CenterState Bank Corp - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - CenterState Bank Corp	d245885d8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

October 24, 2011

CenterState Banks, Inc. Announces

Third Quarter 2011 Operating Results

(All dollar amounts are in thousands, except per share information)

DAVENPORT, FL. – October 24, 2011 – CenterState Banks, Inc. (NASDAQ: CSFL) reported a net loss for the third quarter 2011 of ($1,992) or ($0.07) per share, which included provision for loan loss expense of $5,005 and other credit related cost of $2,966.

The Company’s credit metrics improved during the current quarter, some of which are listed below.


	9/30/11			6/30/11
Total NPAs	$	75,985		$	78,029
NPAs as percentage of total assets		3.53	%		3.62	%
Total net charge-offs	$	6,231		$	12,472
Total net charge-offs *	$	6,524		$	12,179
Net charge-offs as percentage of average loans for the period on an annualized basis *		2.64	%		4.72	%
NPLs as percentage of total loans *		6.27	%		6.50	%
NPAs as percentage of total loans and OREO plus other repossessed assets *		7.56	%		7.60	%
Loans past due 30-89 days and still accruing interest as a percentage of total loans *		0.83	%		0.99	%

*	Excludes loans and OREO covered by FDIC loss share agreements.

During the current quarter, non performing asset (“NPA”) inflows were approximately $7,220 and the outflows were approximately $9,264. Outflows consist primarily of net charge offs, loan sales, OREO (“repossessed real estate”) sales, and OREO valuation write downs. Inflows consist primarily of additions of new nonaccrual loans net of any prior nonaccrual loans returning to accrual status and also net of any principal pay-downs or pay-offs. The table below summarizes the approximate NPA inflows and outflows during the quarters presented.


	3Q11			2Q11			1Q11			4Q10			3Q10			2Q10			1Q10			4Q09
Inflows	$	7,220		$	14,828		$	16,927		$	20,560		$	28,871		$	9,945		$	11,254		$	20,708
Outflows		(9,264	)		(19,133	)		(13,117	)		(10,863	)		(23,887	)		(5,642	)		(5,166	)		(6,575	)

net change (decr)/incr	($	2,044	)	($	4,305	)	$	3,810		$	9,697		$	4,984		$	4,303		$	6,088		$	14,133

NPA balance qrt end	$	75,985		$	78,029		$	82,334		$	78,524		$	68,827		$	63,843		$	59,540		$	53,452

Net interest margin (“NIM”) contracted by 4 basis points (“bps”) to 3.69% in 3Q11 compared to 3.73% reported in 2Q11. The cost of interest bearing liabilities decreased 5 bps, about what was expected. There were significant declines in yields and interest income on taxable securities and federal funds sold due to the current low interest rate environment and recent actions by the Fed. These decreases were partially offset by increased yields on loans covered by FDIC loss share agreements. These loans are accounted for pursuant to SOP 03-3 (ASC Topic 310-30). During the current quarter, management estimated that future expected losses appear to be less than originally estimated and as such future expected cash flows are now estimated to be higher than previously estimated. Higher future expected cash flows are accreted into interest income over the expected lives of the loans increasing their yields from an average of 5.51% in 2Q11 to 6.21% in 3Q11. Management reviews actual and expected cash flows in this portfolio on a quarterly basis and makes judgments with regard to actual versus expected losses, actual versus expected cash flows, potential impairments and potential adjustments to future accretable yields.

During September, the Company completed the integration of the three failed institutions acquired from the FDIC during the third quarter of 2010 into its lead bank. The first of the three was converted into the lead bank’s core system during June, the second was converted in July and the third in September. As discussed in prior quarters, the FDIC acquired banks as well as other activities, have elevated the Company’s operating expenses (excluding correspondent banking division expenses and credit cost), which have increased each quarter during a six quarter period, much of which, but not all, is temporary in nature. The Company reported a decrease in these expenses in 2Q11 versus 1Q11 and a continued decrease in 3Q11 compared to 2Q11. The Company expects to continue to realize increased efficiencies in the fourth quarter of this year and into 2012. Refer to “all other non interest expenses” in the table below.

