | — | | | $ | 4 | |
Mortgage backed securities | | | 424,654 | | | | 4,623 | | | | 12,396 | | | | 416,881 | |
Municipal securities | | | 39,728 | | | | 921 | | | | 448 | | | | 40,201 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 464,386 | | | $ | 5,544 | | | $ | 12,844 | | | $ | 457,086 | |
| | | | | | | | | | | | | | | | |
The cost of securities sold is determined using the specific identification method. The securities sold during the first quarter of 2014 were securities acquired through the Gulfstream acquisition. These securities were marked to fair value and subsequently sold after the acquisition date, therefore no gain or loss was recognized from the sale of these securities. Sales of available for sale securities for the three months ended March 31, 2014 and 2013 were as follows:
| | | | | | | | |
For the three months ended: | | Mar 31, 2014 | | | Mar 31, 2013 | |
Proceeds | | $ | 60,816 | | | $ | 9,789 | |
Gross gains | | | — | | | | 30 | |
Gross losses | | | — | | | | — | |
The tax provision related to these net realized gains was $0 and $12, respectively.
17
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 March 31, 2014 by contractual maturity were as follows. Securities not due at a single maturity date, primarilymortgage-backed securities, are shown separately.
| | | | | | | | |
Investment securities available for sale | | Fair Value | | | Amortized Cost | |
Due in one year or less | | $ | 1,357 | | | $ | 1,350 | |
Due after one year through five years | | | 2,200 | | | | 2,088 | |
Due after five years through ten years | | | 13,230 | | | | 12,907 | |
Due after ten years through thirty years | | | 23,693 | | | | 23,331 | |
Mortgage backed securities | | | 576,663 | | | | 582,930 | |
| | | | | | | | |
| | $ | 617,143 | | | $ | 622,606 | |
| | | | | | | | |
Securities pledged at March 31, 2014 and December 31, 2013 had a carrying amount (estimated fair value) of $127,926 and $108,528 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.
At March 31, 2014 and December 31, 2013, there were no holdings of securities of any one issuer, other than mortgage backed securities issued by 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 March 31, 2014 and December 31, 2013.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2014 | |
| | Less than 12 months | | | 12 months or more | | | Total | |
| | | | | Unrealized | | | | | | Unrealized | | | | | | Unrealized | |
| | Fair Value | | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | |
Mortgage backed securities | | $ | 335,084 | | | $ | 8,399 | | | $ | 27,562 | | | $ | 2,710 | | | $ | 362,646 | | | $ | 11,109 | |
Municipal securities | | | 8,905 | | | | 206 | | | | 1,043 | | | | 78 | | | | 9,948 | | | | 284 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total temporarily impaired securities | | $ | 343,989 | | | $ | 8,605 | | | $ | 28,605 | | | $ | 2,788 | | | $ | 372,594 | | | | 11,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | |
| | Less than 12 months | | | 12 months or more | | | Total | |
| | | | | Unrealized | | | | | | Unrealized | | | | | | Unrealized | |
| | Fair Value | | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | |
Obligations of U.S. government sponsored entities and agencies | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Mortgage backed securities | | | 239,641 | | | | 10,221 | | | | 18,793 | | | | 2,175 | | | | 258,434 | | | | 12,396 | |
Municipal securities | | | 7,603 | | | | 333 | | | | 1,010 | | | | 115 | | | | 8,613 | | | | 448 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total temporarily impaired securities | | $ | 247,244 | | | $ | 10,554 | | | $ | 19,803 | | | $ | 2,290 | | | $ | 267,047 | | | $ | 12,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
18
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
At March 31, 2014, 100% of the mortgage-backed securities held by the Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2014.
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.
NOTE 6: Loans
The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.
| | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | |
Loans, excluding PCI loans | | | | | | | | |
Real estate loans | | | | | | | | |
Residential | | $ | 495,450 | | | $ | 458,331 | |
Commercial | | | 736,406 | | | | 528,710 | |
Land, development and construction | | | 60,726 | | | | 62,503 | |
| | | | | | | | |
Total real estate | | | 1,292,582 | | | | 1,049,544 | |
Commercial | | | 217,482 | | | | 143,263 | |
Consumer and other loans | | | 54,205 | | | | 49,547 | |
| | | | | | | | |
Loans before unearned fees and deferred cost | | | 1,564,269 | | | | 1,242,354 | |
Net unearned fees and costs | | | 565 | | | | 404 | |
| | | | | | | | |
Total loans, excluding PCI loans | | | 1,564,834 | | | | 1,242,758 | |
Allowance for loan losses | | | (18,913 | ) | | | (19,694 | ) |
| | | | | | | | |
Net loans, excluding PCI loans | | | 1,545,921 | | | | 1,223,064 | |
| | | | | | | | |
PCI loans (note 1) | | | | | | | | |
Real estate loans | | | | | | | | |
Residential | | | 117,879 | | | | 120,030 | |
Commercial | | | 112,558 | | | | 100,012 | |
Land, development and construction | | | 11,144 | | | | 6,381 | |
| | | | | | | | |
Total real estate | | | 241,581 | | | | 226,423 | |
Commercial | | | 8,118 | | | | 3,850 | |
Consumer and other loans | | | 1,101 | | | | 1,148 | |
| | | | | | | | |
Total PCI loans | | | 250,800 | | | | 231,421 | |
Allowance for loan losses | | | (1,183 | ) | | | (760 | ) |
| | | | | | | | |
Net PCI loans | | | 249,617 | | | | 230,661 | |
| | | | | | | | |
Total loans, net of allowance for loan losses | | $ | 1,795,538 | | | $ | 1,453,725 | |
| | | | | | | | |
note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.
19
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
All loans covered by FDIC loss sharing agreements are included in PCI loans in the table above. The following table sets forth information concerning the covered FDIC loans by collateral types.
| | | | | | | | |
Loans covered by FDIC loss sharing agreements | | Mar 31, 2014 | | | Dec 31, 2013 | |
Real estate loans: | | | | | | | | |
Residential | | $ | 113,418 | | | $ | 120,030 | |
Commercial | | | 95,942 | | | | 100,012 | |
Land, development and construction | | | 6,824 | | | | 6,381 | |
| | | | | | | | |
Total real estate | | | 216,184 | | | | 226,423 | |
Commercial | | | 3,549 | | | | 3,850 | |
| | | | | | | | |
Total loans covered by FDIC loss sharing agreements | | | 219,733 | | | | 230,273 | |
Allowance for loan losses | | | (1,183 | ) | | | (760 | ) |
| | | | | | | | |
Net FDIC covered loans | | $ | 218,550 | | | $ | 229,513 | |
| | | | | | | | |
The table below set forth the activity in the allowance for loan losses for the periods presented.
| | | | | | | | | | | | |
Three months ended March 31, 2014 | | Loans excluding PCI loans | | | PCI loans | | | Total | |
Balance at beginning of period | | $ | 19,694 | | | $ | 760 | | | $ | 20,454 | |
Loans charged-off | | | (1,160 | ) | | | — | | | | (1,160 | ) |
Recoveries of loans previously charged-off | | | 843 | | | | — | | | | 843 | |
| | | | | | | | | | | | |
Net charge-offs | | | (317 | ) | | | — | | | | (317 | ) |
(Recovery) provision for loan losses | | | (464 | ) | | | 423 | | | | (41 | ) |
| | | | | | | | | | | | |
Balance at end of period | | $ | 18,913 | | | $ | 1,183 | | | $ | 20,096 | |
| | | | | | | | | | | | |
Three months ended March 31, 2013 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 24,033 | | | $ | 2,649 | | | $ | 26,682 | |
Loans charged-off | | | (1,231 | ) | | | — | | | | (1,231 | ) |
Recoveries of loans previously charged-off | | | 163 | | | | — | | | | 163 | |
| | | | | | | | | | | | |
Net charge-offs | | | (1,068 | ) | | | — | | | | (1,068 | ) |
Provision for loan losses | | | (334 | ) | | | (26 | ) | | | (360 | ) |
| | | | | | | | | | | | |
Balance at end of period | | $ | 22,631 | | | $ | 2,623 | | | $ | 25,254 | |
| | | | | | | | | | | | |
20
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 activity in the allowance for loan losses by portfolio segment for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Real Estate Loans | | | | | | | | | | |
| | Residential | | | Commercial | | | Land, develop., constr. | | | Comm. & industrial | | | Consumer & other | | | Total | |
Loans, excluding purchased credit impaired: | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of the period | | $ | 8,785 | | | $ | 6,441 | | | $ | 3,069 | | | $ | 510 | | | $ | 889 | | | $ | 19,694 | |
Charge-offs | | | (687 | ) | | | (16 | ) | | | (77 | ) | | | (200 | ) | | | (180 | ) | | | (1,160 | ) |
Recoveries | | | 455 | | | | 314 | | | | 23 | | | | 1 | | | | 50 | | | | 843 | |
Provision for loan losses | | | (741 | ) | | | 599 | | | | (1,227 | ) | | | 645 | | | | 260 | | | | (464 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | 7,812 | | | $ | 7,338 | | | $ | 1,788 | | | $ | 956 | | | $ | 1,019 | | | $ | 18,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of the period | | $ | 6,831 | | | $ | 8,272 | | | $ | 6,211 | | | $ | 1,745 | | | $ | 974 | | | $ | 24,033 | |
Charge-offs | | | (612 | ) | | | (424 | ) | | | (39 | ) | | | (52 | ) | | | (104 | ) | | | (1,231 | ) |
Recoveries | | | 80 | | | | 27 | | | | 14 | | | | 10 | | | | 32 | | | | 163 | |
Provision for loan losses | | | 1,801 | | | | (782 | ) | | | (860 | ) | | | (479 | ) | | | (14 | ) | | | (334 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | 8,100 | | | $ | 7,093 | | | $ | 5,326 | | | $ | 1,224 | | | $ | 888 | | | $ | 22,631 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Purchased credit impaired loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of the period | | $ | — | | | $ | 138 | | | $ | 89 | | | $ | 533 | | | $ | — | | | $ | 760 | |
Charge-offs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Recoveries | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Provision for loan losses | | | — | | | | 485 | | | | — | | | | (62 | ) | | | — | | | | 423 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | — | | | $ | 623 | | | $ | 89 | | | $ | 471 | | | $ | — | | | $ | 1,183 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of the period | | $ | — | | | $ | 2,335 | | | $ | — | | | $ | 314 | | | $ | — | | | $ | 2,649 | |
Charge-offs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Recoveries | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Provision for loan losses | | | — | | | | (25 | ) | | | — | | | | (1 | ) | | | — | | | | (26 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | — | | | $ | 2,310 | | | $ | — | | | $ | 313 | | | $ | — | | | $ | 2,623 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
21
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 March 31, 2014 and December 31, 2013. Accrued interest receivable and unearned loan fees and costs are not included in the recorded investment because they are not material.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Real Estate Loans | | | | | | | | | | |
As of March 31, 2014 | | Residential | | | Commercial | | | Land, develop., constr. | | | Comm. & industrial | | | Consumer & other | | | Total | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | |
Ending allowance balance attributable to loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 331 | | | $ | 1,543 | | | $ | 16 | | | $ | 7 | | | $ | 22 | | | $ | 1,919 | |
Collectively evaluated for impairment | | | 7,481 | | | | 5,795 | | | | 1,772 | | | | 949 | | | | 997 | | | | 16,994 | |
Acquired with deteriorated credit quality | | | — | | | | 623 | | | | 89 | | | | 471 | | | | — | | | | 1,183 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total ending allowance balance | | $ | 7,812 | | | $ | 7,961 | | | $ | 1,877 | | | $ | 1,427 | | | $ | 1,019 | | | $ | 20,096 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 9,545 | | | $ | 12,687 | | | $ | 1,460 | | | $ | 2,538 | | | $ | 325 | | | $ | 26,555 | |
Loans collectively evaluated for impairment | | | 485,905 | | | | 723,719 | | | | 59,266 | | | | 214,944 | | | | 53,880 | | | | 1,537,714 | |
Loans acquired with deteriorated credit quality | | | 117,879 | | | | 112,558 | | | | 11,144 | | | | 8,118 | | | | 1,101 | | | | 250,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total ending loan balances | | $ | 613,329 | | | $ | 848,964 | | | $ | 71,870 | | | $ | 225,600 | | | $ | 55,306 | | | $ | 1,815,069 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Real Estate Loans | | | | | | | | | | |
As of December 31, 2013 | | Residential | | | Commercial | | | Land, develop., constr. | | | Comm. & industrial | | | Consumer & other | | | Total | |
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | |
Ending allowance balance attributable to loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 395 | | | $ | 1,377 | | | $ | 16 | | | $ | 2 | | | $ | 21 | | | $ | 1,811 | |
Collectively evaluated for impairment | | | 8,390 | | | | 5,064 | | | | 3,053 | | | | 508 | | | | 868 | | | | 17,883 | |
Acquired with deteriorated credit quality | | | — | | | | 138 | | | | 89 | | | | 533 | | | | — | | | | 760 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total ending allowance balance | | $ | 8,785 | | | $ | 6,579 | | | $ | 3,158 | | | $ | 1,043 | | | $ | 889 | | | $ | 20,454 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 8,610 | | | $ | 12,564 | | | $ | 1,307 | | | $ | 1,297 | | | $ | 332 | | | $ | 24,110 | |
Loans collectively evaluated for impairment | | | 449,721 | | | | 516,146 | | | | 61,196 | | | | 141,966 | | | | 49,215 | | | | 1,218,244 | |
Loans acquired with deteriorated credit quality | | | 120,030 | | | | 100,012 | | | | 6,381 | | | | 3,850 | | | | 1,148 | | | | 231,421 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total ending loan balance | | $ | 578,361 | | | $ | 628,722 | | | $ | 68,884 | | | $ | 147,113 | | | $ | 50,695 | | | $ | 1,473,775 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
22
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.
| | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | |
Impaired loans with a specific valuation allowance | | $ | 10,931 | | | $ | 9,454 | |
Impaired loans without a specific valuation allowance | | | 15,624 | | | | 14,656 | |
| | | | | | | | |
Total impaired loans | | $ | 26,555 | | | $ | 24,110 | |
Amount of allowance for loan losses allocated to impaired loans | | $ | 1,919 | | | $ | 1,811 | |
Performing TDRs | | $ | 12,649 | | | $ | 10,763 | |
Non performing TDRs, included in NPLs | | | 2,337 | | | | 4,684 | |
| | | | | | | | |
Total TDRs (TDRs are required to be included in impaired loans) | | $ | 14,986 | | | $ | 15,447 | |
Impaired loans that are not TDRs | | | 11,569 | | | | 8,663 | |
| | | | | | | | |
Total impaired loans | | $ | 26,555 | | | $ | 24,110 | |
| | | | | | | | |
In certain situations 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 the terms of a loan have been modified, usually the monthly payment and/or interest rate is reduced for generally twelve to twenty-four months. Material principal amounts on any loan modifications have not been forgiven to date. There is $14,986 of TDRs. Of this amount $12,649 are performing pursuant to their modified terms, and $2,337 are not performing and have been placed on non accrual status and included in non performing loans (“NPLs”).
23
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
TDRs as of March 31, 2014 and December 31, 2013 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non performing loans) are presented in the tables below.
| | | | | | | | | | | | |
As of March 31, 2014 | | Accruing | | | Non Accrual | | | Total | |
Real estate loans: | | | | | | | | | | | | |
Residential | | $ | 7,730 | | | $ | 822 | | | $ | 8,552 | |
Commercial | | | 3,042 | | | | 1,319 | | | | 4,361 | |
Land, development, construction | | | 600 | | | | 45 | | | | 645 | |
| | | | | | | | | | | | |
Total real estate loans | | | 11,372 | | | | 2,186 | | | | 13,558 | |
Commercial | | | 1,055 | | | | 48 | | | | 1,103 | |
Consumer and other | | | 222 | | | | 103 | | | | 325 | |
| | | | | | | | | | | | |
Total TDRs | | $ | 12,649 | | | $ | 2,337 | | | $ | 14,986 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
As of December 31, 2013 | | Accruing | | | Non-Accrual | | | Total | |
Real estate loans: | | | | | | | | | | | | |
Residential | | $ | 7,221 | | | $ | 1,389 | | | $ | 8,610 | |
Commercial | | | 2,169 | | | | 3,077 | | | | 5,246 | |
Land, development, construction | | | 608 | | | | 47 | | | | 655 | |
| | | | | | | | | | | | |
Total real estate loans | | | 9,998 | | | | 4,513 | | | | 14,511 | |
Commercial | | | 555 | | | | 49 | | | | 604 | |
Consumer and other | | | 210 | | | | 122 | | | | 332 | |
| | | | | | | | | | | | |
Total TDRs | | $ | 10,763 | | | $ | 4,684 | | | $ | 15,447 | |
| | | | | | | | | | | | |
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 $75 and partial charge offs of $56 on the TDR loans described above during the three month period ending March 31, 2014.
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. We may also extend maturities, convert balloon loans to longer term amortizing loans, or vice versa, or change interest rates between variable and fixed rate. Each borrower and situation is unique and we try to accommodate the borrower and minimize the Company’s potential losses. Approximately 84% of our TDRs are current pursuant to their modified terms, and $2,337, or approximately 16% of our total TDRs are not performing pursuant to their modified terms. There does not appear to be any significant difference in success rates with one type of concession versus another.
24
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following table presents loans by class modified and for which there was a payment default within twelve months following the modification during the period ending March 31, 2014 and December 31, 2013.
| | | | | | | | | | | | | | | | |
| | Period ending | | | Year ending | |
| | March 30, 2014 | | | December 31, 2013 | |
| | Number | | | Recorded | | | Number | | | Recorded | |
| | of loans | | | investment | | | of loans | | | investment | |
Residential | | | — | | | $ | — | | | | 3 | | | $ | 553 | |
Commercial real estate | | | 4 | | | | 1,319 | | | | 6 | | | | 2,244 | |
Land, development, construction | | | — | | | | — | | | | — | | | | — | |
Commercial and Industrial | | | 2 | | | | 33 | | | | 2 | | | | 34 | |
Consumer and other | | | — | | | | — | | | | 1 | | | | 17 | |
| | | | | | | | | | | | | | | | |
Total | | | 6 | | | $ | 1,352 | | | | 12 | | | $ | 2,848 | |
| | | | | | | | | | | | | | | | |
The Company recorded a provision for loan loss expense of $15 and partial charge offs of $21 on TDR loans that subsequently defaulted as described above during the three month period ending March 31, 2014.
The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2014 and December 31, 2013, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30. The recorded investment is less than the unpaid principal balance due to partial charge-offs.
| | | | | | | | | | | | |
As of March 31, 2014 | | Unpaid principal balance | | | Recorded investment | | | Allowance for loan losses allocated | |
With no related allowance recorded: | | | | | | | | | | | | |
Residential real estate | | $ | 6,570 | | | $ | 6,315 | | | $ | — | |
Commercial real estate | | | 6,622 | | | | 6,002 | | | | — | |
Land, development, construction | | | 1,402 | | | | 1,327 | | | | — | |
Commercial and industrial | | | 2,069 | | | | 1,980 | | | | — | |
Consumer, other | | | — | | | | — | | | | — | |
With an allowance recorded: | | | | | | | | | | | | |
Residential real estate | | | 3,367 | | | | 3,230 | | | | 331 | |
Commercial real estate | | | 6,894 | | | | 6,685 | | | | 1,543 | |
Land, development, construction | | | 141 | | | | 133 | | | | 16 | |
Commercial and industrial | | | 605 | | | | 558 | | | | 7 | |
Consumer, other | | | 339 | | | | 325 | | | | 22 | |
| | | | | | | | | | | | |
Total | | $ | 28,009 | | | $ | 26,555 | | | $ | 1,919 | |
| | | | | | | | | | | | |
25
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | | | | | |
As of December 31, 2013 | | Unpaid principal balance | | | Recorded investment | | | Allowance for loan losses allocated | |
With no related allowance recorded: | | | | | | | | | | | | |
Residential real estate | | $ | 5,052 | | | $ | 4,803 | | | $ | — | |
Commercial real estate | | | 9,330 | | | | 7,439 | | | | — | |
Land, development, construction | | | 1,377 | | | | 1,168 | | | | — | |
Commercial and industrial | | | 1,330 | | | | 1,241 | | | | — | |
Consumer, other | | | 5 | | | | 5 | | | | — | |
With an allowance recorded: | | | | | | | | | | | | |
Residential real estate | | | 3,942 | | | | 3,807 | | | | 395 | |
Commercial real estate | | | 5,257 | | | | 5,125 | | | | 1,377 | |
Land, development, construction | | | 147 | | | | 139 | | | | 16 | |
Commercial and industrial | | | 102 | | | | 56 | | | | 2 | |
Consumer, other | | | 340 | | | | 327 | | | | 21 | |
| | | | | | | | | | | | |
Total | | $ | 26,882 | | | $ | 24,110 | | | $ | 1,811 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Three month period ending March, 31, 2014 | | Average of impaired loans | | | Interest income recognized during impairment | | | Cash basis interest income recognized | |
Real estate loans: | | | | | | | | | | | | |
Residential | | $ | 9,078 | | | $ | 77 | | | $ | — | |
Commercial | | | 12,625 | | | | 28 | | | | — | |
Land, development, construction | | | 1,383 | | | | 9 | | | | — | |
| | | | | | | | | | | | |
Total real estate loans | | | 23,086 | | | | 114 | | | | — | |
Commercial and industrial | | | 1,918 | | | | 21 | | | | — | |
Consumer and other loans | | | 328 | | | | 3 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 25,332 | | | $ | 138 | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Three month period ending March, 31, 2013 | | Average of impaired loans | | | Interest income recognized during impairment | | | Cash basis interest income recognized | |
Real estate loans: | | | | | | | | | | | | |
Residential | | $ | 9,442 | | | $ | 74 | | | $ | — | |
Commercial | | | 30,285 | | | | 257 | | | | — | |
Land, development, construction | | | 1,427 | | | | 2 | | | | — | |
| | | | | | | | | | | | |
Total real estate loans | | | 41,154 | | | | 333 | | | | — | |
Commercial and industrial | | | 2,597 | | | | 8 | | | | — | |
Consumer and other loans | | | 390 | | | | 3 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 44,141 | | | $ | 344 | | | $ | — | |
| | | | | | | | | | | | |
26
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30.
