CenterState Bank 10Q 2015 Q1 Quarterly report

CenterState Bank (CSFL) 10-Q2015 Q1 Quarterly report

Content analysis

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, 2015

¨	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				45,442,124 shares
(class)				Outstanding at April 30, 2015

CENTERSTATE BANKS, INC. AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at March 31, 2015 (unaudited) and December 31, 2014		3
Condensed consolidated statements of earnings and comprehensive income for the three months ended March 31, 2015 and 2014 (unaudited)		4
Condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2015 and 2014 (unaudited)		6
Condensed consolidated statements of cash flows for the three months ended March 31, 2015 and 2014 (unaudited)		7
Notes to condensed consolidated financial statements (unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures About Market Risk		49
Item 4. Controls and Procedures		49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		50
Item 1A. Risk Factors		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3. Defaults Upon Senior Securities		50
Item 4. [Removed and Reserved]		50
Item 5. Other Information		50
Item 6. Exhibits		50
SIGNATURES		51
CERTIFICATIONS

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands of dollars, except per share data)

ASSETS	March 31, 2015			December 31, 2014
Cash and due from banks	$	59,295		$	52,067
Federal funds sold and Federal Reserve Bank deposits		197,046			106,346
Cash and cash equivalents		256,341			158,413
Trading securities, at fair value		1,017			3,420
Investment securities available for sale, at fair value		520,247			517,457
Investment securities held to maturity (fair value of $230,439 and $238,431
at March 31, 2015 and December 31, 2014, respectively)		228,870			237,362
Loans held for sale, at lower of cost or fair value		522			1,251

Loans, excluding purchased credit impaired		2,201,395			2,152,759
Purchased credit impaired loans		263,268			276,766
Allowance for loan losses		(20,980	)		(19,898	)
Net Loans		2,443,683			2,409,627

Bank premises and equipment, net		100,526			98,848
Accrued interest receivable		9,275			8,999
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		14,011			14,219
Goodwill		76,739			76,739
Core deposit intangible		13,789			14,417
Trust intangible		946			984
Bank owned life insurance		84,137			83,544
Other repossessed real estate owned covered by FDIC loss share agreements		13,528			19,404
Other repossessed real estate owned		7,586			8,896
FDIC indemnification asset		41,594			49,054
Deferred income tax asset, net		48,502			49,587
Bank property held for sale		2,449			2,675
Prepaid expense and other assets		24,810			21,973
TOTAL ASSETS	$	3,888,572		$	3,776,869

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - non-interest bearing	$	1,112,282		$	1,048,874
Demand - interest bearing		623,370			607,359
Savings and money market accounts		954,685			947,995
Time deposits		459,035			487,812
Total deposits		3,149,372			3,092,040

Securities sold under agreement to repurchase		31,071			27,022
Federal funds purchased		187,443			151,992
Corporate debentures		23,961			23,917
Accrued interest payable		293			336
Payables and accrued expenses		33,367			29,085
Total liabilities		3,425,507			3,324,392

Stockholders' equity:
Common stock, $.01 par value: 100,000,000 shares
authorized; 45,408,924 and 45,323,553 shares issued and outstanding
at March 31, 2015 and December 31, 2014, respectively		454			453
Additional paid-in capital		389,578			388,698
Retained earnings		67,966			59,273
Accumulated other comprehensive income		5,067			4,053
Total stockholders' equity		463,065			452,477

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,888,572		$	3,776,869

See notes to the accompanying condensed consolidated financial statements

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
Interest income:	March 31, 2015			March 31, 2014
Loans	$	34,268		$	25,729
Investment securities available for sale:
Taxable		4,282			3,478
Tax-exempt		539			336
Federal funds sold and other		396			239
		39,485			29,782
Interest expense:
Deposits		1,447			1,337
Securities sold under agreement to repurchase		49			23
Federal funds purchased		132			6
Corporate debentures		237			223
		1,865			1,589


Net interest income		37,620			28,193
Provision for loan losses		1,642			(41	)
Net interest income after loan loss provision		35,978			28,234


Non interest income:
Correspondent banking capital markets revenue		5,694			3,136
Other correspondent banking related revenue		1,106			795
Service charges on deposit accounts		2,261			2,262
Debit, prepaid, ATM and merchant card related fees		1,701			1,506
Wealth management related revenue		970			1,217
FDIC indemnification income		667			1,268
FDIC indemnification asset amortization		(4,350	)		(5,185	)
Bank owned life insurance income		593			352
Other service charges and fees		439			409
Total other income		9,081			5,760

See notes to the accompanying condensed consolidated financial statements.

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, 2015			March 31, 2014
Non interest expense:
Salaries, wages and employee benefits		19,580			15,681
Occupancy expense		2,445			1,960
Depreciation of premises and equipment		1,433			1,478
Supplies, stationary and printing		365			227
Marketing expenses		538			620
Data processing expense		1,330			1,039
Legal, audit and other professional fees		735			775
Core deposit intangible ("CDI") amortization		628			331
Postage and delivery		368			268
ATM and debit card related expenses		433			474
Bank regulatory expenses		910			631
(Gain) loss on sale of repossessed real estate (“OREO”)		(1,528	)		77
Valuation write down of repossessed real estate (“OREO”)		389			1,020
Gain on repossessed assets other than real estate		(1	)		(2	)
Foreclosure related expenses		623			729
Merger and acquisition related expenses		-			2,347
Branch closure and efficiency initiatives		-			3,158
Other expenses		2,355			1,590
Total other expenses		30,603			32,403

Income before provision for income taxes		14,456			1,591
Provision for income taxes		5,308			538
Net income	$	9,148		$	1,053

Other comprehensive income, net of tax:
Unrealized securities holding gain, net of income taxes	$	1,014		$	1,128
Less: reclassified adjustments for gain included in net income, net of income taxes, of $0 and $0 ,respectively		-			-
Net unrealized gain on available for sale securities, net of income taxes	$	1,014		$	1,128

Total comprehensive income	$	10,162		$	2,181

Earnings per share:
Basic	$	0.20		$	0.03
Diluted	$	0.20		$	0.03
Common shares used in the calculation of earnings per share:
Basic (1)		45,127,940			34,465,022
Diluted (1)		45,657,624			34,862,703

(1)	Excludes participating shares.

See notes to the accompanying condensed consolidated financial statements

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2015 and 2014 (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, 2014		30,112,475	$	301	$	229,544	$	48,018		$	(4,484	)	$	273,379

Net income								1,053						1,053
Unrealized holding loss 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


Balances at January 1, 2015		45,323,553	$	453	$	388,698	$	59,273		$	4,053		$	452,477

Net income								9,148						9,148
Unrealized holding gain on
available for sale securities, net of
deferred income tax of $637											1,014			1,014

Dividends paid - common ($0.01 per share)								(455	)					(455	)
Stock grants issued		45,053		1		607								608
Stock based compensation expense						56								56
Stock options exercised, including tax benefit		40,318		-		217								217
Balances at March 31, 2015		45,408,924	$	454	$	389,578	$	67,966		$	5,067		$	463,065

See notes to the accompanying condensed consolidated financial statements

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,
	2015			2014
Cash flows from operating activities:
Net income	$	9,148		$	1,053
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,642			(41	)
Depreciation of premises and equipment		1,433			1,478
Accretion of purchase accounting adjustments		(10,523	)		(8,092	)
Net amortization of investment securities		2,013			1,175
Net deferred loan origination fees		139			(162	)
Trading securities revenue		(174	)		(27	)
Purchases of trading securities		(38,082	)		(28,809	)
Proceeds from sale of trading securities		40,659			28,836
Repossessed real estate owned valuation write down		389			1,020
(Gain) loss on sale of repossessed real estate owned		(1,528	)		77
Loss on sale of repossessed assets other than real estate		(1	)		(2	)
Gain on sale of loans held for sale		(164	)		(76	)
Loans originated and held for sale		(7,431	)		(4,610	)
Proceeds from sale of loans held for sale		8,324			4,926
Gain on disposal of and or sale of fixed assets		-			(7	)
Gain on disposal of bank property held for sale		(41	)	-
Impairment on bank property held for sale		682			2,506
Deferred income taxes		452			3,724
Stock based compensation expense		830			187
Bank owned life insurance income		(593	)		(352	)
Net cash from changes in:
Net changes in accrued interest receivable, prepaid expenses, and other assets		173			(3,234	)
Net change in accrued interest payable, accrued expense, and other liabilities		3,804			(3,946	)
Net cash provided by (used by) operating activities		11,151			(4,376	)

See notes to the accompanying condensed consolidated financial statements.

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,
	2015			2014
Cash flows from investing activities:
Available for sale securities:
Purchases of investment securities		(1,004	)		-
Purchases of mortgage backed securities		(22,306	)		(176,583	)
Proceeds from pay-downs of mortgage backed securities		20,554			17,187
Proceeds from sales of investment securities		-			19,583
Proceeds from sales of mortgage backed securities		-			41,233
Held to maturity securities:
Purchases of investment securities		(37,882	)		-
Proceeds from called investment securities		37,110			-
Proceeds from pay-downs of mortgage backed securities		8,868			-
Proceeds from sales of FHLB and FRB stock		208			1,055
Net (increase) decrease in loans		(28,103	)		22,898
Cash received from FDIC loss sharing agreements		3,654			5,299
Purchases of premises and equipment, net		(3,111	)		3,470
Proceeds from sale of repossessed real estate		11,589			6,762
Proceeds from sale of fixed assets		-			7
Proceeds from sale of bank property held for sale		555			-
Net cash from bank acquisitions		-			77,005
Net cash (used in) provided by investing activities		(9,868	)		17,916
Cash flows from financing activities:
Net increase in deposits		57,567			23,629
Net increase (decrease) in securities sold under agreement to repurchase		4,049			(1,917	)
Net increase in federal funds purchased		35,451			15,274
Net decrease in other borrowings		-			(5,708	)
Net decrease in payable to shareholders for acquisitions		(184	)		-
Stock options exercised, including tax benefit		217			909
Dividends paid		(455	)		(355	)
Net cash used in financing activities		96,645			31,832

Net increase in cash and cash equivalents		97,928			45,372
Cash and cash equivalents, beginning of period		158,413			174,889
Cash and cash equivalents, end of period	$	256,341		$	220,261

Transfer of loans to other real estate owned	$	3,264		$	3,432
Transfers of bank property to held for sale	$	970		$	4,647

Cash paid during the period for:
Interest	$	2,187		$	1,727
Income taxes	$	170		$	1,520

See notes to the accompanying condensed consolidated financial statements.