The Company previously announced its pending acquisition of Federal Trust Bank in Sanford, Florida. The transaction will result in the acquisition of approximately $200 million of deposits and approximately $165 of performing loans. The Company is purchasing the performing loans for 73% of their unpaid outstanding legal balance, and will have a one year period to put back any loan that becomes 30 days past due, or adversely classified. The Company is not paying a premium for the assumption of the deposits. Branch locations will be purchased based on a current real estate appraisal. The Company expects to acquire five of the existing eleven branches. The Company expects to recognize a substantial bargain purchase gain when the transaction closes, which is expected to occur in November 2011.

Capital levels continue to remain strong, with Tier 1 Leverage Capital and Tangible Common Equity ratios of approximately 10.3% and 9.8%, respectively.

Quarterly condensed consolidated income statements (unaudited) are shown below for the periods indicated.


Quarterly Condensed Consolidated Statements of Operations (unaudited)
For the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Interest income	$	19,837		$	20,705		$	20,377		$	19,473		$	19,106
Interest expense		2,881			3,166			3,403			3,866			4,343

Net interest income		16,956			17,539			16,974			15,607			14,763
Provision for loan losses		(5,005	)		(11,645	)		(11,276	)		(5,056	)		(16,448	)

Net interest income (loss) after loan loss provision		11,951			5,894			5,698			10,551			(1,685	)
Income from correspondent banking and bond sales division		7,999			5,759			4,470			7,140			11,828
Gain on sale of securities available for sale		205			3,120			9			3,808			151
Bargain purchase gains on bank acquisitions		—			—			11,129			—			1,377
All other non interest income		4,041			4,339			5,298			4,231			3,766
Credit related expenses		(2,966	)		(2,862	)		(3,561	)		(1,617	)		(2,400	)
Acquisition related expenses		(579	)		(469	)		(401	)		—			(769	)
Correspondent banking division expenses		(6,806	)		(5,732	)		(4,978	)		(6,689	)		(9,249	)
All other non interest expense		(16,436	)		(17,466	)		(17,709	)		(17,166	)		(15,112	)

(Loss) income before income tax		(2,591	)		(7,417	)		(45	)		258			(12,093	)
Income tax benefit		599			3,071			210			178			4,422

NET LOSS (INCOME)	$	(1,992	)	$	(4,346	)	$	165		$	436		$	(7,671	)

Net (loss) income available to common shareholders	$	(1,992	)	$	(4,346	)	$	165		$	436		$	(7,671	)

(Loss) earnings per share (basic)	$	(0.07	)	$	(0.14	)	$	0.01		$	0.01		$	(0.27	)
(Loss) earnings per share (diluted)	$	(0.07	)	$	(0.14	)	$	0.01		$	0.01		$	(0.27	)
Average common shares outstanding (basic)		30,039,329			30,037,556			30,020,035			30,004,761			28,789,008
Average common shares outstanding (diluted)		30,039,329			30,037,556			30,047,618			30,067,639			28,789,008
Common shares outstanding at period end		30,039,332			30,039,092			30,035,292			30,004,761			30,004,761
PTPP earnings (note 2)	$	5,754		$	4,439		$	4,055		$	3,123		$	5,996
PTPP earnings per share (diluted) (note 1)	$	0.19		$	0.15		$	0.13		$	0.10		$	0.21

Note 1:

PTPP earnings per share means, PTPP as defined in note 2 below divided by the average number of diluted common shares outstanding.

Note 2:

Pre-tax pre-provision earnings (“PTPP”) is a non-GAAP measure that means income (loss) before income tax excluding the provision for loan losses and gain on sale of available for sale (“AFS”) securities. In addition the Company also excluded other credit related costs including losses on repossessed real estate and other assets, and other foreclosure related expenses. It also excludes non recurring items as listed in the table below.