| | | | | | | | |
Nonperforming loans were as follows: | | Mar 31, 2014 | | | Dec 31, 2013 | |
Non accrual loans | | $ | 30,689 | | | $ | 27,077 | |
Loans past due over 90 days and still accruing interest | | | — | | | | — | |
| | | | | | | | |
Total non performing loans | | $ | 30,689 | | | $ | 27,077 | |
| | | | | | | | |
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2014 and December 31, 2013, excluding purchased credit impaired loans:
| | | | | | | | |
As of March 31, 2014 | | Nonaccrual | | | Loans past due over 90 days still accruing | |
Residential real estate | | $ | 12,859 | | | $ | — | |
Commercial real estate | | | 14,629 | | | | — | |
Land, development, construction | | | 1,136 | | | | — | |
Commercial | | | 1,582 | | | | — | |
Consumer, other | | | 483 | | | | — | |
| | | | | | | | |
Total | | $ | 30,689 | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
As of December 31, 2013 | | Nonaccrual | | | Loans past due over 90 days still accruing | |
Residential real estate | | $ | 10,162 | | | $ | — | |
Commercial real estate | | | 13,925 | | | | — | |
Land, development, construction | | | 1,099 | | | | — | |
Commercial | | | 1,582 | | | | — | |
Consumer, other | | | 309 | | | | — | |
| | | | | | | | |
Total | | $ | 27,077 | | | $ | — | |
| | | | | | | | |
27
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following table presents the aging of the recorded investment in past due loans as of March 31, 2014 and December 31, 2013, excluding purchased credit impaired loans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accruing Loans | | | | |
As of March 31, 2014 | | Total | | | 30 - 59 days past due | | | 60 - 89 days past due | | | Greater than 90 days past due | | | Total Past Due | | | Loans Not Past Due | | | Nonaccrual Loans | |
Residential real estate | | $ | 495,450 | | | $ | 3,053 | | | $ | 2,654 | | | $ | — | | | $ | 5,707 | | | $ | 476,884 | | | $ | 12,859 | |
Commercial real estate | | | 736,406 | | | | 4,905 | | | | 433 | | | | — | | | | 5,338 | | | | 716,439 | | | | 14,629 | |
Land/dev/construction | | | 60,726 | | | | 329 | | | | 161 | | | | — | | | | 490 | | | | 59,100 | | | | 1,136 | |
Commercial | | | 217,482 | | | | 181 | | | | 3 | | | | — | | | | 184 | | | | 215,716 | | | | 1,582 | |
Consumer | | | 54,205 | | | | 347 | | | | 42 | | | | — | | | | 389 | | | | 53,333 | | | | 483 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $1,564,269 | | | $ | 8,815 | | | $ | 3,293 | | | $ | — | | | $ | 12,108 | | | $ | 1,521,472 | | | $ | 30,689 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accruing Loans | | | | |
As of December 31, 2013 | | Total | | | 30 - 59 days past due | | | 60 - 89 days past due | | | Greater than 90 days past due | | | Total Past Due | | | Loans Not Past Due | | | Nonaccrual Loans | |
Residential real estate | | $ | 458,331 | | | $ | 2,801 | | | $ | 1,942 | | | $ | — | | | $ | 4,743 | | | $ | 443,426 | | | $ | 10,162 | |
Commercial real estate | | | 528,710 | | | | 2,420 | | | | 1,941 | | | | — | | | | 4,361 | | | | 510,424 | | | | 13,925 | |
Land/dev/construction | | | 62,503 | | | | 136 | | | | 241 | | | | — | | | | 377 | | | | 61,027 | | | | 1,099 | |
Commercial | | | 143,263 | | | | 491 | | | | 1 | | | | — | | | | 492 | | | | 141,189 | | | | 1,582 | |
Consumer | | | 49,547 | | | | 295 | | | | 240 | | | | — | | | | 535 | | | | 48,703 | | | | 309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $1,242,354 | | | $ | 6,143 | | | $ | 4,365 | | | $ | — | | | $ | 10,508 | | | $ | 1,204,769 | | | $ | 27,077 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $500 that are non-homogeneous loans, such as commercial, commercial real estate, land, land development and construction loans. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings:
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
28
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of March 31, 2014 and December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30:
| | | | | | | | | | | | | | | | |
| | As of March 31, 2014 | |
Loan Category | | Pass | | | Special Mention | | | Substandard | | | Doubtful | |
Residential real estate | | $ | 465,482 | | | $ | 5,006 | | | $ | 24,962 | | | $ | — | |
Commercial real estate | | | 658,902 | | | | 41,583 | | | | 35,921 | | | | — | |
Land/dev/construction | | | 48,772 | | | | 8,917 | | | | 3,037 | | | | — | |
Commercial | | | 209,536 | | | | 3,446 | | | | 4,500 | | | | — | |
Consumer | | | 53,144 | | | | 353 | | | | 708 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,435,836 | | | $ | 59,305 | | | $ | 69,128 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | As of December 31, 2013 | |
Loan Category | | Pass | | | Special Mention | | | Substandard | | | Doubtful | |
Residential real estate | | $ | 428,671 | | | $ | 6,438 | | | $ | 23,222 | | | $ | — | |
Commercial real estate | | | 448,762 | | | | 46,427 | | | | 33,521 | | | | — | |
Land/dev/construction | | | 50,164 | | | | 9,566 | | | | 2,773 | | | | — | |
Commercial | | | 134,901 | | | | 4,490 | | | | 3,872 | | | | — | |
Consumer | | | 49,448 | | | | 526 | | | | 573 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,110,946 | | | $ | 67,447 | | | $ | 63,961 | | | $ | — | |
| | | | | | | | | | | | | | | | |
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans, excluding purchased credit impaired loans, based on payment activity as of March 31, 2014:
| | | | | | | | |
| | Residential | | | Consumer | |
Performing | | $ | 482,591 | | | $ | 53,722 | |
Nonperforming | | | 12,859 | | | | 483 | |
| | | | | | | | |
Total | | $ | 495,450 | | | $ | 54,205 | |
| | | | | | | | |
29
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Purchased Credit Impaired (“PCI”) loans:
Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected.
The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of March 31, 2014 and December 31, 2013. Contractually required principal and interest payments have been adjusted for estimated prepayments.
| | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | |
Contractually required principal and interest | | $ | 414,385 | | | $ | 389,537 | |
Non-accretable difference | | | (56,062 | ) | | | (55,304 | ) |
| | | | | | | | |
Cash flows expected to be collected | | | 358,323 | | | | 334,233 | |
Accretable yield | | | (107,523 | ) | | | (102,812 | ) |
| | | | | | | | |
Carrying value of acquired loans | | $ | 250,800 | | | $ | 231,421 | |
Allowance for loan losses | | | (1,183 | ) | | | (760 | ) |
| | | | | | | | |
Carrying value less allowance for loan losses | | $ | 249,617 | | | $ | 230,661 | |
| | | | | | | | |
We adjusted our estimates of future expected losses, cash flows and renewal assumptions during the current quarter. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. We reclassified approximately $7,294 from non-accretable difference to accretable yield during the three month period ending March 31, 2014, respectively, to reflect our adjusted estimates of future expected cash flows. The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans during the three month periods ending March 31, 2014 and 2013.
| | | | | | | | | | | | | | | | | | | | |
Activity during the | | | | | Effect of | | | income | | | all other | | | | |
three month period ending March 31, 2014 | | Dec 31, 2013 | | | acquisitions | | | accretion | | | adjustments | | | Mar 31, 2014 | |
Contractually required principal and interest | | $ | 389,537 | | | $ | 48,289 | | | $ | — | | | $ | (23,441 | ) | | $ | 414,385 | |
Non-accretable difference | | | (55,304 | ) | | | (11,766 | ) | | | — | | | | 11,008 | | | | (56,062 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows expected to be collected | | | 334,233 | | | | 36,523 | | | | — | | | | (12,433 | ) | | | 358,323 | |
Accretable yield | | | (102,812 | ) | | | (6,455 | ) | | | 8,231 | | | | (6,487 | ) | | | (107,523 | ) |
| | | | | | | | | | | | | | | | | | | | |
Carry value of acquired loans | | $ | 231,421 | | | $ | 30,068 | | | $ | 8,231 | | | $ | (18,920 | ) | | $ | 250,800 | |
| | | | | | | | | | | | | | | | | | | | |
30
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
| | | | | | | | | | | | | | | | | | | | |
Activity during the three month period ending March 31, 2013 | | Dec 31, 2012 | | | Effect of acquisitions | | | income accretion | | | all other adjustments | | | Mar 31, 2013 | |
Contractually required principal and interest | | $ | 534,989 | | | $ | — | | | $ | — | | | $ | (48,458 | ) | | $ | 486,531 | |
Non-accretable difference | | | (142,855 | ) | | | | | | | — | | | | 32,612 | | | | (110,243 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows expected to be collected | | | 392,134 | | | | | | | | — | | | | (15,846 | ) | | | 376,288 | |
Accretable yield | | | (93,107 | ) | | | | | | | 7,827 | | | | (10,219 | ) | | | (95,499 | ) |
| | | | | | | | | | | | | | | | | | | | |
Carry value of acquired loans | | $ | 299,027 | | | $ | — | | | $ | 7,827 | | | $ | (26,065 | ) | | $ | 280,789 | |
| | | | | | | | | | | | | | | | | | | | |
NOTE 7: FDIC indemnification asset
The FDIC indemnification asset represents the estimated amounts due from the FDIC pursuant to the Loss Share Agreements related to the acquisition of the three failed banks acquired in 2010 and the acquisition of two failed banks in 2012. The activity in the FDIC loss share indemnification asset is as follows:
| | | | | | | | |
| | Three month period ended Mar 31, 2014 | | | Twelve month period ended Dec 31, 2013 | |
Beginning of the year | | $ | 73,433 | | | $ | 119,289 | |
Amortization, net | | | (5,185 | ) | | | (13,807 | ) |
Indemnification revenue | | | 930 | | | | 6,055 | |
Indemnification of foreclosure expense | | | 502 | | | | 4,413 | |
Proceeds from FDIC | | | (5,299 | ) | | | (42,004 | ) |
Impairment (recovery) of loan pool | | | 338 | | | | (513 | ) |
| | | | | | | | |
Period end balance | | $ | 64,719 | | | $ | 73,433 | |
| | | | | | | | |
Impairment of loan pools
When a loan pool (with loss share) is impaired, the impairment expense is included in provision for loan losses, and 80% of that loss is recognized as income from FDIC reimbursement, and included in this line item. During the three month period ended March 31, 2014, the estimated amount of impairment increased, which resulted in an additional $338 of indemnification income recognition.
Indemnification revenue
Indemnification revenue represents approximately 80% of the cost incurred pursuant to the repossession process and losses incurred on the sale of OREO, or writedown of OREO values to current fair value. These costs are reimbursable from the FDIC.
Amortization, net
On the date of an FDIC acquisition, the Company estimates the amount and the timing of expected future losses that will be covered by the FDIC loss sharing agreements. The FDIC indemnification asset is initially recorded as the discounted value of the reimbursement of losses from the FDIC. Discount accretion is recognized over the estimated period of losses, and the Company updates its estimate of future losses and the timing of the losses each quarter. To the extent management estimates that future losses are less than initial estimate of future losses, management adjusts its estimates of future expected reimbursements and any decrease in the expected future reimbursements is amortized over the shorter of the loss share period or the life of the related loan by amortization in this line item. Based upon the most recent estimate of future losses, the Company expects less reimbursements from the FDIC and is amortizing the estimated reduction as described in the previous sentence.
31
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Indemnification of foreclosure expense
Indemnification of foreclosure expense represents approximately 80% of the foreclosure related expenses incurred and reimbursable from the FDIC. Foreclosure expense is included in non interest expense. The amount of the reimbursable portion of the expense reduces foreclosure expense included in non interest expense.
NOTE 8: Business Combination
On January 17, 2014, the Company completed its previously announced acquisition of Gulfstream Bancshares, Inc. (“Gulfstream”) as set forth in the Agreement and Plan of Merger (“Agreement”) whereby Gulfstream merged with and into the Company. Pursuant to and simultaneously with the merger of Gulfstream with and into the Company, Gulfstream’s wholly owned subsidiary bank, Gulfstream Business Bank (“GSB”), merged with and into the Company’s subsidiary bank, CenterState Bank of Florida, N.A.
The Company’s primary reasons for the transaction were to further solidify its market share in the southeast Florida market and expand its customer base to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition increased the Company’s total assets and total deposits by approximately 23% and 23%, respectively, as compared with the balances at December 31, 2013, and is expected to positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities.
The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805,Business Combinations. The Company recognized goodwill on this acquisition of $31,516, after consideration of a measurement period adjustment discussed below, which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill is calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Fair values are preliminary estimates due to pending appraisals on loans and other real estate owned.
32
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The Company acquired 100% of the outstanding common stock of Gulfstream. The purchase price consisted of both cash and stock. Each share of Gulfstream common stock was exchanged for $14.65 cash and 3.012 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on January 16, 2014, the resulting purchase price was $82,040. The table below summarizes the purchase price calculation.
| | | | |
Number of shares of Gulfstream common stock outstanding at January 16, 2014 | | | 1,569,364 | |
Gulfstream preferred shares that convert to Gulfstream common shares upon a change in control | | | 155,629 | |
| | | | |
Total Gulfstream common shares including conversion of preferred shares | | | 1,724,993 | |
Per share exchange ratio | | | 3.012 | |
| | | | |
Number of shares of CenterState common stock less 138 of fractional shares | | | 5,195,541 | |
Multiplied by CenterState common stock price per share on January 16, 2014 | | $ | 10.23 | |
| | | | |
Fair value of CenterState common stock issued | | $ | 53,150 | |
| | | | |
Total Gulfstream common shares including conversion of preferred shares | | | 1,724,993 | |
Multiplied by the cash consideration each Gulfstream share is entitled to receive | | $ | 14.65 | |
| | | | |
Total Cash Consideration, not including cash for fractional shares | | $ | 25,271 | |
| | | | |
Total Stock Consideration | | $ | 53,150 | |
Total Cash Consideration plus $2 for 138 of fractional shares | | | 25,273 | |
| | | | |
Total consideration to be paid to Gulfstream common shareholders | | $ | 78,423 | |
Fair value of current Gulfstream stock options to be converted to CenterState stock options | | | 3,617 | |
| | | | |
Total purchase price | | $ | 82,040 | |
| | | | |
The list below summarizes the preliminary estimates of the fair value of the assets purchased, including goodwill, and liabilities assumed as of the January 17, 2014 purchase date.
| | | | |
| | Jan 17, 2014 | |
Assets: | | | | |
Cash and cash equivalents | | $ | 102,278 | |
Loans, held for investment | | | 329,515 | |
Purchased credit impaired loans | | | 30,068 | |
Loans held for sale | | | 247 | |
Investments | | | 60,816 | |
Interest receivable | | | 1,087 | |
Branch real estate | | | 5,519 | |
Furniture and fixtures | | | 262 | |
FHLB stock | | | 885 | |
Bank owned life insurance | | | 4,939 | |
Other real estate owned | | | 2,694 | |
Core deposit intangible | | | 4,173 | |
Goodwill | | | 31,516 | |
Other assets | | | 11,261 | |
| | | | |
Total assets acquired | | $ | 585,260 | |
| | | | |
Liabilities: | | | | |
Deposits | | $ | 478,999 | |
Federal Home loan advances | | | 5,708 | |
Repurchase agreements | | | 7,576 | |
Interest payable | | | 125 | |
Official checks outstanding | | | 826 | |
Corporate debentures | | | 6,745 | |
Other liabilities | | | 3,241 | |
| | | | |
Total liabilities assumed | | $ | 503,220 | |
| | | | |
33
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
In the acquisition, the Company purchased $359,583 of loans at fair value, net of $18,267, or 4.8%, estimated discount to the outstanding principal balance, representing 24.4% of the Company’s total loans at December 31, 2013. Of the total loans acquired, management identified $30,068 with credit deficiencies. All loans that were on non-accrual status and all loan relationships that were greater than $500 and identified as impaired as of the acquisition date were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of January 17, 2014 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.
| | | | |
Contractually required principal and interest | | $ | 48,289 | |
Non-accretable difference | | | (11,766 | ) |
| | | | |
Cash flows expected to be collected | | | 36,523 | |
Accretable yield | | | (6,455 | ) |
| | | | |
Total purchased credit-impaired loans acquired | | $ | 30,068 | |
| | | | |
The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.
| | | | | | | | |
| | Book balance | | | Fair value | |
Loans: | | | | | | | | |
Single family residential real estate | | | 33,506 | | | | 32,319 | |
Commercial real estate | | | 185,250 | | | | 183,189 | |
Construction/development/land | | | 30,387 | | | | 27,704 | |
Commercial loans | | | 85,940 | | | | 84,203 | |
Consumer and other loans | | | 2,112 | | | | 2,100 | |
Purchased credit-impaired | | | 40,655 | | | | 30,068 | |
| | | | | | | | |
Total earning assets | | $ | 377,850 | | | $ | 359,583 | |
| | | | | | | | |
In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $4,173, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.