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

The consolidated financial statements include the accounts of CenterState Banks, Inc. (the “Parent Company,” “Company” or “CSFL”), and its wholly owned subsidiary bank, CenterState Bank of Florida, N.A. (“CenterState”), and non bank subsidiary, R4ALL, Inc. The subsidiary bank operates through 58 full service banking locations in 20 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 the subsidiary bank and manage their eventual disposition.

In addition, the Company also operates a correspondent banking and capital markets division. The division is integrated with and part of the subsidiary bank located in Winter Haven, Florida, although the majority of its 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, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities. 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 the Annual Report on Form 10-K for the year ended December 31, 2014. In the Company’s 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, 2015 are not necessarily indicative of the results expected for the full year.

Some items in the prior period financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or shareholders’ equity.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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, 2015 and 2014 were 586,620 and 1,016,949, respectively. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented.

	Three months ended March 31,
	2015			2014
Basic
Net income available to common shareholders	$	9,148		$	1,053
Less: Earnings allocated to participating securities		(51	)		-
Net income allocated to common shareholders	$	9,097		$	1,053

Weighted average common shares outstanding
including participating securities		45,379,982			34,465,022
Less: Participating securities		(252,042	)		-
Average shares		45,127,940			34,465,022
Basic earnings per common share	$	0.20		$	0.03

Diluted
Net income available to common shareholders	$	9,097		$	1,053
Weighted average common shares outstanding for
basic earnings per common share		45,127,940			34,465,022
Add: Dilutive effects of stock based compensation awards		529,684			397,681
Average shares and dilutive potential common shares		45,657,624			34,862,703
Diluted earnings per common share	$	0.20		$	0.03

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.

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
				Significant
			Quoted prices in	other		Significant
			active markets for	observable		unobservable
	Carrying		identical assets	inputs		inputs
	value		(Level 1)	(Level 2)		(Level 3)
at March 31, 2015
Assets:
Trading securities	$	1,017	—	$	1,017	—
Available for sale securities
U.S. Treasury securities		1,006	—		1,006	—
Mortgage backed securities		480,341	—		480,341	—
Municipal securities		38,900	—		38,900	—
Interest rate swap derivatives		10,467	—		10,467	—

Liabilities:
Interest rate swap derivatives		11,667	—		11,667	—

at December 31, 2014
Assets:
Trading securities	$	3,420	—	$	3,420	—
Available for sale securities
U.S. government sponsored entities and agencies		3	—		3	—
Mortgage backed securities		478,633	—		478,633	—
Municipal securities		38,821	—		38,821	—
Interest rate swap derivatives		6,800	—		6,800	—

Liabilities:
Interest rate swap derivatives		7,575	—		7,575	—

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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, 2015, 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.

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

			Fair value measurements using
				Significant
			Quoted prices in	other	Significant
			active markets for	observable	unobservable
	Carrying		identical assets	inputs	inputs
	value		(Level 1)	(Level 2)	(Level 3)
at March 31, 2015
Assets:
Impaired loans
Residential real estate	$	3,302	—	—	$	3,302
Commercial real estate		4,360	—	—		4,360
Land, land development and construction		1,228	—	—		1,228
Commercial		380	—	—		380
Consumer		98	—	—		98
Other real estate owned
Residential real estate		443	—	—		443
Commercial real estate		3,185	—	—		3,185
Land, land development and construction		4,856	—	—		4,856
Bank property held for sale		2,449	—	—		2,449

at December 31, 2014
Assets:
Impaired loans
Residential real estate	$	2,971	—	—	$	2,971
Commercial real estate		4,854	—	—		4,854
Land, land development and construction		1,731	—	—		1,731
Commercial		167	—	—		167
Consumer		102	—	—		102
Other real estate owned
Residential real estate		448	—	—		448
Commercial real estate		2,363	—	—		2,363
Land, land development and construction		2,240	—	—		2,240
Bank property held for sale		2,675	—	—		2,675

Impaired loans with specific valuation allowances and/or partial charge-offs had a recorded investment of $10,232 with a valuation allowance of $864, at March 31, 2015, and a recorded investment of $10,677, with a valuation allowance of $852, at December 31, 2014. The Company recorded a provision for loan loss expense of $120 on these loans during the three months period ending March 31, 2015. The Company recorded a provision for loan loss expense of $380 on these loans during the three months period ending March 31, 2014, respectively.

Other real estate owned had a decline in fair value of $389 and $1,020 during the three month periods ending March 31, 2015 and 2014, respectively. Changes in fair value were recorded directly to current earnings through non interest expense.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Bank property held for sale represents certain branch office buildings which the Company has closed and consolidated with other existing branches. The real estate was transferred out of the Bank Premises and Equipment category into bank property held for sale 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 recognized an impairment charge of $682 and $2,506 during the three month periods ending March 31, 2015 and 2014, respectively, related to bank properties held-for-sale.

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.

Investment securities held to maturity: The fair values of securities held to maturity 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).

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.

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 3 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 of off-balance-sheet items is not considered material.

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 carry amounts and estimated fair values of the Company’s financial instruments:

			Fair value measurements
at March 31, 2015	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	256,341	$	256,341	$	-	$	-	$	256,341
Trading securities		1,017		-		1,017		-		1,017
Investment securities available for sale		520,247		-		520,247		-		520,247
Investment securities held to maturity		228,870		-		230,439		-		230,439
FHLB and FRB stock		14,011		-		-		-	n/a
Loans held for sale		522		-		522		-		522
Loans, less allowance for loan losses of $20,980		2,443,683		-		-		2,451,451		2,451,451
FDIC indemnification asset		41,594		-		-		-	n/a
Interest rate swap derivatives		10,467		-		10,467		-		10,467
Accrued interest receivable		9,275		-		-		9,275		9,275

Financial liabilities:
Deposits- without stated maturities	$	2,690,337	$	2,690,337	$	-	$	-	$	2,690,337
Deposits- with stated maturities		459,035		-		460,919		-		460,919
Securities sold under agreement to repurchase		31,071		-		31,071		-		31,071
Federal funds purchased		187,443		-		187,443		-		187,443
Corporate debentures		23,961		-		-		19,345		19,345
Interest rate swap derivatives		11,667		-		11,667		-		11,667
Accrued interest payable		293		-		293		-		293

			Fair value measurements
at December 31, 2014	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	158,413	$	158,413	$	-	$	-	$	158,413
Trading securities		3,420	—			3,420	—			3,420
Investment securities available for sale		517,457	—			517,457	—			517,457
Investment securities held to maturity		237,362	—			238,431	—			238,431
FHLB and FRB stock		14,219	—		—		—		n/a
Loans held for sale		1,251	—			1,251	—			1,251
Loans, less allowance for loan losses of $19,898		2,409,627	—		—			2,418,405		2,418,405
FDIC indemnification asset		49,054	—		—		—		n/a
Interest rate swap derivatives		6,800	—			6,800	—			6,800
Accrued interest receivable		8,999	—		—			8,999		8,999

Financial liabilities:
Deposits- without stated maturities	$	2,604,228	$	2,604,228	$	-	$	-	$	2,604,228
Deposits- with stated maturities		487,812	—			491,999	—			491,999
Securities sold under agreement to repurchase		27,022	—			27,022	—			27,022
Federal funds purchased		151,992	—			151,992	—			151,992
Corporate debentures		23,917	—		—			19,722		19,722
Interest rate swap derivatives		7,575	—			7,575	—			7,575
Accrued interest payable		336	—			336	—			336

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 4: Reportable segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The table below is a reconciliation of the reportable segment revenues, expenses, and profit to the Company’s consolidated total for the three month periods ending March 31, 2015 and 2014.

	Three month period ending March 31, 2015
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			entries			Total
Interest income	$	37,751		$	1,734		$	-		$	-		$	39,485
Interest expense		(1,496	)		(132	)		(237	)		-			(1,865	)
Net interest income (expense)		36,255			1,602			(237	)		-			37,620
Provision for loan losses		(1,511	)		(131	)		-			-			(1,642	)
Non interest income		2,281			6,800			-			-			9,081
Non interest expense		(23,899	)		(5,595	)		(1,109	)		-			(30,603	)
Net income (loss) before taxes		13,126			2,676			(1,346	)		-			14,456
Income tax (provision) benefit		(4,792	)		(1,032	)		516			-			(5,308	)
Net income (loss)	$	8,334		$	1,644		$	(830	)	$	-		$	9,148
Total assets	$	3,573,573		$	305,667		$	493,374		$	(484,042	)	$	3,888,572

	Three month period ending March 31, 2014
				Correspondent			Corporate
	Commercial			banking and			overhead
	and retail			capital markets			and			Elimination
	banking			division			administration			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
Provision for loan losses		41			-			-		-				41
Non interest income		1,829			3,931			-		-				5,760
Non interest expense		(27,167	)		(4,378	)		(858	)	-				(32,403	)
Net income 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

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 58 full service banking locations in 20 counties throughout Florida providing traditional deposit and lending products and services to its commercial and retail customers.

Correspondent banking and capital markets division: Operating as a division of our subsidiary bank, its primary revenue generating activities are related to the capital markets division which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities. Income generated related to the correspondent banking services includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and fees generated from safe-keeping activities, bond accounting services, asset/liability consulting services, international wires, clearing and corporate checking account services and other correspondent banking related services. The fees derived from the correspondent banking services are less volatile than those generated through the capital markets group. 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.