		$1,148			$1,148			$1,148			$1,148			$1,148
Quarterly condensed PTPP reconciliation (unaudited)
For the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
(Loss) income before income tax	$	(2,591	)	$	(7,417	)	$	(45	)	$	258		$	(12,093	)
exclude provision for loan losses		5,005			11,645			11,276			5,056			16,448
exclude other credit related costs		2,966			2,862			3,561			1,617			2,400
exclude gain on sale of AFS securities		(205	)		(3,120	)		(9	)		(3,808	)		(151	)
exclude non recurring items:
bargain purchase gain		—			—			(11,129	)		—			(1,377	)
Acquisition related expenses		579			469			401			—			769

PTPP earnings	$	5,754		$	4,439		$	4,055		$	3,123		$	5,996

The Company’s condensed quarterly correspondent banking and bond sales segment is presented below.


Quarterly Condensed Segment Information - Correspondent banking and bond sales division (unaudited)
For the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Net interest income	$	1,082		$	1,113		$	662		$	974		$	1,148
Total non interest income (note 3)		8,574			6,305			4,984			7,576			12,358
Total non interest expense (note 4)		(6,806	)		(5,732	)		(4,978	)		(6,689	)		(9,249	)
Income tax provision		(1,073	)		(634	)		(251	)		(700	)		(1,564	)

Net income	$	1,777		$	1,052		$	417		$	1,161		$	2,693

Contribution to diluted earnings per share	$	0.06		$	0.04		$	0.01		$	0.04		$	0.09

Note 3:

The primary component in this line item is gross commissions earned on bond sales (“income from correspondent banking and bond sales division”) which was $7,999, $5,759, $4,470, $7,140 and $11,828 for 3Q11, 2Q11, 1Q11, 4Q10 and 3Q10, respectively. The remaining non interest income items in this category include fees from safe-keeping activities, bond accounting services, asset/liability consulting related activities, international wires, clearing and corporate checking account services, and other correspondent banking related revenue and fees.

Note 4:

The majority of these expenses are variable in nature and are a derivative of the income from correspondent banking and bond sales division.

Net Interest Margin (“NIM”)

As discussed above, the NIM contracted by 4 bps between sequential quarters, primarily due to lower yields on taxable securities, federal funds sold and other investments. This was partially offset by higher yields on loans covered by FDIC loss share agreements accounted for pursuant to ASC Topic 310-30 (SOP 03-3). Cost of interest bearing deposits, as well as total interest bearing liabilities, both decreased by 5 bps between sequential quarters. The tables below summarizes yields and costs by various interest earning asset and interest bearing liability account types for the current quarter, the previous calendar quarter and the same quarter last year. The second table below also lists selected financial ratios for the last five quarters.


Yield and Cost table (unaudited)
	3Q11							2Q11							3Q10
	average balance		interest inc/exp		avg rate			average balance		interest inc/exp		avg rate			average balance		interest inc/exp		avg rate
Loans (TEY)* (note 1)	$	991,217	$	13,549		5.42	%	$	1,032,592	$	13,885		5.39	%	$	918,553	$	12,786		5.52	%
Covered loans (note 2)		176,275		2,759		6.21	%		184,413		2,532		5.51	%		127,641		1,645		5.11	%
Taxable securities		422,641		3,132		2.94	%		513,132		3,945		3.08	%		588,154		4,203		2.84	%
Tax -exempt securities (TEY)		36,229		521		5.71	%		35,132		500		5.71	%		35,969		531		5.86	%
Fed funds sold and other		230,716		188		0.32	%		153,840		165		0.43	%		125,572		127		0.40	%

Tot. interest earning assets(TEY)	$	1,857,078	$	20,149		4.30	%	$	1,919,109	$	21,027		4.39	%	$	1,795,889	$	19,292		4.26	%


Interest bearing deposits	$	1,353,164	$	2,731		0.80	%	$	1,399,653	$	2,982		0.85	%	$	1,292,668	$	4,085		1.25	%
Fed funds purchased		67,540		9		0.05	%		82,118		12		0.06	%		90,368		23		0.10	%
Other borrowings		18,527		37		0.79	%		23,613		69		1.17	%		35,059		123		1.39	%
Corporate debentures		12,500		104		3.30	%		12,500		103		3.31	%		12,500		112		3.55	%