34
CenterState Banks, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following table presents pro-forma information as if the acquisition had occurred at the beginning of 2013. The pro-forma information includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, interest expense on deposits acquired, interest expense on trust preferred securities assumed, effect of redeeming preferred stock, and the related income tax effects. The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates. The operating results of the Company for the three month period ended March 31, 2014 includes the operating results of Gulfstream since the acquisition date of January 17, 2014 and are omitted from the table below.
| | | | |
Three months ended | | Mar 31, 2013 | |
Net interest income | | $ | 27,779 | |
| | | | |
Net income available to common shareholders | | $ | 5,388 | |
| | | | |
EPS- basic | | $ | 0.15 | |
EPS- diluted | | $ | 0.15 | |
Measurement period adjustments
On January 17, 2014 the Company purchased Gulfstream. As previously disclosed, the fair values initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values became available. Based on appraisals received subsequent to the acquisition date, the Company adjusted its initial fair value estimates of certain other real estate owned acquired.
| | | | | | | | | | | | |
| | Jan 17, 2014 (as initially reported) | | | measurement period adjustments | | | Jan 17, 2014 (as adjusted) | |
Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 102,278 | | | $ | — | | | $ | 102,278 | |
Loans, held for investment | | | 329,515 | | | | | | | | 329,515 | |
Purchased credit impaired loans | | | 30,068 | | | | | | | | 30,068 | |
Loans held for sale | | | 247 | | | | | | | | 247 | |
Investments | | | 60,816 | | | | | | | | 60,816 | |
Interest receivable | | | 1,087 | | | | | | | | 1,087 | |
Branch real estate | | | 5,519 | | | | | | | | 5,519 | |
Furniture and fixtures | | | 262 | | | | | | | | 262 | |
FHLB stock | | | 885 | | | | | | | | 885 | |
Bank owned life insurance | | | 4,939 | | | | | | | | 4,939 | |
Other real estate owned | | | 3,365 | | | | (671 | ) | | | 2,694 | |
Core deposit intangible | | | 4,173 | | | | | | | | 4,173 | |
Goodwill | | | 31,104 | | | | 412 | | | | 31,516 | |
Other assets | | | 11,002 | | | | 259 | | | | 11,261 | |
| | | | | | | | | | | | |
Total assets acquired | | $ | 585,260 | | | $ | — | | | $ | 585,260 | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Deposits | | $ | 478,999 | | | $ | — | | | $ | 478,999 | |
Federal Home loan advances | | | 5,708 | | | | | | | | 5,708 | |
Repurchase agreements | | | 7,576 | | | | | | | | 7,576 | |
Interest payable | | | 125 | | | | | | | | 125 | |
Official checks outstanding | | | 826 | | | | | | | | 826 | |
Trust Preferred Security | | | 6,745 | | | | | | | | 6,745 | |
Other liabilities | | | 3,241 | | | | | | | | 3,241 | |
| | | | | | | | | | | | |
Total liabilities assumed | | $ | 503,220 | | | $ | — | | | $ | 503,220 | |
| | | | | | | | | | | | |
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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 9: Announced acquisitions
On January 29, 2014, the Company announced it entered into an Agreement and Plan of Merger (the “Agreement”) with First Southern Bancorp, Inc. (“First Southern”), whereby First Southern will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger. As soon as possible after the Merger, the Company’s wholly owned subsidiary bank, CenterState Bank of Florida, N.A. (“CenterState Bank”) and First Southern’s subsidiary bank, First Southern Bank, will merge with CenterState Bank as the surviving bank. Under the terms of the Agreement each outstanding share of First Southern common stock will be converted into the right to receive 0.3 shares of the Company’s common stock and $3.00 in cash. The Agreement has been unanimously approved by the boards of directors of the Company and First Southern. The transaction is expected to close during the summer of 2014 subject to the satisfaction of customary conditions, including receipt of all required regulatory approvals and the Company and First Southern’s shareholder approval.
First Southern Bank, which is headquartered in Boca Raton, Florida, currently operates 17 banking locations in the Orlando, Jacksonville, and West Palm Beach-Fort Lauderdale MSAs. As of December 31, 2013, First Southern reported assets of $1,093,256, loans of $635,492 and deposits of $882,732.
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ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(All dollar amounts presented herein are in thousands, except per share data,
or unless otherwise noted.)
COMPARISON OF BALANCE SHEETS AT MARCH 31, 2014 AND DECEMBER 31, 2013
Overview
Our total assets and liabilities increased between March 31, 2014 and year end 2013 primarily due to the acquisition of Gulfstream Bancshares, Inc. and its banking subsidiary, Gulfstream Business Bank (collectively “Gulfstream”). We issued approximately 5.2 million common shares and acquired the outstanding stock options pursuant to the Gulfstream acquisition which added approximately $56,769 to our shareholders’ equity during the quarter. These changes are discussed and analyzed below and on the following pages.
Federal funds sold and Federal Reserve Bank deposits
Federal funds sold and Federal Reserve Bank deposits were $220,261 at March 31, 2014 (approximately 7.3% of total assets) as compared to $174,889 at December 31, 2013 (approximately 7.2% of total assets). We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding, and to some degree the amount of correspondent bank deposits (i.e. federal funds purchased) outstanding.
Investment securities available for sale
Securities available-for-sale, consisting primarily of U.S. government sponsored enterprises and municipal tax exempt securities, were $617,143 at March 31, 2014 (approximately 20.5% of total assets) compared to $457,086 at December 31, 2013 (approximately 18.9% of total assets), an increase of $160,057 or 35.0%. We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits 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 Federal Reserve Bank deposits.” Our securities are carried 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.
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Trading securities
We also have a trading securities portfolio. Realized and unrealized gains and losses are included in trading securities revenue, a component of our non interest income, in our Condensed Consolidated Statement of Earnings and Comprehensive Income. Securities purchased for this portfolio have primarily been various municipal securities. We held no securities in our trading securities portfolio as of March 31, 2014. A list of the activity in this portfolio is summarized below.
| | | | | | | | |
| | Three month period ended Mar 31, 2014 | | | Three month period ended Mar 31, 2013 | |
Beginning balance | | $ | — | | | $ | 5,048 | |
Purchases | | | 28,809 | | | | 61,878 | |
Proceeds from sales | | | (28,836 | ) | | | (67,072 | ) |
Net realized gain on sales | | | 27 | | | | 146 | |
| | | | | | | | |
Ending balance | | $ | — | | | $ | — | |
| | | | | | | | |
Loans held for sale
We also have a loans held for sale portfolio, whereby we originate single family home loans and sell those mortgages into the secondary market, servicing released. These loans are recorded at the lower of cost or market. Gains and losses on the sale of loans held for sale are included as a component of non interest income in our Condensed Consolidated Statement of Earnings and Comprehensive Income. A list of the activity in this portfolio is summarized below.
| | | | | | | | |
| | Three month period ended Mar 31, 2014 | | | Three month period ended Mar 31, 2013 | |
Beginning balance | | $ | 1,010 | | | $ | 2,709 | |
Acquired from Gulfstream | | | 247 | | | | — | |
Loans originated | | | 4,610 | | | | 4,842 | |
Proceeds from sales | | | (4,926 | ) | | | (5,507 | ) |
Net realized gain on sales | | | 76 | | | | 87 | |
| | | | | | | | |
Ending balance | | $ | 1,017 | | | $ | 2,131 | |
| | | | | | | | |
Loans
Lending-related income is the most important component of our net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and it therefore generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Average loans during the three months ended March 31, 2014, were $1,764,647, or 70.7% of average earning assets, as compared to $1,420,227, or 70.4% of average earning assets, for the three month period ending March 31, 2013. Total loans at March 31, 2014 and December 31, 2013 were $1,815,634 and $1,474,179, respectively. This represents a loan to total asset ratio of 60.4% and 61.0% and a loan to deposit ratio of 71.0% and 71.7%, at March 31, 2014 and December 31, 2013, respectively.
At March 31, 2014, we have total Purchased Credit Impaired (“PCI”) loans of $250,800 and non-PCI loans of $1,564,834. Approximately 88% of our PCI loans, or $219,733, are covered by FDIC loss sharing agreements related to the acquisitions of three failed financial institutions during the third quarter of 2010 and two during the first quarter of 2012. Subject to the terms of the loss sharing agreements, the FDIC is obligated to reimburse CenterState for 80% of losses with respect to the covered loans beginning with the first dollar of loss incurred. CenterState will reimburse the FDIC for its share of recoveries with
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respect to the covered loans. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and CenterState reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provide for FDIC loss sharing for five years and CenterState reimbursement to the FDIC for a total of eight years for recoveries. All of our PCI loans are accounted for pursuant to ASC Topic 310-30.
Total PCI loans increased by $19,379 during the quarter, which included $30,068 of PCI loans acquired on January 17th in the Gulfstream acquisition. Excluding the Gulfstream acquisition, our PCI loans decreased $10,689, or approximately 18.5% on an annualized basis. Of the $250,800 PCI loans outstanding at March 31, 2014 and accounted for pursuant to ASC Topic 310-30, $219,733 are covered by FDIC loss sharing agreements and $31,067 are not. A summary of the current quarters change in PCI loans outstanding is presented in the table below.
| | | | |
Balance at 12/31/13 | | $ | 231,421 | |
Acquisition of PCI loans from Gulfstream 1/17/14 | | | 30,068 | |
Net change in PCI loans during the quarter | | | (10,689 | ) |
| | | | |
Balance at 3/31/14 | | $ | 250,800 | |
| | | | |
Non-PCI loans increased $322,076 during the quarter, which included $329,515 acquired on January 17th through the Gulfstream acquisition. Excluding the Gulfstream acquisition the Company’s non-PCI loans decreased $7,439 or approximately 2.4% on an annualized basis. A summary of the current quarter’s change in non-PCI loans outstanding is presented in the table below.
| | | | |
Balance at 12/31/13 | | $ | 1,242,758 | |
Acquisition of non-PCI loans from Gulfstream 1/17/14 | | | 329,515 | |
Net change in non-PCI loans during the quarter | | | (7,439 | ) |
| | | | |
Balance at 3/31/14 | | $ | 1,564,834 | |
| | | | |
Total new loans originated during the quarter approximated $76.5 million, of which $58.6 million were funded. The weighted average interest rate on funded loans was approximately 4.54%. The graph below summarizes total loan production and funded loan production over the past nine quarters.
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Although the production was lower in the first quarter of 2014 compared to the fourth quarter of 2013, the pipeline is $140 million at March 31, 2014 compared to $114 million at December 31, 2013.
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Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged in similar activities, which collectively could be similarly impacted by economic or other conditions and when the total of such amounts would exceed 25% of total capital. Due to the lack of diversified industry and the relative proximity of markets served, the Company has concentrations in geographic as well as in types of loans funded.