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, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities	$	1,004	$	2	$	---	$	1,006
Mortgage backed securities		473,592		7,801		1,052		480,341
Municipal securities		37,403		1,519		22		38,900
Total available-for-sale	$	511,999	$	9,322	$	1,074	$	520,247


	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Obligations of U.S. government sponsored entities and agencies	$	3	$ ---		$ ---		$	3
Mortgage backed securities		473,396		6,897		1,660		478,633
Municipal securities		37,460		1,412		51		38,821
Total available-for-sale	$	510,859	$	8,309	$	1,711	$	517,457

The cost of securities sold is determined using the specific identification method. The securities sold during the first quarter of 2014 consisted of the securities acquired through the Gulfstream Business Bank (“GSB”) acquisition. These acquired 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, 2015 and 2014 were as follows:

For the three months ended:	March 31, 2015		March 31, 2014
Proceeds	$	-	$	60,816
Gross gains		-		-
Gross losses		-		-

The tax provision related to these net realized gains was $0 and $0, respectively.

The fair value of available for sale securities at March 31, 2015 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

			Amortized
Investment securities available for sale:	Fair Value		Cost
Due in one year or less	$	527	$	516
Due after one year through five years		2,562		2,499
Due after five years through ten years		17,292		16,622
Due after ten years through thirty years		19,525		18,770
Mortgage backed securities		480,341		473,592
Total available-for-sale	$	520,247	$	511,999

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Available for sale securities pledged at March 31, 2015 and December 31, 2014 had a carrying amount (estimated fair value) of $134,044 and $139,297 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.

At March 31, 2015 and December 31, 2014, 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 available for sale 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, 2015 and December 31, 2014.

	March 31, 2015
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage backed securities	$	47,040	$	91	$	61,245	$	961	$	108,285	$	1,052
Municipal securities		2,155		22		-		-		2,155		22
Total temporarily impaired
available-for-sale securities	$	49,195	$	113	$	61,245	$	961	$	110,440	$	1,074

	December 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	$	15,876	$	41	$	99,010	$	1,619	$	114,886	$	1,660
Municipal securities		-		-		3,194		51		3,194		51
Total temporarily impaired
available-for-sale securities	$	15,876	$	41	$	102,204	$	1,670	$	118,080	$	1,711

At March 31, 2015, 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, 2015.

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.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Held-to-Maturity

The following reflects the fair value of held to maturity securities and the related gross unrecognized gains and losses as of March 31, 2015 and December 31, 2014.

	March 31, 2015
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Obligations of U.S. government sponsored entities and agencies	$	42,779	$	159	$	-	$	42,938
Mortgage backed securities		152,458		1,028		1		153,485
Municipal securities		33,633		408		25		34,016
Total held-to-maturity	$	228,870	$	1,595	$	26	$	230,439

	December 31, 2014
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Obligations of U.S. government sponsored entities and agencies	$	49,793	$	122	$	-	$	49,915
Mortgage backed securities		161,727		654		-		162,381
Municipal securities		25,842		305		12		26,135
Total held to maturity	$	237,362	$	1,081	$	12	$	238,431

Held to maturity securities pledged at March 31, 2015 and December 31, 2014 had an estimated fair value of $57,042 and $51,531 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.

At March 31, 2015, there were no holdings of held to maturity securities of any one issuer in an amount greater than 10% of stockholders’ equity.

The fair value and amortized cost of held to maturity securities at March 31, 2015 by contractual maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.

			Amortized
Investment securities held to maturity	Fair Value		Cost
Due after five years through ten years	$	29,846	$	29,756
Due after ten years through thirty years		47,108		46,656
Mortgage backed securities		153,485		152,458
Total held-to-maturity	$	230,439	$	228,870

The following table shows the Company’s held to maturity investments’ gross unrecognized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrecognized loss position, at March 31, 2015 and December 31, 2014.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

	March 31, 2015
	Less than 12 months				12 months or more				Total
			Unrecognized				Unrecognized				Unrecognized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage backed securities	$	15,932	$	1	$	-	$	-	$	15,932	$	1
Municipal securities		3,566		25		-		-		3,566		25
Total temporarily impaired
held-to-maturity securities	$	19,498	$	26	$	-	$	-	$	19,498	$	26

	December 31, 2014
	Less than 12 months				12 months or more				Total
			Unrecognized				Unrecognized				Unrecognized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Municipal securities	$	2,475	$	12	$	-	$	-		2,475		12
Total temporarily impaired
held-to-maturity securities	$	2,475	$	12	$	-	$	-	$	2,475	$	12

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 6: Loans

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

	March 31, 2015			December 31, 2014
Loans excluding PCI loans
Real estate loans
Residential	$	604,811		$	589,068
Commercial		1,154,682			1,132,933
Land, development and construction		85,186			79,002
Total real estate		1,844,679			1,801,003
Commercial		297,442			294,493
Consumer and other loans		58,484			56,334
Loans before unearned fees and deferred cost		2,200,605			2,151,830
Net unearned fees and costs		790			929
Total loans excluding PCI loans		2,201,395			2,152,759
PCI loans (note 1)
Real estate loans
Residential		101,365			102,009
Commercial		131,270			140,977
Land, development and construction		24,294			24,032
Total real estate		256,929			267,018
Commercial		5,615			8,953
Consumer and other loans		724			795
Total PCI loans		263,268			276,766
Total loans		2,464,663			2,429,525
Allowance for loan losses for loans that are not PCI loans		(20,842	)		(19,384	)
Allowance for loan losses for PCI loans		(138	)		(514	)
Total loans, net of allowance for loan losses	$	2,443,683		$	2,409,627

The following sets forth the covered FDIC loans included in the table above.

	March 31, 2015			December 31, 2014
FDIC covered loans that are not PCI loans
Real estate loans
Residential	$	3,737		$	3,895
Commercial		32,637			33,606
Land, development and construction		1,002			866
Total real estate		37,376			38,367
Commercial		1,087			1,253
Consumer and other loans		-			-
FDIC covered loans, excluding PCI loans		38,463			39,620
FDIC covered PCI loans (note 1)
Real estate loans
Residential		97,032			98,075
Commercial		108,937			116,457
Land, development and construction		14,987			15,395
Total real estate		220,956			229,927
Commercial		2,595			4,974
Consumer and other loans		-			-
Total FDIC covered PCI loans		223,551			234,901
Total FDIC covered loans		262,014			274,521
Allowance for loans losses for FDIC covered		(138	)		(514	)
Total covered loans, net of allowance for loan losses	$	261,876		$	274,007

note 1:

Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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

Three months ended March 31, 2015	Allowance for loan losses for loans that are not PCI loans			Allowance for loan losses on PCI loans			Total
Balance at beginning of period	$	19,384		$	514		$	19,898
Loans charged-off		(949	)		(77	)		(1,026	)
Recoveries of loans previously charged-off		466			-			466
Net charge-offs		(483	)		(77	)		(560	)
Provision (recovery) for loan losses		1,941			(299	)		1,642
Balance at end of period	$	20,842		$	138		$	20,980

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 losses		(464	)		423			(41	)
Balance at end of period	$	18,913		$	1,183		$	20,096

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

Allowance for loan losses for loans that are not PCI loans:
			��
Three months ended March 31, 2015
Beginning of the period	$	6,743		$	8,269		$	752		$	2,330		$	1,290		$	19,384
Charge-offs		(328	)		(60	)		(71	)		(278	)		(212	)		(949	)
Recoveries		314			45			1			46			60			466
Provision for loan losses		37			1,057			147			435			265			1,941
Balance at end of period	$	6,766		$	9,311		$	829		$	2,533		$	1,403		$	20,842

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
(Recovery) 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


	Real Estate Loans
	Residential			Commercial			Land, develop., constr.			Comm. & industrial			Consumer & other			Total

Allowance for loan losses for loans that are PCI loans:

Three months ended March 31, 2015
Beginning of the period	$	-		$	372		$	6		$	136		$	-		$	514
Charge-offs		-			(77	)		-			-			-			(77	)
Recoveries		-			-			-			-			-			-
(Recovery) provision for loan losses		-			(165	)		(2	)		(132	)		-			(299	)
Balance at end of period	$	-		$	130		$	4		$	4		$	-		$	138

Three months ended March 31, 2014
Beginning of the period	$	-		$	138		$	89		$	533		$	-		$	760
Charge-offs		-			-			-			-			-			-
Recoveries		-			-			-			-			-			-
Provision (recovery) for loan losses		-			485			-			(62	)		-			423
Balance at end of period	$	-		$	623		$	89		$	471		$	-		$	1,183

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, 2015 and December 31, 2014. 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, 2015	Residential		Commercial		Land, develop., constr.		Comm. & industrial		Consumer & other		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	431	$	351	$	278	$	5	$	36	$	1,101
Collectively evaluated for impairment		6,335		8,960		551		2,528		1,367		19,741
Purchased credit impaired		-		130		4		4		-		138
Total ending allowance balance	$	6,766	$	9,441	$	833	$	2,537	$	1,403	$	20,980

Loans:
Individually evaluated for impairment	$	8,578	$	10,419	$	1,888	$	833	$	464	$	22,182
Collectively evaluated for impairment		596,233		1,144,263		83,298		296,609		58,020		2,178,423
Purchased credit impaired		101,365		131,270		24,294		5,615		724		263,268
Total ending loan balances	$	706,176	$	1,285,952	$	109,480	$	303,057	$	59,208	$	2,463,873

	Real Estate Loans
As of December 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		$	419	$	403	$	272	$	4	$	17	$	1,115
Collectively evaluated for impairment			6,324		7,866		480		2,326		1,273		18,269
Purchased credit impaired			-		372		6		136		-		514
Total ending allowance balance		$	6,743	$	8,641	$	758	$	2,466	$	1,290	$	19,898

Loans:
Individually evaluated for impairment		$	9,980	$	10,902	$	2,748	$	1,365	$	255	$	25,250
Collectively evaluated for impairment			579,088		1,122,031		76,254		293,128		56,079		2,126,580
Purchased credit impaired			102,009		140,977		24,032		8,953		795		276,766
Total ending loan balance		$	691,077	$	1,273,910	$	103,034	$	303,446	$	57,129	$	2,428,596

Loans collectively evaluated for impairment reported at March 31, 2015 include loans acquired from First Southern Bank (“FSB”) on June 1, 2014 and from GSB on January 17, 2014 that are not PCI loans. These loans were performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment for loans acquired from GSB at the acquisition date was approximately $7,680, or approximately 2.3% of the outstanding aggregate loan balances, and the fair value adjustment for loans acquired from FSB at the acquisition date was approximately $10,725, or approximately 2.0% of the outstanding aggregate loan balances.