Total interest bearing liabilities	$	1,451,731	$	2,881		0.79	%	$	1,517,884	$	3,166		0.84	%	$	1,430,595	$	4,343		1.20	%


Net Interest Spread (TEY)						3.52	%						3.55	%						3.06	%

Net Interest Margin (TEY)						3.69	%						3.73	%						3.30	%

*TEY	= tax equivalent yield

Note 1:

loans not covered by FDIC loss share agreements

Note 2:

loans covered by FDIC loss share agreements, and accounted for pursuant to ASC Topic 310-30.


Selected financial ratios (unaudited)
As of or for the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Return on average assets (annualized)		(0.37	)%		(0.80	)%		0.03	%		0.08	%		(1.49	)%
Return on average equity (annualized)		(3.17	)%		(6.87	)%		0.27	%		0.68	%		(11.93	)%
Yield on average loans (note 1)		5.54	%		5.41	%		5.48	%		5.20	%		5.47	%
Yield on average investments (note 1)		2.21	%		2.63	%		2.50	%		2.55	%		2.57	%
Yield on average interest earning assets		4.24	%		4.33	%		4.36	%		4.14	%		4.22	%
Yield on average interest earning assets (note 1)		4.30	%		4.39	%		4.41	%		4.18	%		4.26	%
Cost of average interest bearing deposits		0.80	%		0.85	%		0.91	%		1.06	%		1.25	%
Cost of average borrowings		0.60	%		0.62	%		0.69	%		0.80	%		0.74	%
Cost of average interest bearing liabilities (note 2)		0.79	%		0.84	%		0.90	%		1.04	%		1.20	%
Net interest margin (note 1)		3.69	%		3.73	%		3.68	%		3.36	%		3.30	%
Loan / deposit ratio		64.9	%		67.6	%		67.2	%		67.0	%		65.6	%
Stockholders equity (to total assets)		11.6	%		11.6	%		11.4	%		12.3	%		12.1	%
Common tangible equity (to total tangible assets)		9.8	%		9.8	%		9.6	%		10.4	%		10.3	%
Tier 1 capital (to average assets)		10.3	%		10.1	%		10.0	%		10.3	%		10.9	%
Efficiency ratio (note 3)		90	%		94	%		98	%		94	%		88	%
Common equity per common share	$	8.32		$	8.33		$	8.42		$	8.41		$	8.57
Common tangible equity per common share	$	6.92		$	6.92		$	7.00		$	7.01		$	7.16

note 1:

Tax equivalent basis.

note 2:

Does not include non interest bearing checking accounts.

note 3:

Efficiency ratio is equal to (non-interest expense less nonrecurring items) divided by (net interest income plus non-interest income less nonrecurring items). Gain on the sale of available for sale securities is considered a nonrecurring item for the purposes of this ratio in the above table.

Loan portfolio mix and covered loans

Approximately 14.7% of the Company’s loans, or $171,193, is covered by FDIC loss sharing agreements related to the acquisition of three failed financial institutions during the third quarter of 2010. Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Company for 80% of losses with respect to the covered loans beginning with the first dollar of loss incurred, subject to the terms of the agreements. The Company will reimburse the FDIC for its share of recoveries with respect to the covered loans. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and the Company reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provides for FDIC loss sharing for five years and Company reimbursement to the FDIC for a total of eight years for recoveries. All of the covered loans acquired are accounted for pursuant to ASC Topic 310-30.

In addition, approximately 8.3% of the Company’s loans, or $97,048, are subject to a two year put back option, commencing January 20, 2011, with TD Bank, N.A., so that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank.

Approximately 77% of the Company’s loans, or $894,677, is not covered by FDIC loss sharing agreements or subject to a put back option with TD Bank, N.A. The table below summarizes the Company’s loan mix over the most recent five quarter ends.