Prior to allowance for loan losses, our total loans at March 31, 2014 is equal to $1,815,634. Of this amount, approximately 85% are collateralized by real estate, 12% are commercial non real estate loans and the remaining 3% are consumer and other non real estate loans. We have approximately $613,329 of single family residential loans which represents about 34% of our total loan portfolio. Our largest category of loans is commercial real estate which represents approximately 47% of our total loan portfolio. The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.
| | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | |
Loans, excluding PCI loans | | | | | | | | |
Real estate loans | | | | | | | | |
Residential | | $ | 495,450 | | | $ | 458,331 | |
Commercial | | | 736,406 | | | | 528,710 | |
Land, development and construction | | | 60,726 | | | | 62,503 | |
| | | | | | | | |
Total real estate | | | 1,292,582 | | | | 1,049,544 | |
Commercial | | | 217,482 | | | | 143,263 | |
Consumer and other loans | | | 54,205 | | | | 49,547 | |
| | | | | | | | |
Loans before unearned fees and deferred cost | | | 1,564,269 | | | | 1,242,354 | |
Net unearned fees and costs | | | 565 | | | | 404 | |
| | | | | | | | |
Total non-PCI loans | | | 1,564,834 | | | | 1,242,758 | |
Allowance for loan losses | | | (18,913 | ) | | | (19,694 | ) |
| | | | | | | | |
Non-PCI loans, net of allowance for loan losses | | | 1,545,921 | | | | 1,223,064 | |
| | | | | | | | |
PCI loans (note 1) | | | | | | | | |
Real estate loans | | | | | | | | |
Residential | | | 117,879 | | | | 120,030 | |
Commercial | | | 112,558 | | | | 100,012 | |
Land, development and construction | | | 11,144 | | | | 6,381 | |
| | | | | | | | |
Total real estate | | | 241,581 | | | | 226,423 | |
Commercial | | | 8,118 | | | | 3,850 | |
Consumer and other loans | | | 1,101 | | | | 1,148 | |
| | | | | | | | |
Total PCI loans | | | 250,800 | | | | 231,421 | |
Allowance for loan losses | | | (1,183 | ) | | | (760 | ) |
| | | | | | | | |
PCI loans, net of allowance for loan losses | | | 249,617 | | | | 230,661 | |
| | | | | | | | |
Total loans, net of allowance for loan losses | | $ | 1,795,538 | | | $ | 1,453,725 | |
| | | | | | | | |
note 1: | Purchased credit impaired loans accounted for pursuant to ASC Topic 310-30. |
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Included in our total PCI loans listed above, are loans covered by FDIC loss share agreements. The following table sets forth information concerning the loan portfolio by collateral types which are covered by FDIC loss sharing agreements and are included in total PCI loans above.
| | | | | | | | |
FDIC covered loans (note 1) | | Mar 31, 2014 | | | Dec 31, 2013 | |
Real estate loans | | | | | | | | |
Residential | | $ | 113,418 | | | $ | 120,030 | |
Commercial | | | 95,942 | | | | 100,012 | |
Land, development and construction | | | 6,824 | | | | 6,381 | |
| | | | | | | | |
Total real estate | | | 216,184 | | | | 226,423 | |
Commercial | | | 3,549 | | | | 3,850 | |
| | | | | | | | |
Total FDIC covered loans | | | 219,733 | | | | 230,273 | |
Allowance for loan losses | | | (1,183 | ) | | | (760 | ) |
| | | | | | | | |
FDIC covered loans, net of allowance for loan losses | | $ | 218,550 | | | $ | 229,513 | |
| | | | | | | | |
note 1: | FDIC covered loans included in our total PCI loans in the previous table above. |
Credit quality and allowance for loan losses
Commercial, commercial real estate, land, land development and construction loans in excess of $500 are monitored and evaluated for impairment on an individual loan basis. Commercial, commercial real estate, land, land development and construction loans less than $500 are evaluated for impairment on a pool basis. All consumer and single family residential loans are evaluated for impairment on a pool basis.
On at least a quarterly basis, management reviews each impaired loan to determine whether it should have a specific reserve or partial charge-off. Management relies on appraisals to help make this determination. Updated appraisals are obtained for collateral dependent loans when a loan is scheduled for renewal or refinance. In addition, if the classification of the loan is downgraded to substandard, identified as impaired, or placed on non accrual status (collectively “Problem Loans”), an updated appraisal is obtained if the loan amount is greater than $500 and individually evaluated for impairment.
After an updated appraisal is obtained for a Problem Loan, as described above, an additional updated appraisal will be obtained on at least an annual basis. Thus, current appraisals for Problem Loans in excess of $500 will not be older than one year.
After the initial updated appraisal is obtained for a Problem Loan and before its next annual appraisal update is due, management considers the need for a downward adjustment to the current appraisal amount to reflect current market conditions, based on management’s analysis, judgment and experience. In an extremely volatile market, management may update the appraisal prior to the one year anniversary date.
We maintain an allowance for loan losses that we believe is adequate to absorb probable losses incurred in our loan portfolio. The FDIC is obligated to reimburse us for 80% of losses incurred in our covered loan portfolio subject to the terms of our loss share agreements with the FDIC. Our PCI loans have been marked to fair value at their respective acquisition date, which considers an estimate of probable losses, and is evaluated for impairment on a pool basis on a quarterly basis, pursuant to ASC Topic 310-30.
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The allowance consists of three components. The first component is an allocation for impaired loans, as defined by generally accepted accounting principles. Impaired loans are those loans whereby management has arrived at a determination that the Company will not be repaid according to the original terms of the loan agreement. Each of these loans is required to have a written analysis supporting the amount of specific allowance allocated to the particular loan, if any. That is to say, a loan may be impaired (i.e., not expected to be repaid as agreed), but may be sufficiently collateralized such that we expect to recover all principal and interest eventually, and therefore no specific allowance is warranted.
The second component is a general allowance on all of the Company’s loans other than PCI loans and those identified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. The portfolio segments identified by the Company are residential loans, commercial real estate loans, construction and land development loans, commercial and industrial and consumer and other. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic, or qualitative, factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
The third component consists of amounts reserved for purchased credit impaired loans. On a quarterly basis, the Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after the acquisition date are recognized through the provision for loan losses. Probable and significant increases in expected principal cash flows would first reverse any previously recorded allowance for loan losses; any remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan from the PCI portfolio. The aggregate of these three components results in our total allowance for loan losses.
In the table below we have shown the components, as discussed above, of our allowance for loan losses at March 31, 2014 and December 31, 2013.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | | | increase (decrease) | |
| | loan | | | ALLL | | | | | | loan | | | ALLL | | | | | | loan | | | ALLL | | | | |
| | balance | | | balance | | | % | | | balance | | | balance | | | % | | | balance | | | balance | | | | |
Non impaired loans | | $ | 1,218,614 | | | $ | 16,994 | | | | 1.39 | % | | $ | 1,218,648 | | | $ | 17,883 | | | | 1.47 | % | | $ | (34 | ) | | $ | (889 | ) | | | -8 bps | |
Gulfstream loans (note 1) | | | 319,665 | | | | — | | | | — | % | | | — | | | | | | | | — | % | | | 319,665 | | | | — | | | | | |
Impaired loans | | | 26,555 | | | | 1,919 | | | | 7.23 | % | | | 24,110 | | | | 1,811 | | | | 7.51 | % | | | 2,445 | | | | 108 | | | | -28 bps | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-PCI loans | | | 1,564,834 | | | | 18,913 | | | | 1.21 | % | | | 1,242,758 | | | | 19,694 | | | | 1.58 | % | | | 322,076 | | | | (781 | ) | | | -37 bps | |
PCI loans (note 2) | | | 250,800 | | | | 1,183 | | | | | | | | 231,421 | | | | 760 | | | | | | | | 19,379 | | | | 423 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | $ | 1,815,634 | | | $ | 20,096 | | | | 1.11 | %* | | $ | 1,474,179 | | | $ | 20,454 | | | | 1.39 | % | | $ | 341,455 | | | $ | (358 | ) | | | -28 bps | |
* | The significant decrease in this ratio compared to the prior quarter end is primarily due to the addition of the Gulfstream loans. |
| | |
note 1: | | Loans acquired pursuant to the Company’s January 17, 2014 acquisition of Gulfstream Business Bank that are not PCI loans. These are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment at the acquisition date was approximately $7,680, or approximately 2.3% of the outstanding aggregate loan balances. This amount is accreted into interest income over the remaining lives of the related loans on a level yield basis. Because these loans were recorded at estimated fair value on January 17, 2014, no provision for loan loss was recorded related to these loans at March 31, 2014. |
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| | |
note 2: | | Included in the $250,800 PCI loans at March 31, 2014 are $219,733 of loans that are covered by FDIC loss sharing arrangements. Of the remaining PCI loan amount, $29,966 were acquired pursuant to the Company’s January 17, 2014 acquisition of Gulfstream Business Bank and $1,101 are consumer loans acquired pursuant to FDIC assisted transactions of failed financial institutions that are not covered by FDIC loss sharing agreements. |
The general loan loss allowance (non-impaired loans) decreased by a net amount of $889. This decrease was primarily due to the continued improvement in the local economy and real estate market, and the continued decline in the Company’s two year charge-off history. The Company’s other credit metrics, such as the levels of and trends in the Company’s non-performing loans, past-due loans and impaired loans were also considered when adjusting its qualitative factors, which ultimately increased the current two year historical loss factor ratios.
The specific loan loss allowance (impaired loans) is the aggregate of the results of individual analyses prepared for each one of the impaired loans, excluding PCI loans. The Company recorded partial charge offs in lieu of specific allowance for a number of the impaired loans. The Company’s impaired loans have been written down by $1,454 to $26,555 ($24,636 when the $1,919 specific allowance is considered) from their legal unpaid principal balance outstanding of $28,009. In the aggregate, total impaired loans have been written down to approximately 88% of their legal unpaid principal balance, and non-performing impaired loans have been written down to approximately 78% of their legal unpaid principal balance. The Company’s total non-performing loans (non-accrual loans plus loans past due greater than 90 days and still accruing, $30,689 at March 31, 2014) have been written down to approximately 82% of their legal unpaid principal balance.
Approximately $14,740 of the Company’s impaired loans (56%) are accruing performing loans. This group of impaired loans is not included in the Company’s non-performing loans or non-performing assets categories.
PCI loans, including those covered by FDIC loss sharing agreements, are accounted for pursuant to ASC Topic 310-30. PCI loan pools are evaluated for impairment each quarter. If a pool is impaired, an allowance for loan loss is recorded.
The allowance is increased by the provision for loan losses, which is a charge to current period earnings and decreased by loan charge-offs net of recoveries of prior period loan charge-offs. Loans are charged against the allowance when management believes collection of the principal is unlikely. We believe our allowance for loan losses was adequate at March 31, 2014. However, we recognize that many factors can adversely impact various segments of the Company’s market and customers, and therefore there is no assurance as to the amount of losses or probable losses which may develop in the future. The tables below summarize the changes in allowance for loan losses during the periods presented.
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| | | | | | | | | | | | |
| | Loans, excluding purchased credit impaired | | | Purchased credit impaired loans | | | Total | |
Three months ended March 31, 2014 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 19,694 | | | $ | 760 | | | $ | 20,454 | |
Loans charged-off | | | (1,160 | ) | | | — | | | | (1,160 | ) |
Recoveries of loans previously charged-off | | | 843 | | | | — | | | | 843 | |
| | | | | | | | | | | | |
Net charge-offs | | | (317 | ) | | | — | | | | (317 | ) |
(Recovery) provision for loan loss | | | (464 | ) | | | 423 | | | | (41 | ) |
| | | | | | | | | | | | |
Balance at end of period | | $ | 18,913 | | | $ | 1,183 | | | $ | 20,096 | |
| | | | | | | | | | | | |
Three months ended March 31, 2013 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 24,033 | | | $ | 2,649 | | | $ | 26,682 | |
Loans charged-off | | | (1,231 | ) | | | — | | | | (1,231 | ) |
Recoveries of loans previously charged-off | | | 163 | | | | — | | | | 163 | |
| | | | | | | | | | | | |
Net charge-offs | | | (1,068 | ) | | | — | | | | (1,068 | ) |
Provision for loan losses | | | (334 | ) | | | (26 | ) | | | (360 | ) |
| | | | | | | | | | | | |
Balance at end of period | | $ | 22,631 | | | $ | 2,623 | | | $ | 25,254 | |
| | | | | | | | | | | | |
Nonperforming loans and nonperforming assets
Non performing loans exclude PCI loans and are defined as non accrual loans plus loans past due 90 days or more and still accruing interest. Generally, we place loans on non accrual status when they are past due 90 days and management believes the borrower’s financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. When we place a loan on non accrual status, interest accruals cease and uncollected interest is reversed and charged against current income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Non performing loans, as defined above, as a percentage of total non-PCI loans, were 1.96% at March 31, 2014, compared to 2.18% at December 31, 2013.