As of the end of the current quarter, the Company has a 14 month history with the performing loans acquired from GSB. Management evaluated the performance of this group of loans over the period subsequent to the acquisition date and, based on this evaluation, has increased the probable incurred loss amount at March 31, 2015 to $1,944. Management considered the accretion of the credit discount, levels of and trends in non-performing loans, past due loans, adverse loan grade classification changes, net charge-offs and impaired loans in arriving at its estimate.

As of the end of the current quarter, the Company has a 10 month history with the performing loans acquired from FSB. The Company estimated the probable incurred losses in this group of loans and an initial general loan loss allowance of $1,052 was

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

recorded at March 31, 2015. Management considered the accretion of the discount, levels of and trends in non-performing loans, past due loans, adverse loan classification changes, net charge-offs and impaired loans.

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

	Mar. 31, 2015		Dec 31, 2014
Performing TDRs (these are not included in nonperforming loans ("NPLs"))	$	10,617	$	11,418
Nonperforming TDRs (these are included in NPLs)		4,049		3,648
Total TDRs (these are included in impaired loans)		14,666		15,066
Impaired loans that are not TDRs		7,516		10,184
Total impaired loans	$	22,182	$	25,250

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.

TDRs as of March 31, 2015 and December 31, 2014 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, 2015	Accruing		Non Accrual		Total
Real estate loans:
Residential	$	6,708	$	1,597	$	8,305
Commercial		2,309		2,004		4,313
Land, development, construction		515		235		750
Total real estate loans		9,532		3,836		13,368
Commercial		672		161		833
Consumer and other		413		52		465
Total TDRs	$	10,617	$	4,049	$	14,666


As of December 31, 2014	Accruing		Non-Accrual		Total
Real estate loans:
Residential	$	7,201	$	1,523	$	8,724
Commercial		2,762		1,794		4,556
Land, development, construction		547		241		788
Total real estate loans		10,510		3,558		14,068
Commercial		706		37		743
Consumer and other		202		53		255
Total TDRs	$	11,418	$	3,648	$	15,066

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 $94 and partial charge offs of $63 on the TDR loans described above during the three month period ending March 31, 2015.

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 72% of our TDRs are current pursuant to their modified terms, and $4,049, or approximately 28% of our total TDRs

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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.

The following table presents loans by class modified and for which there was a payment default within twelve months following the modification during the periods ending March 31, 2015 and 2014.

	Period ending				Period ending
	March 31, 2015				March 31, 2014
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
Residential		3	$	529		-	$	-
Commercial real estate		3		467		4		1,319
Land, development, construction		2		235		-		-
Commercial and Industrial		1		43		2		33
Consumer and other		2		34		-		-
Total		11	$	1,308		6	$	1,352

The Company recorded a provision for loan loss expense of $40 and $15, and partial charge offs of $31 and $21 on TDR loans that subsequently defaulted as described above during the three month periods ending March 31, 2015 and 2014, respectively.

The following tables present loans individually evaluated for impairment by class of loans as of March 31, 2015 and December 31, 2014, 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, 2015	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
With no related allowance recorded:
Residential real estate	$	5,627	$	5,481	$	-
Commercial real estate		8,812		8,629		-
Land, development, construction		1,244		654		-
Commercial and industrial		595		586		-
Consumer, other		159		159		-

With an allowance recorded:
Residential real estate		3,258		3,097		431
Commercial real estate		1,997		1,790		351
Land, development, construction		1,292		1,234		278
Commercial and industrial		297		247		5
Consumer, other		318		305		36
Total	$	23,599	$	22,182	$	1,101

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

As of December 31, 2014	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated
With no related allowance recorded:
Residential real estate	$	6,797	$	6,672	$	-
Commercial real estate		8,208		8,059		-
Land, development, construction		2,234		1,606		-
Commercial and industrial		1,132		1,129		-
Consumer, other		-		-		-

With an allowance recorded:
Residential real estate		3,451		3,308		419
Commercial real estate		3,024		2,843		403
Land, development, construction		1,187		1,142		272
Commercial and industrial		283		236		4
Consumer, other		267		255		17
Total	$	26,583	$	25,250	$	1,115

Three month period ending March 31, 2015	Average of impaired loans		Interest income recognized during impairment		Cash basis interest income recognized
Real estate loans:
Residential	$	9,279	$	63	$	-
Commercial		10,661		63		-
Land, development, construction		2,317		6		-
Total real estate loans		22,257		132		-

Commercial and industrial		1,099		8		-
Consumer and other loans		360		5		-
Total	$	23,716	$	145	$	-

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	$	-

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, 2015		Dec 31, 2014
Non accrual loans	$	26,857	$	25,595
Loans past due over 90 days and still accruing interest		-		-
Total non performing loans	$	26,857	$	25,595

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, 2015 and December 31, 2014, excluding purchased credit impaired loans:

As of March 31, 2015	Nonaccrual		Loans past due over 90 days still accruing
Residential real estate	$	12,836	$	-
Commercial real estate		9,737		-
Land, development, construction		1,816		-
Commercial		2,190		-
Consumer, other		278		-
Total	$	26,857	$	-

As of December 31, 2014	Nonaccrual		Loans past due over 90 days still accruing
Residential real estate	$	11,901	$	-
Commercial real estate		8,470		-
Land, development, construction		2,374		-
Commercial		2,475		-
Consumer, other		375		-
Total	$	25,595	$	-

The following table presents the aging of the recorded investment in past due loans as of March 31, 2015 and December 31, 2014, excluding purchased credit impaired loans:

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

						Accruing Loans
	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
As of March 31, 2015
Residential real estate	$	604,811	$	2,570		$	949	$	-	$	3,519	$	588,456	$	12,836
Commercial real estate		1,154,682		3,861			2,227		-		6,088		1,138,857		9,737
Land/dev/construction		85,186		236			508		-		744		82,626		1,816
Commercial		297,442		613			2,207		-		2,820		292,432		2,190
Consumer		58,484		194	��		137		-		331		57,875		278
	$	2,200,605	$	7,474		$	6,028	$	-	$	13,502	$	2,160,246	$	26,857


						Accruing Loans
	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
As of December 31, 2014
Residential real estate	$	589,068	$	2,162		$	1,451	$	-	$	3,613	$	573,554	$	11,901
Commercial real estate		1,132,933		1,840			3,394		-		5,234		1,119,229		8,470
Land/dev/construction		79,002		378			404		-		782		75,846		2,374
Commercial		294,493		1,427			1,492		-		2,919		289,099		2,475
Consumer		56,334		411			149		-		560		55,399		375
	$	2,151,830	$	6,218		$	6,890	$	-	$	13,108	$	2,113,127	$	25,595

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 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.

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.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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, 2015 and December 31, 2014, 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, 2015
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	575,010	$	7,085	$	22,716	$	-
Commercial real estate		1,088,608		31,892		34,182		-
Land/dev/construction		73,960		7,703		3,523		-
Commercial		290,747		3,919		2,776		-
Consumer		57,707		272		505		-
Total	$	2,086,032	$	50,871	$	63,702	$	-


			As of December 31, 2014
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	558,312	$	7,053	$	23,703	$ -
Commercial real estate		1,063,979		34,953		34,001	-
Land/dev/construction		65,216		9,731		4,055	-
Commercial		285,549		4,419		4,525	-
Consumer		55,590		278		466	-
Total	$	2,028,646	$	56,434	$	66,750	$	-

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, 2015 and December 31, 2014:

As of March 31, 2015	Residential		Consumer
Performing	$	591,975		$	58,206
Nonperforming		12,836			278
Total	$	604,811		$	58,484

As of December 31, 2014	Residential		Consumer
Performing	$	577,167		$	55,959
Nonperforming		11,901			375
Total	$	589,068		$	56,334

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, 2015 and December 31, 2014. Contractually required principal and interest payments have been adjusted for estimated prepayments.

	Mar. 31, 2015			Dec. 31, 2014
Contractually required principal and interest	$	411,235		$	460,836
Non-accretable difference		(36,309	)		(68,757	)
Cash flows expected to be collected		374,926			392,079
Accretable yield		(111,658	)		(115,313	)
Carrying value of acquired loans		263,268			276,766
Allowance for loan losses		(138	)		(514	)
Carrying value less allowance for loan losses	$	263,130		$	276,252

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 $6,057 and $7,294 from non-accretable difference to accretable yield during the three month periods ending March 31, 2015 and 2014 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, 2015 and 2014.


Activity during the				Effect of			income		all other
three month period ending March 31, 2015	Dec 31, 2014			acquisitions			accretion		adjustments			Mar 31, 2015
Contractually required principal and interest	$	460,836		$	-		$	-	$	(49,601	)	$	411,235
Non-accretable difference		(68,757	)		-			-		32,448			(36,309	)
Cash flows expected to be collected		392,079			-			-		(17,153	)		374,926
Accretable yield		(115,313	)		-			9,930		(6,275	)		(111,658	)
Carry value of acquired loans	$	276,766		$	-		$	9,930	$	(23,428	)	$	263,268

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

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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, the acquisition of two failed banks in 2012 and the assumption of Loss Share Agreements of two failed banks assumed by the Company pursuant to its acquisition of FSB in June 2014. The activity in the FDIC loss share indemnification asset is as follows:

	Three month period ended Mar 31, 2015			Twelve month period ended Dec 31, 2014
Beginning of the year	$	49,054		$	73,877
Effect of acquisition		-			2,636
Amortization, net		(4,316	)		(20,664	)
Indemnification revenue		906			3,098
Indemnification of foreclosure expense		(157	)		237
Proceeds from FDIC		(3,654	)		(10,014	)
Impairment (recovery) of loan pool		(239	)		(116	)
Period end balance	$	41,594		$	49,054

The FDIC agreements allow for the recovery of some payments made for loss share reimbursements under certain conditions based on the actual performance of the portfolios acquired. This true-up payment is estimated and accrued for as part of the overall FDIC indemnification asset analysis and is reflected as a separate liability. The accrual for this liability is reflected as additional amortization income or expense in noninterest income. The activity in the true-up payment liability is as follows:

	Three month period ended Mar 31, 2015		Twelve month period ended Dec 31, 2014
Beginning of the year	$	1,205	$	444
Effect of acquisition		-		682
True-up liability accrual		34		79
Period end balance	$	1,239	$	1,205

Impairment of loan pools

When a loan pool (with loss share) is impaired, the impairment expense is included in provision for loan losses, and the percentage of that loss to be reimbursed by the FDIC is recognized as income from FDIC reimbursement, and included in this line item. During the three month period ended March 31, 2015, there was a recovery of a prior period impairment, as such, the estimated amount of impairment decreased, which resulted in a reduction of indemnification income of $239.