Loan mix (unaudited)
At quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Loans not covered by FDIC loss share agreements
Real estate loans
Residential	$	259,829		$	261,773		$	259,327		$	255,571		$	252,867
Commercial		466,860			484,897			500,512			410,162			414,383
Construction, development and land loans		95,894			101,606			107,179			109,380			107,028

Total real estate loans		822,583			848,276			867,018			775,113			774,278
Commercial loans		117,900			113,030			116,424			100,906			83,715
Consumer and other loans, (note 1)		1,633			2,287			2,599			3,264			4,414
Consumer and other loans		50,283			51,287			53,990			52,115			57,445

Total loans before unearned fees and costs		992,399			1,014,880			1,040,031			931,398			919,852
Unearned fees and costs		(674	)		(665	)		(720	)		(728	)		(716	)

Total loans not covered by FDIC loss share agreements		991,725			1,014,215			1,039,311			930,670			919,136

Loans covered by FDIC loss share agreements
Real estate loans
Residential		102,852			105,249			106,655			110,586			118,690
Commercial		56,839			58,867			65,975			68,286			73,318
Construction, development and land loans (note 2)		8,686			11,771			12,217			13,653			11,280

Total real estate loans		168,377			175,887			184,847			192,525			203,288
Commercial loans		2,816			4,095			4,861			5,760			6,394

Total loans covered by FDIC loss share agreements		171,193			179,982			189,708			198,285			209,682


Total Loans	$	1,162,918		$	1,194,197		$	1,229,019		$	1,128,955		$	1,128,818

Note 1:

Consumer loans acquired pursuant to three FDIC assisted transactions of failed financial institutions during the third quarter of 2010. These loans are not covered by an FDIC loss share agreement and are being accounted for pursuant to ASC Topic 310-30.

Note 2:

Single family residential lot loans were reclassified from residential real estate to construction, development and land loan category during the fourth quarter of 2010.

Credit quality and allowance for loan losses

During the current quarter, excluding loans covered by FDIC loss share agreements, the Company recorded a charge of $4,985 to loan loss provision (expense) and charged-off (net of recoveries) $6,524 or 0.66% of average outstanding loans during the quarter (2.64% of average loans on an annualized basis). With regard to loans covered by FDIC loss share agreements, the Company recorded a charge of $20 to loan loss provision (expense) and recorded a recovery of $293 of a previous charge-off. See the table “Allowance for loan losses” on the following page for additional information.

The allowance for loan losses (“ALLL”) was $26,192 at September 30, 2011 compared to $27,418 at June 30, 2011, a decrease of $1,226. This decrease is the result of a $8 decrease in general loan loss allowance, a $1,531 decrease in specific loan loss allowance related to impaired loans and a $313 increase in loan loss allowance related to certain loan pools of FDIC covered loans accounted for pursuant to ASC Topic 310-30 (SOP03-3). The changes in the Company’s ALLL components between September 30, 2011 and June 30, 2011 are summarized in the table below.


	Sept 30, 2011							June 30, 2011							increase (decrease)
	loan balance		ALLL balance		%			loan balance		ALLL balance		%			loan balance			ALLL balance
Impaired loans	$	74,680	$	739		0.99	%	$	73,307	$	2,270		3.10	%	$	1,373		($	1,531	)	-211bps
Non impaired loans		819,997		25,140		3.07	%		836,136		25,148		3.01	%		(16,139	)		(8	)	6 bps
TD loans (note 1)		97,048		—					104,772		—					(7,724	)		—

Loans (note 2)		991,725		25,879		2.61	%		1,014,215		27,418		2.70	%		(22,490	)		(1,539	)	-9 bps
Covered loans (note 3)		171,193		313					179,982		—					(8,789	)		313

Total loans	$	1,162,918	$	26,192		2.25	%	$	1,194,197	$	27,418		2.30	%	($	31,279	)	($	1,226	)	-5 bps

Note 1:

Performing loans purchased from TD Bank subject to a two year put back option commencing on January 20, 2011, such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loans to TD Bank.