Non performing assets, excluding assets covered by FDIC loss share agreements, (which we define as non performing loans, as defined above, plus (a) OREO (i.e., real estate acquired through foreclosure, in substance foreclosure, or deed in lieu of foreclosure); and (b) other repossessed assets that are not real estate), were $40,719 at March 31, 2014, compared to $33,636 at December 31, 2013. Non performing assets as a percentage of total assets were 1.35% at March 31, 2014, compared to 1.39% at December 31, 2013.
The following table sets forth information regarding the components of nonperforming assets at the dates indicated.
| | | | | | | | |
| | Mar 31, | | | Dec 31, | |
| | 2014 | | | 2013 | |
Non-accrual loans (note 1) | | $ | 30,689 | | | $ | 27,077 | |
Past due loans 90 days or more and still accruing interest (note 1) | | | — | | | | — | |
| | | | | | | | |
Total non-performing loans (NPLs) (note 1) | | | 30,689 | | | | 27,077 | |
Other real estate owned (OREO) (note 1) | | | 9,895 | | | | 6,409 | |
Repossessed assets other than real estate (note 1) | | | 135 | | | | 150 | |
| | | | | | | | |
Total non-performing assets (NPAs) (note 1) | | $ | 40,719 | | | $ | 33,636 | |
| | | | | | | | |
Total NPLs as a percentage of total loans (note 1) | | | 1.96 | % | | | 2.18 | % |
Total NPAs as a percentage of total assets (note 1) | | | 1.35 | % | | | 1.39 | % |
Loans past due between 30 and 89 days and accruing interest as a percentage of total loans (note 1) | | | 0.77 | % | | | 0.85 | % |
Allowance for loan losses, excluding PCI loans | | $ | 18,913 | | | $ | 19,694 | |
Allowance for loan losses as a percentage of NPLs (note 1) | | | 62 | % | | | 73 | % |
| | |
note 1: | | Excludes PCI loans and OREO covered by FDIC loss share agreements. |
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As shown in the table above, the largest component of non performing loans excluding loans covered by FDIC loss share agreements is non accrual loans. As of March 31, 2014 the Company had reported a total of 192 non accrual loans with an aggregate carrying value of $30,689 compared to December 31, 2013 when 191 non accrual loans with an aggregate book value of $27,077 were reported. This amount is further delineated by collateral category and number of loans in the table below.
| | | | | | | | | | | | |
Collateral category | | Total amount in thousands of dollars | | | Percentage of total non accrual loans | | | Number of non accrual loans in category | |
Residential real estate | | $ | 12,859 | | | | 42 | % | | | 87 | |
Commercial real estate | | | 14,629 | | | | 48 | % | | | 40 | |
Land, development, construction | | | 1,136 | | | | 4 | % | | | 11 | |
Commercial | | | 1,582 | | | | 5 | % | | | 24 | |
Consumer, other | | | 483 | | | | 1 | % | | | 30 | |
| | | | | | | | | | | | |
Total non accrual loans at March 31, 2014 | | $ | 30,689 | | | | 100 | % | | | 192 | |
| | | | | | | | | | | | |
The second largest component of non performing assets after non accrual loans is OREO, excluding OREO covered by FDIC loss share agreements. At March 31, 2014, total OREO was $23,787. Of this amount, $13,892 is covered by FDIC loss sharing agreements. Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Company for 80% of losses with respect to the covered OREO beginning with the first dollar of loss incurred. The Company will reimburse the FDIC for its share of recoveries with respect to the covered OREO. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and the Company reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provides for FDIC loss sharing for five years and Company reimbursement to the FDIC for a total of eight years for recoveries.
OREO not covered by FDIC loss share agreements is $9,895 at March 31, 2014. OREO is carried at the lower of cost or market less the estimated cost to sell. Further declines in real estate values can affect the market value of these assets. Any further decline in market value beyond its cost basis is recorded as a current expense in the Company’s Condensed Consolidated Statement of Earnings and Comprehensive Income. OREO is further delineated in the table below.
| | | | |
(unaudited) Description of repossessed real estate | | carrying amount at Mar 31, 2014 | |
12 single family homes | | $ | 3,193 | |
6 residential building lots | | | 866 | |
11 commercial buildings | | | 2,031 | |
Land / various acreages | | | 3,805 | |
| | | | |
Total, excluding OREO covered by FDIC loss share agreements | | $ | 9,895 | |
Impaired loans are defined as loans that management has determined will not repay as agreed pursuant to the terms of the related loan agreement. Small balance homogeneous loans are not considered for impairment purposes. Once management has determined a loan is impaired, we perform a specific reserve analysis to determine if it is probable that we will eventually collect all contractual cash flows. If
45
management determines that a shortfall is probable, then a specific valuation allowance is placed against the loan. This loan is then placed on non accrual basis, even if the borrower is current with his/her contractual payments, and will remain on non accrual until payments collected reduce the loan balance such that it eliminates the specific valuation allowance or equivalent partial charge-down or other economic conditions change. At March 31, 2014 we have identified a total of $26,555 impaired loans, excluding PCI loans. A specific valuation allowance of $1,919 has been attached to $10,931 of the total identified impaired loans. It should also be noted that the total carrying balance of the impaired loans, or $26,555, has been partially charged down by $1,454 from their aggregate legal unpaid balance of $28,009. The table below summarizes impaired loan data for the periods presented.
| | | | | | | | |
| | Mar 31, 2014 | | | Dec 31, 2013 | |
Impaired loans with a specific valuation allowance | | $ | 10,931 | | | $ | 9,454 | |
Impaired loans without a specific valuation allowance | | | 15,624 | | | | 14,656 | |
| | | | | | | | |
Total impaired loans | | $ | 26,555 | | | $ | 24,110 | |
Amount of allowance for loan losses allocated to impaired loans | | $ | 1,919 | | | $ | 1,811 | |
Performing TDRs | | $ | 12,649 | | | $ | 10,763 | |
Non performing TDRs, included in NPLs | | | 2,337 | | | | 4,684 | |
| | | | | | | | |
Total TDRs (TDRs are required to be included in impaired loans) | | $ | 14,986 | | | $ | 15,447 | |
Impaired loans that are not TDRs | | | 11,569 | | | | 8,663 | |
| | | | | | | | |
Total impaired loans | | $ | 26,555 | | | $ | 24,110 | |
| | | | | | | | |
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, 2014, we believe the allowance for loan losses was 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 allowance will not be incurred.
Bank premises and equipment
Bank premises and equipment was $95,103 at March 31, 2014 compared to $96,619 at December 31, 2013, a decrease of $1,516 or 1.6%. This amount is the result of branch real estate transferred to held for sale of $6,973 prior to impairment charges of $2,326, $5,781 of bank premises and equipment acquired from the Gulfstream acquisition, other purchases net of disposals of $1,154 less $1,478 of depreciation expense.
Deposits
On January 17, 2014, we assumed $478,999 of deposits pursuant to the acquisition of Gulfstream, which included approximately $84,995 of time deposits. During the quarter, our total deposits increased by $502,473 (time deposits increased by $59,179 and non-time deposits increased by $443,294). The cost of interest bearing deposits in the current quarter decreased by 2bp to 33bps compared to the prior quarter. The overall cost of total deposits (i.e. includes non-interest bearing checking accounts) decreased by 2bps to 0.22% in the current quarter compared to 0.24% in the prior quarter. The table below summarizes the Company’s deposit mix over the dates indicated.
| | | | | | | | | | | | | | | | |
| | | | | % of | | | | | | % of | |
| | Mar 31, 2014 | | | total | | | Dec 31, 2013 | | | total | |
Demand - non-interest bearing | | $ | 838,764 | | | | 33 | % | | $ | 644,915 | | | | 31 | % |
Demand - interest bearing | | | 558,845 | | | | 22 | % | | | 483,842 | | | | 24 | % |
Savings deposits | | | 234,908 | | | | 9 | % | | | 232,942 | | | | 11 | % |
Money market accounts | | | 482,133 | | | | 19 | % | | | 309,657 | | | | 15 | % |
Time deposits | | | 444,054 | | | | 17 | % | | | 384,875 | | | | 19 | % |
| | | | | | | | | | | | | | | | |
Total deposits | | $ | 2,558,704 | | | | 100 | % | | $ | 2,056,231 | | | | 100 | % |
| | | | | | | | | | | | | | | | |
46
Securities sold under agreement to repurchase
Our subsidiary bank enters into borrowing arrangements with our retail business customers by agreements to repurchase (“securities sold under agreements to repurchase”) under which the bank pledges investment securities owned and under their control as collateral against the one-day borrowing arrangement. These short-term borrowings totaled $26,116 at March 31, 2014 compared to $20,457 at December 31, 2013.
Federal funds purchased
Federal funds purchased are overnight deposits from correspondent banks. Federal funds purchased acquired from other than our correspondent bank deposits are included with Federal Home Loan Bank advances and other borrowed funds as described below, if any. At March 31, 2014 we had $45,183 of correspondent bank deposits or federal funds purchased, compared to $29,909 at December 31, 2013.
Federal Home Loan Bank advances and other borrowed funds
From time to time, we borrow either through Federal Home Loan Bank advances or Federal Funds Purchased, other than correspondent bank deposits (i.e. federal funds purchased) listed above. At March 31, 2014 and December 31, 2013, there were no outstanding advances from the Federal Home Loan Bank.
Corporate debentures
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. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture of the Company. 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 the Company or the Trust, at their respective option, subject to prior approval by the Federal Reserve Board, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
In September 2004, Valrico Bancorp Inc. (“VBI”) formed Valrico Capital Statutory Trust (“Valrico Trust”) for the purpose of issuing trust preferred securities. On September 9, 2004, VBI issued a floating rate corporate debenture in the amount of $2,500. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI’s corporate debenture and related trust preferred security discussed above. 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 270 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 the Company or the Valrico Trust, at their respective option, subject to prior approval by the Federal Reserve, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
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In November 2011, we acquired certain assets and assumed certain liabilities of Federal Trust Corporation (“FTC”) from The Hartford Financial Services Group, Inc. (“Hartford”) pursuant to an acquisition agreement, including FTC’s corporate debenture and related trust preferred security issued through FTC’s finance subsidiary Federal Trust Statutory Trust (“FTC Trust) in the amount of $5,000. 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 295 basis points). The corporate debenture and the trust preferred security each have 30-year lives maturing in 2033. The trust preferred security and the corporate debenture are callable by the Company or the FTC Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.
In January 2005, Gulfstream Bancshares, Inc. (“GBI”) formed Gulfstream Bancshares Capital Trust I (“GBI Trust I”) for the purpose of issuing trust preferred securities. On January 18, 2005, GBI issued a floating rate corporate debenture in the amount of $7,000. 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 190 basis points). The rate is subject to change quarterly. The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the GBI Trust I, at their respective option, subject to prior approval by the Federal Reserve, if then required. On January 17, 2014, the Company acquired all the assets and assumed all the liabilities of GBI by merger, including GBI’s corporate debenture and related trust preferred security discussed above. The Company will treat the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
In March 2007, Gulfstream Bancshares, Inc. (“GBI”) formed Gulfstream Bancshares Capital Trust II (“GBI Trust I”) for the purpose of issuing trust preferred securities. On March 6, 2007, GBI issued a floating rate corporate debenture in the amount of $3,000. 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 170 basis points). The rate is subject to change quarterly. The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the GBI Trust II, at their respective option, subject to prior approval by the Federal Reserve, if then required. On January 17, 2014, the Company acquired all the assets and assumed all the liabilities of GBI by merger, including GBI’s corporate debenture and related trust preferred security discussed above. The Company will treat the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
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Stockholders’ equity
Stockholders’ equity at March 31, 2014, was $333,164, or 11.1% of total assets, compared to $273,379, or 11.3% of total assets at December 31, 2013. The increase in stockholders’ equity was due to the following items:
| | | | |
| $273,379 | | | Total stockholders’ equity at December 31, 2013 |
| 53,150 | | | Common stock issued in relation to Gulfstream acquisition |
| 3,617 | | | Gulfstream stock options converted to CenterState stock options |
| 1,053 | | | Net income during the period |
| (355) | | | Dividends paid on common shares, $0.01 per common share |
| 1,128 | | | Net increase in market value of securities available for sale, net of deferred taxes |
| 909 | | | Stock options exercised, including tax benefit |
| 283 | | | Employee equity based compensation |
| | | | |
| $333,164 | | | Total stockholders’ equity at March 31, 2014 |
| | | | |
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, 2014, our subsidiary bank exceeded the minimum capital levels to be considered “well capitalized” under the terms of the guidelines.