Indemnification revenue

Indemnification revenue represents the percentage of the cost incurred that is reimbursable by the FDIC pursuant to the related Loss Share Agreement for expenses related to the repossession process and losses incurred on the sale of OREO, or writedown of OREO values to current fair value.

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. The Company also 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.

Indemnification of foreclosure expense

Indemnification of foreclosure expense represents the percentage of 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.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 8: Subsequent Events

On April 8, 2015, the Company entered into a Loan Agreement (the “Loan Agreement”) with NexBank SSB (the “Lender”) providing for revolving loans of up to an aggregate principal amount of $25,000. Borrowings under the Loan Agreement accrue interest at 90 day LIBOR plus 3.5% per annum. In addition, the Company must pay commitment fees quarterly in arrears on the daily average amount of the unused portion of the revolving loan amount for the period from December 1, 2015 up to and including the maturity date, at the rate of 0.25% per annum. The maturity date of the Loan Agreement is April 1, 2018, at which time all outstanding amounts under the Loan Agreement will become due and payable. In connection with entering into the Loan Agreement, the Company issued to the Lender a Revolving Promissory Note dated as of April 8, 2015 (the “Promissory Note”). Refer to Form 8-K filed on April 10, 2015, incorporated herein by reference, for a description and terms of the Promissory Note.

On April 16, 2015, CenterState entered into a purchase and assumption agreement with SouthBank, a Federal Savings Bank, and its parent company, Commonwealth Savingshares Corporation, whereby CenterState agreed to purchase a banking branch office building in Palm Beach Garden, Florida, for an appraised value of approximately $1,950 and assume deposit liabilities of approximately $18,500. CenterState also agreed to pay a $100 premium for the deposits. CenterState will not purchase any loans from SouthBank. The transaction is expected to close during the third quarter of 2015, subject to ordinary and customary regulatory approvals. The Company plans to consolidate two of its nearby existing branches in leased facilities into this building, which management deems a more desirable location.

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, 2015 AND DECEMBER 31, 2014

Overview

Our total assets increased approximately 3% between December 31, 2014 and March 31, 2015 which was primarily the result of an increase in our deposits and federal funds purchased. The deposit growth was primarily in commercial checking. The growth in liquidity from the liability increases was used primarily to support the 9% annualized loan growth (excluding PCI loans) during the quarter. Our loan to deposit ratio was 78.6% and 78.3% at December 31, 2014 and March 31, 2015, respectively.

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 $197,046 at March 31, 2015 (approximately 5.1% of total assets) as compared to $106,346 at December 31, 2014 (approximately 2.8% 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 $520,247 at March 31, 2015 (approximately 13.4% of total assets) compared to $517,457 at December 31, 2014 (approximately 13.7% of total assets), an increase of $2,790 or 0.5%. 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.” We classify the majority of our securities as “available for sale” to provide for greater flexibility to respond to changes in interest rates as well as future liquidity needs. Our available for sale securities are carried at fair value.

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. A list of the activity in this portfolio is summarized below.

	three month period ended Mar 31, 2015			three month period ended Mar 31, 2014
Beginning balance	$	3,420		$	—
Purchases		38,082			28,809
Proceeds from sales		(40,659	)		(28,836	)
Net realized gain on sales		136			27
Net unrealized gains		38
Ending balance	$	1,017		$	—

Investment securities held to maturity

During the third quarter of 2014, we initiated a held to maturity securities portfolio. At March 31, 2015, we had $228,870 (unamortized cost basis) of securities with an estimated fair value of $230,439, resulting in a net unrecognized gain of $1,569. It is anticipated that it is more likely than not that this portfolio will generally hold longer term securities for the primary purpose of yield. This classification was chosen to minimize temporary effects on our tangible equity and tangible equity ratio due to increases and decreases in general market interest rates.

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, 2015			three month period ended Mar 31, 2014
Beginning balance	$	1,251		$	1,010
Acquired from Gulfstream		—			247
Loans originated		7,431			4,610
Proceeds from sales		(8,324	)		(4,926	)
Net realized gain on sales		164			76
Ending balance	$	522		$	1,017

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, 2015, were $2,443,756 or 71.7% of average earning assets, as compared to $1,764,647, or 70.7% of average earning assets, for the three month period ending March 31, 2014. Total loans at March 31, 2015 and December 31, 2014 were $2,464,663 and $2,429,525, respectively. This represents a loan to total asset ratio of 63.4% and 64.3% and a loan to deposit ratio of 78.3% and 78.6%, at March 31, 2015 and December 31, 2014, respectively.

Non-PCI loans

At March 31, 2015, we have total Non-PCI loans of $2,201,395 of which approximately $38,463 are covered by FDIC loss share agreements. The covered loans were acquired from our June 1, 2014 acquisition of FSB and the related transfer of its FDIC loss share agreements to us. Total new loans originated during the three month period ended March 31, 2015 approximated $192 million, of which $144 million were funded. The weighted average interest rate on funded loans was approximately 3.97% during the three month period. The graph below summarizes total loan production and funded loan production over the past nine quarters.

In addition to the increase in production between sequential quarters, our loan origination pipeline increased from $285 million at December 31, 2014 to approximately $308 million at March 31, 2015.

PCI loans

Total Purchased Credit Impaired (“PCI”) loans at March 31, 2015 is equal to $263,268 of which $223,551 are covered by FDIC loss sharing agreements. We acquired both covered and non-covered PCI loans in our acquisition of FSB. We also acquired FDIC covered loans that are not included in the PCI loan portfolio. In addition, we also acquired non-covered PCI loans from the GSB acquisition. The table below summarizes and compares total FDIC covered loans and non FDIC covered loans, and, our total non-PCI loan portfolio and our PCI loan portfolio at March 31, 2015.

	PCI loans		Non-PCI		Total loans
FDIC covered	$	223,551	$	38,463	$	262,014
not covered		39,717		2,162,932		2,202,649
Total	$	263,268	$	2,201,395	$	2,464,663

We have fourteen loss share agreements with the FDIC. Seven have ten year terms and generally include single family residential loans and the other seven have five year terms and generally include non-single family residential loans. The table below summarizes the covered loans by acquired bank and by term of the related loss share period at March 31, 2015.


						est rem	percentage
	Loss	Unpaid				life of	of losses	end of
	Share	Principal	Carrying	Difference(2)		loans in	reimbursable	loss share
	Term	Balance	Balance	$	%	years(1)	from FDIC	period	IA
Olde Cypress	5 yrs	$9,043	$7,415	($1,628)	18%	4.9	80%	Jul-15	$358
Comm Bank Bartow	5 yrs	3,384	2,674	(710)	21%	2.8	80%	Aug-15	172
Independent Nat'l Bank	5 yrs	16,272	13,945	(2,327)	14%	1.9	80%	Aug-15	412
Haven Trust Bank	5 yrs	23,365	19,900	(3,465)	15%	3.6	70%/0%/70%	Sep-15	---
First Commercial Bank	5 yrs	83,804	70,327	(13,477)	16%	2.0	70%/30%/75%	Jan-16	1,510
First Guaranty Bank	5 yrs	58,577	38,715	(19,862)	34%	2.3	80%	Jan-17	12,516
Central FL State Bank	5 yrs	11,567	8,302	(3,265)	28%	1.6	80%	Jan-17	2,222
Subtotal		206,012	161,278	(44,734)	22%	2.4			17,190

Olde Cypress	10 yrs	33,351	25,354	(7,997)	24%	5.6	80%	Jul-20	8,126
Comm Bank Bartow	10 yrs	14,957	10,988	(3,969)	27%	8.1	80%	Aug-20	2,949
Independent Nat'l Bank	10 yrs	18,843	14,539	(4,304)	23%	6.2	80%	Aug-20	3,346
Haven Trust Bank	10 yrs	4,447	3,536	(911)	20%	6.3	70%/0%/70%	Sep-20	563
First Commercial Bank	10 yrs	9,694	8,671	(1,023)	11%	3.7	70%/30%/75%	Jan-21	1,050
First Guaranty Bank	10 yrs	42,414	33,157	(9,257)	22%	7.0	80%	Jan-22	7,469
Central FL State Bank	10 yrs	5,781	4,491	(1,290)	22%	5.1	80%	Jan-22	901
Subtotal		129,487	100,736	(28,751)	22%	6.2			24,404

Total		$335,499	$262,014	($73,485)	22%	3.9			$41,594

(1)	This represents an estimate of the weighted average life or timing of the estimated future cash flows as of March 31, 2015.

(2)	Represents the dollar amount difference between the carrying value, or book value, of the loans and the unpaid principal balance (“UPB”), and the dollar amount difference as a percentage of the UPB.

As shown in the table above, total IA at March 31, 2015 was $41,594 of which $14,904 represents a receivable from the FDIC for estimated future loss reimbursements, and $26,690 represents previously estimated loss reimbursements that are no longer expected. This amount is now expected to be paid (and/or has been paid) by the borrower (or realized upon the sale of OREO) instead of a reimbursement from the FDIC. At March 31, 2015, the $26,690 previously estimated reimbursements from the FDIC is expected to be written off as amortization expense (negative accretion) in the Company’s non-interest income as summarized below.


Period		Year
2Q15	$ 3,943	2017	$ 2,998
3Q15	3,223	2018	2,217
4Q15	2,595	2019	1,869
Year 2016	8,017	2020 thru 2022	1,828
		Total	$ 26,690

The table above is based on management’s most recent quarterly updated projections of possible future losses, cash flows and timing of cash flows. The above amounts are subject to change, and have changed in past quarters, primarily due to the PCI loan pools performing better than previously estimated. A summary of the activity in the IA account during the three month period ending March 31, 2015 is presented in the table below.