Note 2:

Total loans not covered by FDIC loss share agreements.

Note 3:

Loans covered by FDIC loss share agreements. Eighty percent of any losses in this portfolio will be reimbursed by the FDIC and recognized as FDIC Indemnification income and included in non interest income within the Company’s condensed consolidated statement of operations.

Although the general loan loss allowance (non impaired loans) decreased by $8, due to a decrease in overall non impaired loan balance, the allowance as a percentage of non impaired loan balance outstanding increased by 6 bps, from 3.01% to 3.07%, which is a reflection of changes in historical charge off rates, changes in current environmental factors and changes in the loan portfolio mix. Currently, there is no general loan loss allowance associated with the performing loans purchased from TD Bank for the reasons described in note 1 above.

The specific loan loss allowance (impaired loans) is the aggregate of the results of individual analyses prepared for each one of the impaired loans not covered by an FDIC loss sharing agreement on a loan by loan basis. The Company recorded partial charge offs in lieu of specific allowance for a number of the impaired loans during the current quarter, which is the primary reason for the decrease in specific allowance during the current quarter, and for the appearance of low specific reserves on impaired loans overall. The Company’s impaired loans have been written down by $17,425 to $74,680 ($73,941 when the $739 specific allowance is considered) from their legal unpaid principal balance outstanding of $92,105. As such, in the aggregate, our total impaired loans have been written down to approximately 80% of their legal unpaid principal balance.

Any losses in loans covered by FDIC loss share agreements, as described in note 3 above, are reimbursable from the FDIC to the extent of 80% of any losses. These loans are being accounted for pursuant to ASC Topic 310-30. Loan pools in this portfolio are evaluated for impairment each quarter. If a pool is impaired, an allowance for potential loan loss is recorded.

Management believes the Company’s allowance for loan losses was adequate at September 30, 2011. However, management recognizes that many factors can adversely impact various segments of the Company’s market and customers, and therefore there is no assurance as to the amount of losses or probable losses which may develop in the future. The table below summarizes the changes in allowance for loan losses during the previous five quarters.


Allowance for loan losses (unaudited)
as of or for the quarter ending	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Loans not covered by FDIC loss share agreements
Allowance at beginning of period	$	27,418		$	28,245		$	26,267		$	28,012		$	24,191
Charge-offs		(7,186	)		(12,303	)		(9,458	)		(6,912	)		(12,704	)
Recoveries		662			124			160			111			77

Net charge-offs		(6,524	)		(12,179	)		(9,298	)		(6,801	)		(12,627	)
Provision for loan losses		4,985			11,352			11,276			5,056			16,448

Allowance at end of period for loans not covered by FDIC loss share agreements	$	25,879		$	27,418		$	28,245		$	26,267		$	28,012


Loans covered by FDIC loss share agreements
Allowance at beginning of period	$	—		$	—		$	—		$	—		$	—
Charge-offs		—			(293	)		—			—			—
Recoveries		293			—			—			—			—

Net charge-offs		293			(293	)		—			—			—
Provision for loan losses		20			293			—			—			—

Allowance at end of period for loans covered by FDIC loss share agreements	$	313		$	—		$	—		$	—		$	—


Total allowance at end of period	$	26,192		$	27,418		$	28,245		$	26,267		$	28,012

The $6,524 net charge-off recorded on loans not covered by FDIC loss share agreements during the current period related to the following types of loans:


net charge-offs during the quarter ended September 30, 2011
(unaudited)
Residential real estate loans	$	997
Commercial real estate loans		3,053
Construction, development, land loans		1,936
Commercial non real estate loans		223
Consumer and other loans		315

Total net charge-offs	$	6,524

The Company defines non performing loans as non accrual loans plus loans past due 90 days or more and still accruing interest. Non performing loans do not include loans covered by FDIC loss share agreements, which are accounted for pursuant to ASC Topic 310-30. Non performing loans as a percentage of total loans not covered by FDIC loss share agreements were 6.27% at September 30, 2011 compared to 6.50% at June 30, 2011.