Selected consolidated capital ratios at March 31, 2014 and December 31, 2013 for the Company and for the Company’s subsidiary bank, CenterState Bank of Florida, N.A., are presented in the tables below. There is no threshold for “well-capitalized” status for bank holding companies.
| | | | | | | | | | | | | | | | | | | | |
CenterState Banks, Inc. (the Company) | | Actual | | | Capital Adequacy | | | Excess | |
| | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | |
March 31, 2014 | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk weighted assets) | | $ | 297,763 | | | | 15.8 | % | | $ | 150,509 | | | | > 8 | % | | $ | 147,254 | |
Tier 1 capital (to risk weighted assets) | | | 277,667 | | | | 14.8 | % | | | 75,254 | | | | > 4 | % | | | 202,413 | |
Tier 1 capital (to average assets) | | | 277,667 | | | | 10.0 | % | | | 111,336 | | | | > 4 | % | | | 166,331 | |
December 31, 2013 | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk weighted assets) | | $ | 262,701 | | | | 17.9 | % | | $ | 117,450 | | | | > 8 | % | | $ | 145,251 | |
Tier 1 capital (to risk weighted assets) | | | 244,323 | | | | 16.6 | % | | | 58,725 | | | | > 4 | % | | | 185,598 | |
Tier 1 capital (to average assets) | | | 244,323 | | | | 10.4 | % | | | 94,182 | | | | > 4 | % | | | 150,141 | |
| | | | | | | | | | | | | | | | | | | | |
CenterState Bank of Florida, N.A. | | Actual | | | Well capitalized | | | Excess | |
| | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | |
March 31, 2014 | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk weighted assets) | | $ | 260,206 | | | | 13.9 | % | | $ | 187,521 | | | | > 10 | % | | $ | 72,685 | |
Tier 1 capital (to risk weighted assets) | | | 240,291 | | | | 12.8 | % | | | 112,512 | | | | > 6 | % | | | 127,779 | |
Tier 1 capital (to average assets) | | | 240,291 | | | | 8.7 | % | | | 138,877 | | | | > 5 | % | | | 101,414 | |
December 31, 2013 | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk weighted assets) | | $ | 213,744 | | | | 14.6 | % | | $ | 146,277 | | | | > 10 | % | | $ | 67,467 | |
Tier 1 capital (to risk weighted assets) | | | 195,434 | | | | 13.4 | % | | | 87,766 | | | | > 6 | % | | | 107,668 | |
Tier 1 capital (to average assets) | | | 195,434 | | | | 8.3 | % | | | 117,444 | | | | > 5 | % | | | 77,990 | |
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In July 2013, the two federal banking regulatory agencies that have authority to regulate the Company’s capital resources and capital structure (the Board of Governors of the Federal Reserve System (FRB) and Federal Deposit Insurance Corporation (FDIC)) took action to finalize the application to the United States banking industry of new regulatory capital requirements that are established by the international banking framework commonly referred to as “Basel III” and to implement certain other changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. As anticipated by management of the Company (see the related discussion included in Item 1 of the Company’s annual report on Form 10-K for the year 2013 filed in March 2014), these rules make significant changes to the U.S. bank regulatory capital framework, and generally increase capital requirements for banking organizations. However, in response to concerns expressed by community banks such as the Company, the final rules addressed previous concerns of community banks about the proposed rules’ regulatory capital treatment of trust preferred securities, unrealized gains and losses on available-for-sale securities in accumulated other comprehensive income (“AOCI”) and mortgage risk weights. Therefore, although the Company has not yet had the opportunity to analyze the final rules in detail in order to determine their likely impact upon the Company, and although management does continue to believe that such requirements will in general increase the amount of capital that the Company and the Bank may be required to maintain under these new standards, the Company believes that its prior concerns regarding volatility and trust preferred securities have been favorably addressed by the final rules. The Company does not presently expect that any materially burdensome compliance efforts with these final capital rules will be required of us prior to January 1, 2015.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED March 31, 2014 AND 2013
Overview
We recognized net income of $1,053 or $0.03 per share basic and diluted for the three month period ended March 31, 2014, compared to net income of $4,576 or $0.15 per share basic and diluted for the same period in 2013. The largest differences between the two periods included:
| • | | merger and acquisition related expenses of $2,347 during the first quarter of 2014 related primarily to the Gulfstream acquisition and also included approximately $275 initial merger expenses related to the recently announced First Southern acquisition; |
| • | | charges related to our January 2014 announcement of efficiency and enhanced profitability initiatives of $3,158 during the first quarter of 2014; |
| • | | increase of $2,986 FDIC indemnification amortization between the two periods; |
| • | | lower fixed income security sales revenue from our correspondent banking division of $3,004 between the two quarters; and, |
| • | | the above negative impacts to our first quarter 2014 earnings compared to the first quarter of 2013 were partially offset by higher net interest income primarily due to the January 17, 2014 acquisition of Gulfstream. |
These items along with others are discussed and analyzed below.
Net interest income/margin
Net interest income increased $5,371 or 24% to $28,193 during the three month period ended March 31, 2014 compared to $22,822 for the same period in 2013. The $5,371 increase was the result of a $5,404 increase in interest income and a $33 increase in interest expense.
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Interest earning assets averaged $2,494,608 during the three month period ended March 31, 2014 as compared to $2,018,231 for the same period in 2013, an increase of $476,377, or 23.6%. The yield on average interest earning assets decreased 6bps to 4.84% (5bps to 4.91% tax equivalent basis) during the three month period ended March 31, 2014, compared to 4.90% (4.96% tax equivalent basis) for the same period in 2013. The combined effects of the $476,377 increase in average interest earning assets and the 6bps (5bps tax equivalent basis) decrease in yield on average interest earning assets resulted in the $5,404 ($5,521 tax equivalent basis) increase in interest income between the two periods.
Interest bearing liabilities averaged $1,748,146 during the three month period ended March 31, 2014 as compared to $1,544,529 for the same period in 2013, an increase of $203,617, or 13.2%. The cost of average interest bearing liabilities decreased 4bps to 0.37% during the three month period ended March 31, 2014, compared to 0.41% for the same period in 2013. The combined effects of the $203,617 increase in average interest bearing liabilities and the 4bps decrease in cost of average interest bearing liabilities resulted in the $33 decrease in interest expense between the two periods.
The table below summarizes the analysis of changes in interest income and interest expense for the three month periods ended March 31, 2014 and 2013 on a tax equivalent basis.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | |
| | 2014 | | | 2013 | |
| | Average | | | Interest | | | Average | | | Average | | | Interest | | | Average | |
| | balance | | | inc / exp | | | rate | | | balance | | | inc / exp | | | rate | |
Loans (notes 1, 2, 8) | | $ | 1,513,060 | | | $ | 17,727 | | | | 4.75 | % | | $ | 1,133,046 | | | $ | 13,718 | | | | 4.91 | % |
PCI loans (note 9) | | | 251,587 | | | | 8,231 | | | | 13.27 | % | | | 287,181 | | | | 7,827 | | | | 11.05 | % |
Securities- taxable | | | 492,766 | | | | 3,478 | | | | 2.86 | % | | | 417,185 | | | | 2,389 | | | | 2.32 | % |
Securities- tax exempt (note 8) | | | 39,280 | | | | 511 | | | | 5.28 | % | | | 43,043 | | | | 533 | | | | 5.02 | % |
Fed funds sold and other (note 3) | | | 197,915 | | | | 239 | | | | 0.49 | % | | | 137,776 | | | | 198 | | | | 0.58 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest earning assets | | | 2,494,608 | | | | 30,186 | | | | 4.91 | % | | | 2,018,231 | | | | 24,665 | | | | 4.96 | % |
Allowance for loan losses | | | (20,970 | ) | | | | | | | | | | | (26,782 | ) | | | | | | | | |
All other assets | | | 396,123 | | | | | | | | | | | | 398,334 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,869,761 | | | | | | | | | | | $ | 2,389,783 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing deposits (note 4) | | | 1,653,806 | | | | 1,337 | | | | 0.33 | % | | | 1,462,511 | | | | 1,383 | | | | 0.38 | % |
Fed funds purchased | | | 41,999 | | | | 6 | | | | 0.06 | % | | | 44,662 | | | | 5 | | | | 0.05 | % |
Other borrowings (note 5) | | | 29,768 | | | | 23 | | | | 0.31 | % | | | 20,381 | | | | 18 | | | | 0.36 | % |
Corporate debenture (note 10) | | | 22,573 | | | | 223 | | | | 4.01 | % | | | 16,975 | | | | 150 | | | | 3.58 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest bearing liabilities | | | 1,748,146 | | | | 1,589 | | | | 0.37 | % | | | 1,544,529 | | | | 1,556 | | | | 0.41 | % |
Demand deposits | | | 767,926 | | | | | | | | | | | | 545,579 | | | | | | | | | |
Other liabilities | | | 30,389 | | | | | | | | | | | | 25,200 | | | | | | | | | |
Stockholders’ equity | | | 323,300 | | | | | | | | | | | | 274,475 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 2,869,761 | | | | | | | | | | | $ | 2,389,783 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest spread (tax equivalent basis) (note 6) | | | | | | | | | | | 4.54 | % | | | | | | | | | | | 4.55 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (tax equivalent basis) | | | | | | $ | 28,597 | | | | | | | | | | | $ | 23,109 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest margin (tax equivalent basis) (note 7) | | | | | | | | | | | 4.65 | % | | | | | | | | | | | 4.64 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
note 1: | | Loan balances are net of deferred origination fees and costs. |
note 2: | | Interest income on average loans includes amortization of loan fee recognition of $43 and $46 for the three month periods ended March 31, 2014 and 2013. |
note 3: | | Includes federal funds sold, interest earned on deposits at the Federal Reserve Bank and earnings on Federal Reserve Bank stock and Federal Home Loan Bank stock. |
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| | |
note 4: | | Includes interest bearing deposits only. Non-interest bearing checking accounts are included in the demand deposits listed above. Also, includes net amortization of fair market value adjustments related to various acquisitions of time deposits of ($155) and ($179) for the three month periods ended March 31, 2014 and 2013. |
note 5: | | Includes securities sold under agreements to repurchase and Federal Home Loan Bank advances. |
note 6: | | Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities. |
note 7: | | Represents net interest income divided by total interest earning assets. |
note 8: | | Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates to adjust tax exempt interest income on tax exempt investment securities and loans to a fully taxable basis. |
note 9: | | PCI loans are accounted for pursuant to ASC 310-30. |
note 10: | | Includes amortization of fair value adjustments related to various acquisitions of corporate debentures of $44 and $6 for the three month periods ended March 31, 2014 and 2013. |
Provision for loan losses
The provision for loan losses increased $319 to a negative provision of $(41) during the three month period ending March 31, 2014 compared to a negative provision of $(360) for the comparable period in 2013. Our policy is to maintain the allowance for loan losses at a level sufficient to absorb probable incurred losses in the loan portfolio. The allowance is increased by the provision for loan losses, which is a charge to current period earnings, and is decreased by charge-offs, net of recoveries on prior loan charge-offs. Therefore, the provision for loan losses (Income Statement effect) is a residual of management’s determination of allowance for loan losses (Balance Sheet approach). In determining the adequacy of the allowance for loan losses, we consider the conditions of individual borrowers, the historical loan loss experience, the general economic environment, the overall portfolio composition, and other information. As these factors change, the level of loan loss provision changes. Our loss factors associated with our general allowance for loan losses is the primary reason causing the decrease in our provision expense due to our continued improvement in substantially all of our credit metrics, in particular our historical loss factors which is a derivative of our historical charge-off rates. See “Credit quality and allowance for loan losses” for additional information regarding the allowance for loan losses.