Balance at 12/31/14	$49,054
Amortization, net	(4,316)
Indemnification revenue	906
Indemnification of foreclosure expenses	(157)
Proceeds received from FDIC	(3,654)
Impairment (recovery) of loan pool(s)	(239)
Balance at 3/31/15	$41,594

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.

Total loans at March 31, 2015 are equal to $2,464,663. Of this amount, approximately 85.3% are collateralized by real estate, 12.3 % are commercial non real estate loans and the remaining 2.4% are consumer and other non real estate loans. We have approximately $706,176 of single family residential loans which represents about 29% of our total loan portfolio. Our largest category of loans is commercial real estate which represents approximately 52% of our total loan portfolio.

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

	March 31, 2015			December 31, 2014
Loans excluding PCI loans
Real estate loans
Residential	$	604,811		$	589,068
Commercial		1,154,682			1,132,933
Land, development and construction		85,186			79,002
Total real estate		1,844,679			1,801,003
Commercial		297,442			294,493
Consumer and other loans		58,484			56,334
Loans before unearned fees and deferred cost		2,200,605			2,151,830
Net unearned fees and costs		790			929
Total loans excluding PCI loans		2,201,395			2,152,759
PCI loans (note 1)
Real estate loans
Residential		101,365			102,009
Commercial		131,270			140,977
Land, development and construction		24,294			24,032
Total real estate		256,929			267,018
Commercial		5,615			8,953
Consumer and other loans		724			795
Total PCI loans		263,268			276,766
Total loans		2,464,663			2,429,525
Allowance for loan losses for loans that are not PCI loans		(20,842	)		(19,384	)
Allowance for loan losses for PCI loans		(138	)		(514	)
Total loans, net of allowance for loan losses	$	2,443,683		$	2,409,627

note 1:

PCI loans are accounted for pursuant to ASC Topic 310-30.

Included in our total 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.

	March 31, 2015			December 31, 2014
FDIC covered loans that are not PCI loans
Real estate loans
Residential	$	3,737		$	3,895
Commercial		32,637			33,606
Land, development and construction		1,002			866
Total real estate		37,376			38,367
Commercial		1,087			1,253
FDIC covered loans, excluding PCI loans		38,463			39,620
FDIC covered PCI loans (note 1)
Real estate loans
Residential		97,032			98,075
Commercial		108,937			116,457
Land, development and construction		14,987			15,395
Total real estate		220,956			229,927
Commercial		2,595			4,974
Total FDIC covered PCI loans		223,551			234,901
Total FDIC covered loans		262,014			274,521
Allowance for loans losses for FDIC covered		(138	)		(514	)
Total covered loans, net of allowance for loan losses	$	261,876		$	274,007

note 1:

PCI loans are accounted for pursuant to ASC Topic 310-30.

Credit quality and allowance for loan losses

We maintain an allowance for loan losses that we believe is adequate to absorb probable losses incurred in our loan portfolio. 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.

The allowance consists of three components. The first component is an allocation for impaired loans, as defined by ASC 310. 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.

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 nonaccrual 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, we may update the appraisal prior to the one year anniversary date.

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; levels and trends in special mention and substandard loans; 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, 2015 and December 31, 2014.

	Mar 31, 2015						Dec 31, 2014							increase (decrease)
	loan balance		ALLL balance		%		loan balance		ALLL balance		%			loan balance			ALLL balance
Non impaired loans	$	1,488,536	$	16,745	1.12	%	$	1,407,781	$	16,587		1.18	%	$	80,755		$	158		-6 bps
Gulfstream loans (note 1)		269,918		1,944	0.72	%		280,331		1,682		0.60	%		(10,413	)		262		12 bps
FSB loans (note 2)		420,759		1,052	0.25	%		439,397		—		—	%		(18,638	)		1,052		25 bps
Impaired loans		22,182		1,101	4.96	%		25,250		1,115		4.42	%		(3,068	)		(14	)	54 bps
Non-PCI loans		2,201,395		20,842	0.95	%		2,152,759		19,384		0.90	%		48,636			1,458		5 bps
PCI loans (note 3)		263,268		138				276,766		514					(13,498	)		(376	)
Total loans	$	2,464,663	$	20,980	0.85	%	$	2,429,525	$	19,898		0.82	%	$	35,138		$	1,082		3 bps

note 1:

Loans acquired in the Company’s January 17, 2014 acquisition of GSB 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. During the current quarter, management evaluated the performance of this group of loans over the period subsequent to the acquisition date and based on this evaluation has estimated a probable incurred loss amount at March 31, 2015 as listed in the table above.

note 2:

Loans acquired in the Company’s June 1, 2014 acquisition of FSB 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 $10,081, or approximately 2% 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. During the current quarter, management evaluated the performance of this group of loans over the period subsequent to the acquisition date and based on this evaluation has estimated a probable incurred loss amount at March 31, 2015 as listed in the table above.

note 3:

Included in the $263,268 PCI loans at March 31, 2015 are $223,551 of loans that are covered by FDIC loss sharing agreements.

The general loan loss allowance (non-impaired loans, which includes GSB and FSB acquired loans) increased by a net amount of $1,472. Excluding GSB and FSB loans, the general loan loss allowance increased by $158 resulting primarily from an increase in loans outstanding less a decrease in the loss factors 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.

As of the end of the current quarter, the Company has a 14 month history with the performing loans acquired from GSB as discussed in note 1 above. Management evaluated the performance of this group of loans over the period subsequent to the acquisition date and based on this evaluation has estimated a probable incurred loss amount at March 31, 2015 as listed in the table above. Management considered the accretion of the credit discount, levels of and trends in non-performing loans, past-due loans, adverse loan grade classification changes, net charge-offs and impaired loans in arriving at its estimate.

As of the end of the current quarter, the Company has a 10 month history with the performing loans acquired from FSB as discussed in note 2 above. The Company estimated the probable incurred losses in this group of loans and an initial general loan loss allowance of $1,052 was recorded at March 31, 2015. Management considered the accretion of credit discount, levels of and trends in non-performing loans, past-due loans, adverse loan grade classification changes, net charge-offs and impaired loans.

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 $1,417 to $22,182 ($21,081 when the $1,101 specific allowance is considered) from their legal unpaid principal balance outstanding of $23,599. In the aggregate, total impaired loans have been written down to approximately 89% of their legal unpaid principal balance, and non-performing impaired loans have been written down to approximately 81% 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 of $26,857 at March 31, 2015) have been written down to approximately 86% of their legal unpaid principal balance, when the related specific allowance is also considered.

Approximately $13,638 of the Company’s impaired loans (61%) 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, 2015. However, we recognize that many factors can adversely impact various segments of the Company’s markets 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.

Three months ended March 31, 2015	Allowance for loan losses for loans that are not PCI loans			Allowance for loan losses on PCI loans			Total
Balance at beginning of period	$	19,384		$	514		$	19,898
Loans charged-off		(949	)		(77	)		(1,026	)
Recoveries of loans previously charged-off		466			-			466
Net charge-offs		(483	)		(77	)		(560	)
Provision (recovery) for loan losses		1,941			(299	)		1,642
Balance at end of period	$	20,842		$	138		$	20,980

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 losses		(464	)		423			(41	)
Balance at end of period	$	18,913		$	1,183		$	20,096

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 1.22% at March 31, 2015, compared to 1.19% at December 31, 2014

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 $34,582 at March 31, 2015, compared to $34,578 at December 31, 2014. Non performing assets as a percentage of total assets were 0.89% at March 31, 2015, compared to 0.92% at December 31, 2014. The table below summarizes selected credit quality data at the dates indicated.

	3/31/15			12/31/14
Non-accrual loans (note 1)	$	26,857		$	25,595
Past due loans 90 days or more and still accruing interest (note 1)		—			—
Total non-performing loans (“NPLs”) (note 1)		26,857			25,595
Other real estate owned (“OREO”) (note 2)		7,586			8,896
Repossessed assets other than real estate (note 1)		139			87
Total non-performing assets (“NPAs”) (note 2)	$	34,582		$	34,578
OREO covered by FDIC loss share agreements:
80% covered		4,716			7,264
75% covered		—			606
70% covered		249			1,755
30% covered		8,563			9,779
Total non-performing assets including
FDIC covered OREO	$	48,110		$	53,982
Non-performing loans as percentage of total loans excluding PCI loans		1.22	%		1.19	%
Non-performing assets as percentage of total assets
Excluding FDIC covered OREO		0.89	%		0.92	%
Including FDIC covered OREO		1.24	%		1.43	%
Non-performing assets as percentage of loans and OREO plus other repossessed assets (note 1)
Excluding FDIC covered OREO		1.57	%		1.60	%
Including FDIC covered OREO		2.16	%		2.47	%
Loans past due 30 thru 89 days and accruing interest as a percentage of total loans (note 1)		0.61	%		0.61	%
Allowance for loan losses as percentage of NPLs (note 1)		78	%		76	%

note 1:

Excludes PCI loans.

note 2:

Excludes OREO covered by FDIC loss share agreements.

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, 2015 the Company had reported a total of 208 non accrual loans with an aggregate carrying value of $26,857 compared to December 31, 2014 when 207 non accrual loans with an aggregate book value of $25,595 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	$	12,836		48	%		103
Commercial real estate		9,737		36	%		45
Land, development, construction		1,816		7	%		14
Commercial		2,190		8	%		25
Consumer, other		278		1	%		21
Total non accrual loans at March 31, 2015	$	26,857		100	%		208

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, 2015, total OREO was $21,114. Of this amount, $13,528 is covered by FDIC loss sharing agreements. OREO not covered by FDIC loss share agreements is $7,586 at March 31, 2015. 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.

Description of repossessed real estate	carrying amount at Mar 31, 2015
Description of repossessed real estate	carrying amount at Mar 31, 2015
13 single family homes	$	1,946
7 commercial buildings		3,586
Land / various acreages		2,054
Total, excluding OREO covered by FDIC loss share agreements	$	7,586

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 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, 2015 we have identified a total of $22,182 impaired loans, excluding PCI loans. A specific valuation allowance of $1,101 has been attached to $6,673 of impaired loans included in the total $22,182 of identified impaired loans identified. It should also be noted that the total carrying balance of the impaired loans, or $22,182, has been partially charged down by $1,417 from their aggregate legal unpaid balance of $23,599. The table below summarizes impaired loan data for the periods presented.