Non performing assets (which the Company defines 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), excluding OREO covered by FDIC loss share agreements; and (b) other repossessed assets that are not real estate, and are not covered by FDIC loss share agreements), were $75,985 at September 30, 2011, compared to $78,029 at June 30, 2011. Non performing assets as a percentage of total assets was 3.53% at September 30, 2011 compared to 3.62% at June 30, 2011. Non performing assets as a percentage of loans plus OREO and other repossessed assets, excluding loans and OREO covered by FDIC loss share agreements, was 7.56% at September 30, 2011 compared to 7.60% at June 30, 2011.

The table below summarizes selected credit quality data for the periods indicated.


Selected credit quality ratios (unaudited)
As of or for the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Non accrual loans (note 1)	$	61,990		$	65,658		$	71,631		$	62,553		$	55,921
Past due loans 90 days or more and still accruing interest (note 1)		207			301			—			3,200			478

Total non performing loans (“NPLs”) (note 1)		62,197			65,959			71,631			65,753			56,399
Other real estate owned (OREO) (note 1)		12,061			11,284			10,222			12,239			11,861
Repossessed assets other than real estate (note 1)		1,727			786			481			532			567

Total non performing assets (“NPAs”) (note 1)	$	75,985		$	78,029		$	82,334		$	78,524		$	68,827
Non performing loans as percentage of total loans not covered by FDIC loss share agreements		6.27	%		6.50	%		6.89	%		7.07	%		6.14	%
Non performing assets as percentage of total assets		3.53	%		3.62	%		3.70	%		3.81	%		3.24	%
Non performing assets as percentage of loans and OREO plus other repossessed assets (note 1)		7.56	%		7.60	%		7.84	%		8.32	%		7.39	%
Net charge-offs (recoveries)	$	6,231		$	12,472		$	9,298		$	6,801		$	12,627
Net charge-offs (recoveries) (note 1)	$	6,524		$	12,179		$	9,298		$	6,801		$	12,627
Net charge-offs as a percentage of average loans for the period (note 1)		0.66	%		1.18	%		0.91	%		0.72	%		1.37	%
Net charge-offs as a percentage of average loans for the period on an annualized basis (note 1)		2.64	%		4.72	%		3.64	%		2.85	%		5.48	%
Loans past due 30 thru 89 days and accruing interest as a percentage of total loans (note 1)		0.83	%		0.99	%		1.66	%		1.96	%		1.50	%
Allowance for loan losses as percentage of NPLs (note 1)		42	%		42	%		39	%		40	%		50	%

Trouble debt restructure (“TDRs”) (note 2)	$	16,243		$	18,603		$	21,176		$	22,322		$	23,428
Impaired loans that were not TDRs		58,437			54,704			62,626			64,655			57,666

Total impaired loans		74,680			73,307			83,802			86,977			81,094
Loans acquired pursuant to TD transaction (note 3)		97,048			104,772			114,737			—			—
All other non impaired loans		819,997			836,136			840,772			843,693			838,042

Total loans not covered by FDIC loss share agreements		991,725			1,014,215			1,039,311			930,670			919,136
Total loans covered by FDIC loss share agreements		171,193			179,982			189,708			198,285			209,682

Total loans	$	1,162,918		$	1,194,197		$	1,229,019		$	1,128,955		$	1,128,818


Allowance for loan losses for loans not covered by FDIC loss share agreements
Specific loan loss allowance- impaired loans	$	739		$	2,270		$	4,492		$	3,194		$	5,225
General loan loss allowance- TD transaction		—			—			—			—			—
General loan loss allowance- all other non impaired		25,140			25,148			23,753			23,073			22,787

Total allowance for loan losses	$	25,879		$	27,418		$	28,245		$	26,267		$	28,012

Allowance for loan loss percentage of period end loans:
Impaired loans (note 1)		0.99	%		3.10	%		5.36	%		3.67	%		6.44	%
Loans acquired pursuant to TD transaction (note 3)		—			—			—			—			—
All other non impaired loans (note 1)		3.07	%		3.01	%		2.83	%		2.73	%		2.72	%

Total loans (note 1)		2.61	%		2.70	%		2.72	%		2.82	%		3.05	%

Note 1:

Excludes loans, OREO and other repossessed assets covered by FDIC loss share agreements.