Non-interest income
Non-interest income for the three months ended March 31, 2014 was $5,760 compared to $10,279 for the comparable period in 2013. This decrease was the result of the following components listed in the table below.
| | | | | | | | | | | | | | | | |
| | | | | | | | $ | | | % | |
| | Mar 31, | | | Mar 31, | | | increase | | | increase | |
Three month period ending: | | 2014 | | | 2013 | | | (decrease) | | | (decrease) | |
Income from correspondent banking and bond sales division | | $ | 3,136 | | | $ | 6,140 | | | $ | (3,004 | ) | | | (48.9 | %) |
Other correspondent banking related revenue | | | 795 | | | | 865 | | | | (70 | ) | | | (8.1 | %) |
Wealth management related revenue | | | 1,217 | | | | 1,070 | | | | 147 | | | | 13.7 | % |
Service charges on deposit accounts | | | 2,262 | | | | 1,819 | | | | 443 | | | | 24.4 | % |
Debit, prepaid, ATM and merchant card related fees | | | 1,506 | | | | 1,285 | | | | 221 | | | | 17.2 | % |
BOLI income | | | 352 | | | | 339 | | | | 13 | | | | 3.8 | % |
Other service charges and fees | | | 409 | | | | 302 | | | | 107 | | | | 35.4 | % |
Gain on sale of securities | | | — | | | | 30 | | | | (30 | ) | | | (100.0 | %) |
| | | | | | | | | | | | | | | | |
Subtotal | | $ | 9,677 | | | $ | 11,850 | | | $ | (2,173 | ) | | | (18.3 | %) |
FDIC indemnification asset-amortization(see explanation below) | | | (5,185 | ) | | | (2,199 | ) | | | (2,986 | ) | | | 135.8 | % |
FDIC indemnification income | | | 1,268 | | | | 628 | | | | 640 | | | | 101.9 | % |
| | | | | | | | | | | | | | | | |
Total non-interest income | | $ | 5,760 | | | $ | 10,279 | | | $ | (4,519 | ) | | | (44.0 | %) |
| | | | | | | | | | | | | | | | |
When the estimate of future losses in covered loans decrease (i.e. future cash flows increase), this increase in cash flows is accreted into interest income, increasing yields, over the remaining life of the related loan pool. The indemnification asset (“IA”) represents the amount that is expected to be collected
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from the FDIC for reimbursement of 80% of the estimated losses in the covered pools. When management decreases its estimate of future losses, the expected reimbursement from the FDIC, or IA, is decreased by 80% of this amount. The decrease in estimated reimbursements is expensed (negative accretion) over the lesser of the remaining expected life of the related loan pool(s) or the remaining term of the related loss share agreement(s), and is included in non-interest income as a negative amount.
At March 31, 2014, the total IA on our Condensed Consolidated Balance Sheet was $64,719. Of this amount, we expect to receive reimbursements from the FDIC of approximately $30,805 related to future estimated losses, and expect to write-off approximately $33,914 for previously estimated losses that are no longer expected. The $33,914 is now expected to be paid by the borrower (or realized upon the sale of OREO) instead of a reimbursement from the FDIC. At March 31, 2014, the $33,914 previously estimated reimbursements from the FDIC will be written off as expense (negative accretion) included in our non-interest income category of our Condensed Consolidated Statement of Earnings and Comprehensive Income as summarized below.
| | | | | | | | | | |
Year | | | Year | |
2014 (9 months) | | | 37.4 | % | | 2018 | | | 5.3 | % |
2015 | | | 25.2 | % | | 2019 | | | 4.6 | % |
2016 | | | 16.6 | % | | 2020 thru 2021 | | | 4.0 | % |
| | | | | | | | | | |
2017 | | | 6.9 | % | | Total | | | 100.0 | % |
| | | | | | | | | | |
When a FDIC covered OREO property is sold at a loss, the loss is included in non-interest expense as loss on sale of OREO, and 80% of the loss is recorded as FDIC OREO indemnification income and included in non-interest income. When a FDIC covered loan pool is impaired, the impairment expense is included in loan loss provision expense, and 80% of the impairment expense is recorded as FDIC pool impairment indemnification income and included in non-interest income.
Income from correspondent banking and bond sales division means the spread earned from buying and selling fixed income securities among our correspondent bank customers. We do not take a position in the transaction, but merely earn a spread for facilitating it. Gross revenue depends on the amount of sales volume, which is volatile from period to period. Sales volume was substantially less in the current quarter compared to the first quarter of 2013. The decrease in volume is likely due to recent increases in market interest rates thereby causing unrealized losses in our correspondent bank customers’ securities portfolios. Many of our correspondent bank customers may be reluctant to execute sales and realize the loss if there are other possible strategies they can use which is likely a primary contributing factor to reduced sales volume.
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Non-interest expense
Non-interest expense for the three months ended March 31, 2014 increased $5,313, or 19.6%, to $32,403, compared to $27,090 for the same period in 2013. Components of our non-interest expenses are listed in the table below.
| | | | | | | | | | | | | | | | |
| | | | | | | | $ | | | % | |
| | Mar 31, | | | Mar 31, | | | increase | | | increase | |
Three month period ending: | | 2014 | | | 2013 | | | (decrease) | | | (decrease) | |
Employee salaries and wages | | $ | 11,873 | | | $ | 12,665 | | | $ | (792 | ) | | | (6.3 | %) |
Employee incentive/bonus compensation | | | 1,238 | | | | 1,094 | | | | 144 | | | | 13.2 | % |
Employee stock based compensation | | | 187 | | | | 146 | | | | 41 | | | | 28.1 | % |
Employer 401K matching contributions | | | 360 | | | | 367 | | | | (7 | ) | | | (1.9 | %) |
Deferred compensation expense | | | 107 | | | | 141 | | | | (34 | ) | | | (24.1 | %) |
Health insurance and other employee benefits | | | 987 | | | | 951 | | | | 36 | | | | 3.8 | % |
Payroll taxes | | | 1,120 | | | | 1,017 | | | | 103 | | | | 10.1 | % |
Other employee related expenses | | | 258 | | | | 296 | | | | (38 | ) | | | (12.8 | %) |
Incremental direct cost of loan origination | | | (449 | ) | | | (437 | ) | | | (12 | ) | | | (2.8 | %) |
| | | | | | | | | | | | | | | | |
Total salaries, wages and employee benefits | | | 15,681 | | | | 16,240 | | | | (559 | ) | | | (3.4 | %) |
| | | | | | | | | | | | | | | | |
Loss (gain) on sale of OREO | | | (30 | ) | | | 76 | | | | (106 | ) | | | (139.5 | %) |
Loss (gain) on sale of FDIC covered OREO | | | 107 | | | | (77 | ) | | | 184 | | | | 239.0 | % |
Valuation write down (recovery) of OREO | | | 70 | | | | 342 | | | | (272 | ) | | | (79.5 | %) |
Valuation write down of FDIC covered OREO | | | 950 | | | | 645 | | | | 305 | | | | 47.3 | % |
Loss on repossessed assets other than real estate | | | (2 | ) | | | 242 | | | | (244 | ) | | | (100.8 | %) |
Loan put back expense | | | — | | | | 4 | | | | (4 | ) | | | (100.0 | %) |
Foreclosure and repossession related expenses | | | 485 | | | | 441 | | | | 44 | | | | 10.0 | % |
Foreclosure and repo expense, FDIC (note 1) | | | 244 | | | | 348 | | | | (104 | ) | | | (29.9 | %) |
| | | | | | | | | | | | | | | | |
Total credit related expenses | | | 1,824 | | | | 2,021 | | | | (197 | ) | | | (9.8 | %) |
| | | | | | | | | | | | | | | | |
Occupancy expense | | | 1,960 | | | | 1,892 | | | | 68 | | | | 3.6 | % |
Depreciation of premises and equipment | | | 1,478 | | | | 1,497 | | | | (19 | ) | | | (1.3 | %) |
Supplies, stationary and printing | | | 227 | | | | 288 | | | | (61 | ) | | | (21.2 | %) |
Marketing expenses | | | 620 | | | | 528 | | | | 92 | | | | 17.4 | % |
Data processing expense | | | 1,039 | | | | 884 | | | | 155 | | | | 17.5 | % |
Legal, auditing and other professional fees | | | 775 | | | | 783 | | | | (8 | ) | | | (1.0 | %) |
Bank regulatory related expenses | | | 631 | | | | 581 | | | | 50 | | | | 8.6 | % |
Postage and delivery | | | 268 | | | | 285 | | | | (17 | ) | | | (6.0 | %) |
Debit, prepaid, ATM and merchant card related expenses | | | 474 | | | | 525 | | | | (51 | ) | | | (9.5 | %) |
CDI and Trust intangible amortization | | | 376 | | | | 306 | | | | 70 | | | | 22.5 | % |
Internet and telephone banking | | | 378 | | | | 224 | | | | 154 | | | | 68.9 | % |
Put-back option amortization | | | — | | | | 37 | | | | (37 | ) | | | (100.0 | %) |
Operational write-offs and losses | | | 36 | | | | 16 | | | | 20 | | | | 125.0 | % |
Correspondent accounts and Federal Reserve charges | | | 135 | | | | 109 | | | | 26 | | | | 23.9 | % |
Conferences/Seminars/Education/Training | | | 100 | | | | 153 | | | | (53 | ) | | | (34.6 | %) |
Director fees | | | 115 | | | | 102 | | | | 13 | | | | 12.8 | % |
Travel expenses | | | 65 | | | | 74 | | | | (9 | ) | | | (12.2 | %) |
Other expenses | | | 716 | | | | 545 | | | | 171 | | | | 31.4 | % |
| | | | | | | | | | | | | | | | |
Subtotal | | | 26,898 | | | | 27,090 | | | | (192 | ) | | | (0.7 | %) |
Merger, acquisition and conversion related expenses | | | 2,347 | | | | — | | | | 2,347 | | | | 100.0 | % |
Branch closure and efficiency initiatives | | | 3,158 | | | | — | | | | 3,158 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
Total non-interest expense | | $ | 32,403 | | | $ | 27,090 | | | $ | 5,313 | | | | 19.6 | % |
| | | | | | | | | | | | | | | | |
note 1: These are foreclosure and repossession related expenses related to FDIC covered assets, and are shown net of FDIC reimbursable amounts pursuant to FDIC loss share agreements.
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Merger, acquisition and conversion expenses listed above relate primarily to our January 17, 2014 acquisition of Gulfstream, and also includes approximately $275 initial merger expenses related to our recently announced acquisition of First Southern, which we expect to close this summer. The Gulfstream acquisition added four branches and additional back office expenses during the first quarter of 2014. We converted Gulfstream’s core systems to ours on February 14, 2014, and as such we expect additional efficiencies in the second quarter.
Branch closure and efficiency initiatives expenses listed above relate to our announcement in January 2014. During April 2014 we consolidated and closed 7 branches and one standalone drive-thru facility (which the banking regulators count as a branch). Five of the seven branch office locations (real estate) were transferred to held-for-sale. We also restructured residential lending, credit administration, portfolio management divisions, wealth management department, correspondent unit and certain other retail platform staffing. The $3,158 charges listed in the table above was primarily a result of impairment charges on the real estate transferred to held-for-sale and severance payments related to reduction in force. The expense saves from these efficiency initiatives will be phased in through the first quarter of 2015 as discussed and illustrated in the table included in our Form 8-K, and related fourth quarter earnings release, filed on January 29, 2014.
Provision for income taxes
We recognized an income tax provision for the three months ended March 31, 2014 of $538 on pre-tax income of $1,591 (an effective tax rate of 33.8%) compared to an income tax provision of $1,795 on pre-tax income of $6,371 (an effective tax rate of 28.2%) for the comparable quarter in 2013.
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.
Our subsidiary bank 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. The subsidiary bank’s asset/liability committee (ALCO) provides oversight to the liquidity management process and recommends guidelines, subject to the approval of its board of directors, 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.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements except for approved and unfunded loans and letters of credit to our customers in the ordinary course of business.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES: MARKET RISK |
Market risk
We believe interest rate risk is the most significant market risk impacting us. We monitor and manage interest rate risk using interest rate sensitivity “gap” analysis to measure the impact of market interest rate changes on net interest income. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 2013. There have been no changes in the assumptions used in monitoring interest rate risk as of March 31, 2014. The impact of other types of market risk, such as foreign currency exchange risk and equity price risk, is deemed immaterial.
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 Securities and Exchange Commission rules and forms. There was no change 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 has materially affected, or is 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 1A of our December 31, 2013 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. [Removed and Reserved]
Item 5. Other Information
Merger Related Litigation
On April 24, 2014, a class action complaint was filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida against First Southern Bancorp, Inc. (“First Southern”), its directors and CenterState challenging the merger of First Southern with CenterState. Among other things, the complaint alleges that the First Southern directors breached their fiduciary duties to First Southern and its shareholders by agreeing to the proposed merger. Plaintiffs seek, among other things, declaratory and injunctive relief concerning the alleged breaches of fiduciary duties, injunctive relief prohibiting consummation of the merger, recession, damages and attorneys’ fees and costs and other further relief. While CenterState believes that the suit is without merit and intends to vigorously defend its interest, it is not possible to predict the outcome of the proceeding or its impact on CenterState.
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 |
Exhibit 101.1 | Interactive Data File |
101.INS | XBRL Instance Document |
101.SCH | XBRL Schema Document |
101.CAL | XBRL Calculation Linkbase Document |
101.DEF | XBRL Definition Linkbase Document |
101.LAB | XBRL Label Linkbase Document |
101.PRE | XBRL Presentation Linkbase Document |
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CENTERSTATE BANKS, 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, INC.
(Registrant)
| | | | | | |
Date: May 6, 2014 | | | | By: | | /s/ Ernest S. Pinner |
| | | | | | Ernest S. Pinner Chairman, President and Chief Executive Officer |
| | | |
Date: May 6, 2014 | | | | By: | | /s/ James J. Antal |
| | | | | | James J. Antal Senior Vice President and Chief Financial Officer |
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