	Mar 31, 2015		Dec. 31, 2014
Impaired loans with a specific valuation allowance	$	6,673	$	7,785
Impaired loans without a specific valuation allowance		15,509		17,465
Total impaired loans	$	22,182	$	25,250
Amount of allowance for loan losses allocated to impaired loans	$	1,101	$	1,115
Performing TDRs (these are not included in NPLs)	$	10,617	$	11,418
Non performing TDRs (these are included in NPLs)		4,049		3,648
Total TDRs (these are included in impaired loans)		14,666		15,066
Impaired loans that are not TDRs		7,516		10,184
Total impaired loans	$	22,182	$	25,250

Bank premises and equipment

Bank premises and equipment was $100,526 at March 31, 2015 compared to $98,848 at December 31, 2014, an increase of $1,678 or 1.7%. The primary components of the increase was construction cost of $2,466 relating to renovations to our new operations center plus other purchases net of disposals of $645 less depreciation expense of $1,433. A summary of our bank premises and equipment for the period end indicated is presented in the table below.

	Mar 31, 2015		Dec. 31, 2014
Land	$	34,387	$	34,387
Land improvements		945		949
Buildings		60,245		60,168
Leasehold improvements		3,383		3,520
Furniture, fixtures and equipment		30,660		30,906
Construction in progress		4,053		1,587
Subtotal		133,673		131,517
Less: accumulated depreciation		33,147		32,669
Total	$	100,526	$	98,848

We have transferred branch real estate that is no longer in use to held for sale at estimated fair value less estimated cost to sell. Our branch real estate held for sale at March 31, 2015 and December 31, 2014 was $2,449 and $2,675, respectively.

Deposits

The cost of interest bearing deposits in the current quarter decreased by 1 basis point (“bp”) to 0.29% compared to the prior quarter. The overall cost of total deposits (i.e. includes non-interest bearing checking accounts) in the current quarter remained the same at 0.19% as in the prior quarter. The table below summarizes the Company’s deposit mix over the dates indicated.

	Mar 31, 2015		% of total			Dec 31, 2014		% of total
Demand - non-interest bearing	$	1,112,282		35	%	$	1,048,874		34	%
Demand - interest bearing		623,370		20	%		607,359		20	%
Savings deposits		242,782		8	%		231,039		7	%
Money market accounts		711,903		23	%		716,956		23	%
Time deposits		459,035		14	%		487,812		16	%
Total deposits	$	3,149,372		100	%	$	3,092,040		100	%

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 $31,071 at March 31, 2015 compared to $27,022 at December 31, 2014.

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, 2015 we had $187,443 of correspondent bank deposits or federal funds purchased, compared to $151,992 at December 31, 2014.

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, 2015 and December 31, 2014, 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 bps). 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 bps). 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.

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 bps). 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 December 2004, Gulfstream Bancshares, Inc. (“GBI”) formed Gulfstream Bancshares Capital Trust I (“GBI Trust I”) for the purpose of issuing trust preferred securities. On December 1, 2004, 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 bps). 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 has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

In December 2006, GBI formed Gulfstream Bancshares Capital Trust II (“GBI Trust II”) for the purpose of issuing trust preferred securities. On December 28, 2006, 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 bps). 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 has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

Stockholders’ equity

Stockholders’ equity at March 31, 2015, was $463,065, or 11.9% of total assets, compared to $452,477, or 12.0% of total assets at December 31, 2014. The increase in stockholders’ equity was due to the following items:

$	452,477		Total stockholders’ equity at December 31, 2014
	9,148		Net income during the period
	(455	)	Dividends paid on common shares, $0.01 per common share
	1,014		Net increase in market value of securities available for sale, net of deferred taxes
	217		Stock options exercised, including tax benefit
	664		Employee equity based compensation
$	463,065		Total stockholders’ equity at March 31, 2015

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, 2015, 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, 2015 and December 31, 2014 for the Company and for the Company’s subsidiary bank, CenterState Bank of Florida, N.A., are presented in the tables below.

CenterState Banks, Inc. (the Company)	Actual					Capital Adequacy			Excess
	Amount		Ratio			Amount		Ratio	Amount
March 31, 2015
Total capital (to risk weighted assets)	$	403,902		15.8	%	$	204,746	>8.0%	$	199,156
Tier 1 capital (to risk weighted assets)		382,922		15.0	%		153,560	>6.0%		229,362
Common equity Tier 1 capital (to risk weighted assets)		355,422		13.9	%		115,170	>4.5%		240,252
Tier 1 capital (to average assets)		382,922		10.2	%		150,076	>4.0%		232,846

December 31, 2014
Total capital (to risk weighted assets)	$	384,162		15.1	%	$	202,946	>8.0%	$	181,216
Tier 1 capital (to risk weighted assets)		364,264		14.4	%		101,473	>4.0%		262,791
Tier 1 capital (to average assets)		364,264		10.1	%		144,051	>4.0%		220,213


CenterState Bank of Florida, N.A.	Actual					Well Capitalized			Excess
	Amount		Ratio			Amount		Ratio	Amount
March 31, 2015
Total capital (to risk weighted assets)	$	372,850		14.6	%	$	255,689	>10.0%	$	117,161
Tier 1 capital (to risk weighted assets)		351,878		13.8	%		204,551	>8.0%		147,327
Common equity Tier 1 capital (to risk weighted assets)		351,878		13.8	%		166,198	>6.5%		185,680
Tier 1 capital (to average assets)		351,878		9.4	%		187,287	>5.0%		164,591

December 31, 2014
Total capital (to risk weighted assets)	$	360,278		14.2	%	$	254,085	>10%	$	106,193
Tier 1 capital (to risk weighted assets)		340,389		13.4	%		152,451	>6%		187,938
Tier 1 capital (to average assets)		340,389		9.4	%		180,231	>5%		160,158

Effective January 1, 2015 new regulatory capital requirements established by the international banking framework commonly referred to as “Basel III” were implemented and are reflected in the March 31, 2015 capital levels and ratios in the table above. Management opted out of the AOCI treatment under the new requirements and, as such, unrealized security gains and losses will continue to be excluded from Bank Regulatory Capital.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2015 AND 2014

Overview

	3 months ended Mar 31, 2015			3 months ended Mar 31, 2014			increase (decrease)
Net interest income		$ 37,620			$ 28,193			$ 9,427
Provision for loan losses		1,642			(41)			1,683
Net interest income after loan loss provision		35,978			28,234			7,744
Correspondent banking and capital markets division		6,800			3,931			2,869
Indemnification Asset (“IA”) amortization		(4,350	)		(5,185	)		835
FDIC revenue		667			1,268			(601	)
All other non interest income		5,964			5,746			218
Total non interest income		9,081			5,760			3,321
Correspondent banking and capital markets division		5,595			4,378			1,217
Credit related expenses		(517	)		1,824			(2,341	)
All other non interest expense		25,525			20,696			4,829
Merger related expenses		---			2,347			(2,347	)
Branch closure and efficiency initiatives		---			3,158			(3,158	)
Total non interest expense		30,603			32,403			(1,800	)
Net income before provision for income taxes		14,456			1,591			12,865
Provision for income taxes		5,308			538			4,770
Net income		$ 9,148			$ 1,053			$ 8,095

The primary differences between the two quarters presented above relate to our June 1, 2014 acquisition of FSB, merger related expenses from our January 2014 acquisition of GSB and expenses related to our branch closure and efficiency initiatives implemented in 1Q14.

The increase in our net interest income relates primarily to the increase in our average interest earning assets as a result of the FSB acquisition and to a lesser extent the increase in interest accretion in our PCI loan portfolio. The increase in our “all other non interest expense,” which is basically the operating expenses of our commercial/retail banking segment, is also primarily due to the FSB acquisition less our cost saves from the 2014 branch closure and efficiency initiatives. Total net credit related expenses are negative during the current quarter due to net gains recognized on sales of OREO. These items along with others are discussed and analyzed below.

Net interest income/margin

Net interest income increased $9,427 or 33% to $37,620 during the three month period ended March 31, 2015 compared to $28,193 for the same period in 2014. The $9,427 increase was the result of a $9,703 increase in interest income and a $276 increase in interest expense.

Interest earning assets averaged $3,406,822 during the three month period ended March 31, 2015 as compared to $2,494,608 for the same period in 2014, an increase of $912,214, or 37%. The yield on average interest earning assets decreased 14bps to 4.70% (16bps to 4.75% tax equivalent basis) during the three month period ended March 31, 2015, compared to 4.84% (4.91% tax equivalent basis) for the same period in 2014. The combined effects of the $912,214 increase in average interest earning assets and the 14bps (16bps tax equivalent basis) decrease in yield on average interest earning assets resulted in the $9,703 ($9,723 tax equivalent basis) increase in interest income between the two periods.

Interest bearing liabilities averaged $2,265,656 during the three month period ended March 31, 2015 as compared to $1,748,146 for the same period in 2014, an increase of $517,510 or 30%. The cost of average interest bearing liabilities decreased 4bps to 0.33% during the three month period ended March 31, 2015, compared to 0.37% for the same period in 2014. The combined effects of the $517,510 increase in average interest bearing liabilities and the 4bps decrease in cost of average interest bearing liabilities resulted in the $276 increase 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, 2015 and 2014 on a tax equivalent basis.

	Three months ended March 31,
	2015								2014
	Average			Interest		Average			Average			Interest		Average
	Balance			inc / exp		rate			balance			inc / exp		rate
Loans (notes 1, 2, 8)	$	2,172,621		$	24,482		4.57	%	$	1,513,060		$	17,727		4.75	%
PCI loans (note 9)		271,135			9,930		14.85	%		251,587			8,231		13.27	%
Securities- taxable		688,027			4,282		2.52	%		492,766			3,478		2.86	%
Securities- tax exempt (note 8)		63,792			819		5.21	%		39,280			511		5.28	%
Fed funds sold and other (note 3)		211,247		396			0.76	%		197,915		239			0.49	%
Total interest earning assets		3,406,822			39,909		4.75	%		2,494,608			30,186		4.91	%

Allowance for loan losses		(20,980	)							(20,970	)
All other assets		468,645								396,123
Total assets	$	3,854,487							$	2,869,761
Interest bearing deposits (note 4)		2,034,864			1,447		0.29	%		1,653,806			1,337		0.33	%
Fed funds purchased		176,109		132			0.30	%		41,999		6			0.06	%
Other borrowings (note 5)		30,744		49			0.65	%		29,768		23			0.31	%
Corporate debenture (note 10)		23,939		237			4.02	%		22,573		223			4.01	%
Total interest bearing liabilities		2,265,656			1,865		0.33	%		1,748,146			1,589		0.37	%

Demand deposits		1,098,236								767,926
Other liabilities		32,373								30,389
Stockholders’ equity		458,222								323,300
Total liabilities and stockholders’ equity	$	3,854,487							$	2,869,761
Net interest spread (tax equivalent basis) (note 6)							4.42	%							4.54	%
Net interest income (tax equivalent basis)				$	38,044							$	28,597
Net interest margin (tax equivalent basis) (note 7)							4.53	%							4.65	%

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 ($34) and $43 for the three month periods ended March 31, 2015 and 2014.

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.

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 ($235) and ($155) for the three month periods ended March 31, 2015 and 2014.

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 $44 for the three month periods ended March 31, 2015 and 2014.

Provision for loan losses

The provision for loan losses increased $1,683 to $1,642 during the three month period ending March 31, 2015 compared to a provision recovery of ($41) for the comparable period in 2014. 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. The increase in our loan loss provision between the comparable periods is primarily due to the increase in our loan balances outstanding, adjusting our allowance on non PCI loans acquired from GSB and initiating an allowance on non PCI loans acquired from FSB. 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, 2015 was $9,081 compared to $5,760 for the comparable period in 2014. This decrease was the result of the following components listed in the table below.

	Mar 31,			Mar 31,			$ increase			% increase
Three month period ending:	2015			2014			(decrease)			(decrease)
Income from correspondent banking capital markets division (1)	$	5,694		$	3,148		$	2,546			80.9		%
Other correspondent banking related revenue (2)		1,106			783			323			41.3		%
Wealth management related revenue		970			1,217			(247	)		(20.3	)	%
Service charges on deposit accounts		2,261			2,262			(1	)		(0.0	)	%
Debit, prepaid, ATM and merchant card related fees		1,701			1,506			195			12.9		%
BOLI income		593			352			241			68.5		%
Other service charges and fees		439			409			30			7.3		%
Subtotal	$	12,764		$	9,677		$	3,087			31.9		%
FDIC indemnification asset-amortization(see explanation below)		(4,350	)		(5,185	)		835			(16.1	)	%
FDIC indemnification income		667			1,268			(601	)		(47.4	)	%
Total non-interest income	$	9,081		$	5,760		$	3,321			57.7		%

note 1:

Includes gross commissions earned on bond sales, fees from hedging services, loan brokering fees and related consulting fees. The fee income in this category is based on sales volume in any particular period and is therefore volatile between comparable periods.

note 2:

Includes fees from safe-keeping activities, bond accounting services, asset/liability consulting services, international wires, clearing and corporate checking account services and other correspondent banking related revenue and fees. The fees included in this category are less volatile than those described above in note 1.

“Debit, prepaid, ATM and merchant card related fees” and “other service charges and fees” increased between the two periods presented above primarily due to our June 1, 2014 acquisition of FSB. We also purchased $25 million of additional Bank Owned Life Insurance (“BOLI”) in September 2014.

When the estimate of future losses in our FDIC 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 from the FDIC for reimbursement of a percentage, as set forth in each of the individual agreements, 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 this related covered percentage. 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, 2015, the total IA on our Condensed Consolidated Balance Sheet was $41,594. Of this amount, we expect to receive reimbursements from the FDIC of approximately $14,904 related to future estimated losses, and expect to write-off approximately $26,690 for previously estimated losses that are no longer expected. The $26,690 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, 2015, the $26,690 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.


Period		Year
2Q15	$ 3,943	2017	$ 2,998
3Q15	3,223	2018	2,217
4Q15	2,595	2019	1,869
Year 2016	8,017	2020 thru 2022	1,828
		Total	$ 26,690

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 the percentage of the loss that is covered by the FDIC 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 the percentage of the impairment expense that is covered by the FDIC is recorded as FDIC pool impairment indemnification income and included in non-interest income.

Income from correspondent banking and capital markets division means commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and related consulting fees. This line item is volatile and will vary period to period based on sales volume.

Other correspondent banking related revenue means fees generated from safe-keeping activities, bond accounting services, asset/liability consulting fees, international wires, clearing and corporate checking account services and other correspondent banking related services.

Non-interest expense

Non-interest expense for the three months ended March 31, 2015 decreased $1,800, or 5.6%, to $30,603, compared to $32,403 for the same period in 2014. Components of our non-interest expenses are listed in the table below.

	Mar 31,			Mar 31,			$ increase			% increase
Three month period ending:	2015			2014			(decrease)			(decrease)
Salaries and wages	$	14,535		$	11,873		$	2,662			22.4		%
Incentive/bonus compensation		1,200			1,081			119			11.0		%
Stock based compensation		830			344			486			141.3		%
Employer 401K matching contributions		435			360			75			20.8		%
Deferred compensation expense		161			107			54			50.0		%
Health insurance and other employee benefits		1,330			987			343			34.8		%
Payroll taxes		1,403			1,120			283			25.3		%
Other employee related expenses		238			258			(20	)		(7.8	)	%
Incremental direct cost of loan origination		(552	)		(449	)		(103	)		22.9		%
Total salaries, wages and employee benefits		19,580			15,681			3,899			24.9		%

Gain on sale of OREO		(547	)		(30	)		(517	)		1,723.3		%
(Gain) loss on sale of FDIC covered OREO		(981	)		107			(1,088	)		(1,016.8	)	%
Valuation write down of OREO		61			70			(9	)		(12.9	)	%
Valuation write down of FDIC covered OREO		328			950			(622	)		(65.5	)	%
Loss on repossessed assets other than real estate		(1	)		(2	)		1			(50.0	)	%
Foreclosure and repossession related expenses		537			485			52			10.7		%
Foreclosure and repo expense, FDIC (note 1)		86			244			(158	)		(64.8	)	%
Total credit related expenses		(517	)		1,824			(2,341	)		(128.3	)	%

Occupancy expense		2,445			1,960			485			24.7		%
Depreciation of premises and equipment		1,433			1,478			(45	)		(3.0	)	%
Supplies, stationary and printing		365			227			138			60.8		%
Marketing expenses		538			620			(82	)		(13.2	)	%
Data processing expense		1,330			1,039			291			28.0		%
Legal, auditing and other professional fees		735			775			(40	)		(5.2	)	%
Bank regulatory related expenses		910			631			279			44.2		%
Postage and delivery		368			268			100			37.3		%
Debit, prepaid, ATM and merchant card related expenses		433			473			(40	)		(8.5	)	%
CDI and Trust intangible amortization		666			377			289			76.7		%
Internet and telephone banking		534			378			156			41.3		%
Operational write-offs and losses		260			36			224			622.2		%
Correspondent accounts and Federal Reserve charges		168			135			33			24.4		%
Conferences/Seminars/Education/Training		117			100			17			17.0		%
Director fees		179			115			64			55.7		%
Travel expenses		84			65			19			29.2		%
Other expenses		931			716			215			30.0		%
Subtotal		30,559			26,898			3,661			13.6		%
Impairment of bank property held for sale, net		641			-			641		---			%
Lease termination recovery		(597	)		-			(597	)	---			%
Merger and acquisition related expenses		-			2,347			(2,347	)		(100.0	)	%
Charges related to cost reduction efficiencies		-			3,158			(3,158	)		(100.0	)	%
Total non-interest expense	$	30,603		$	32,403		$	(1,800	)		(5.6	)	%

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.

Excluding net impairments on bank property held for sale, branch lease termination recovery, merger related expenses and charges related to our branch closure and efficiency initiatives, our non interest expenses increased $3,661, or 13.6% to $30,559 during the current quarter compared to $26,898 during the same quarter last year. The overall primary reason for the increase relates to our June 2014 acquisition of FSB.

We realized net gains on the sale of OREO of $1,528 during the current quarter, which net against other credit related expenses, as listed in the table above, resulting in $517 net negative credit related expense for the current quarter

Provision for income taxes

We recognized an income tax provision for the three months ended March 31, 2015 of $5,308 on pre-tax income of $14,456 (an effective tax rate of 36.7%) compared to an income tax provision of $538 on pre-tax income of $1,591 (an effective tax rate of 33.8%) for the comparable quarter in 2014.

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.

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, 2014 for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 2014. There have been no changes in the assumptions used in monitoring interest rate risk as of March 31, 2015. 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.

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, 2014 annual report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


				Total
				Number of	Maximum Number
				Shares	of Shares that
		Total		Purchased as	may yet be
		Number of	Average	part of Publicly	Purchased Under
Period		Shares	Price paid	Announced Plans	the Plans or
Beginning	Ending	Purchased	per Share	or Programs	Programs
January 1, 2015	January 31, 2015	0	---	0	2,000,000
February 1, 2015	February 28, 2015	2,451 (1)	$11.23	0	2,000,000
March 1, 2015	March 1, 2015	0	---	0	2,000,000
Total		2,451	$11.23	0	2,000,000

(1)

We did not repurchase any shares of our common stock during the first quarter of 2015 pursuant to our stock repurchase plan currently in place. We repurchased 2,451 shares of our common stock from our employees during February 2015 for settlement of certain tax withholding obligations related to certain equity based compensation awards.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

[Removed and Reserved]

Item 5.

Other Information

None

Item 6.

Exhibits

Exhibit 31.1

The Chairman, President and Chief Executive Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2

The Chief Financial Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1

The Chairman, President and Chief Executive Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2

The Chief Financial Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002

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

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 4, 2015	By:	/s/ Ernest S. Pinner
		Ernest S. Pinner
		Chairman, President and Chief Executive Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Bad

Date: May 4, 2015

/s/ James J. Antal

James J. Antal

Senior Vice President

and Chief Financial Officer