Note 2:

We have approximately $16,243 of TDRs. Of this amount $7,131 are performing pursuant to their modified terms, and $9,112 are not performing and have been placed on non accrual status and included in our non performing loans (“NPLs”). Current accounting standards require TDRs to be included in our impaired loans, whether they are performing or not performing. Only non performing TDRs are included in our NPLs.

Note 3:

Performing loans purchased from TD Bank, N.A. during the first quarter of 2011. The performing loans were selected by CenterState and are subject to a two year put back option. If any loan in this category becomes past due 30 days or is adversely classified pursuant to bank regulatory guidelines, CenterState has the option to put it back to TD Bank, N.A. anytime during a two year period beginning as of the January 20, 2011 purchase date. The Company has not allocated any loan loss allowance to this group of loans.

As shown in the table above, the largest component of non performing assets is non accrual loans. As of September 30, 2011 the Company had reported a total of 302 non accrual loans with an aggregate book value of $61,990 compared to June 30, 2011 when 313 non accrual loans with an aggregate book value of $65,658 was reported. This is reflective of the economy in general and specifically the significantly devalued real estate market in Florida. Non accrual loans at September 30, 2011 are further delineated by collateral category and number of loans in the table below.


collateral category (unaudited)	total amount		percentage of total non accrual loans			number of non accrual loans in category
Residential real estate loans	$	19,213		31	%		120
Commercial real estate loans		29,261		47	%		70
Construction, development and land loans		11,376		18	%		60
Non real estate commercial loans		1,810		3	%		29
Non real estate consumer and other loans		330		1	%		23

Total non accrual loans at September 30, 2011	$	61,990		100	%		302

The second largest component of non performing assets after non accrual loans is OREO, excluding OREO covered by FDIC loss share agreements. At September 30, 2011, total OREO was $21,695. Of this amount, $9,634 was acquired pursuant to the acquisition of three failed financial institutions during the third quarter of 2010. The acquired OREO is covered by FDIC loss sharing agreements. Pursuant to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Company for 80% of losses with respect to the covered OREO beginning with the first dollar of loss incurred, subject to the terms of the agreements. The Company will reimburse the FDIC for its share of recoveries with respect to the covered OREO. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and the Company reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provide for FDIC loss sharing for five years and Company reimbursement to the FDIC for a total of eight years for recoveries.

OREO not covered by FDIC loss share agreements is $12,061 at September 30, 2011. 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 Statement of Operations. The current carrying value represents approximately 52% of the unpaid legal balance of the related loan when the asset was repossessed. OREO is further delineated in the table below.


(unaudited) Description of repossessed real estate	carrying amount at Sept 30, 2011
27 single family homes	$	2,778
2 mobile homes with land		153
42 residential building lots		1,880
18 commercial buildings		4,890
Land / various acreages		2,360

Total, excluding OREO covered by FDIC loss share agreements	$	12,061

Deposit activity

During the current quarter, time deposits decreased by $27,693 and non time deposits increased by $53,696, of which most relates to money market deposits. The cost of deposits decreased in each deposit category except for time deposits which remained the same at approximately 1.51%. Time deposits as a percentage of total deposits decreased from 35% to 33%, contributing to the overall decline in cost of total deposits, which decreased 5 bps to 0.62%. Cost of total interest bearing deposits also decreased 5 bps to 0.80%. A summary of the deposit mix over the previous five quarters is presented in the table below.


Deposit mix (unaudited)
At quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Checking accounts
Non interest bearing	$	402,683		$	395,775		$	378,395		$	323,224		$	330,255
Interest bearing		310,723			310,533			310,660			282,405			253,950
Savings deposits		206,053			209,966			209,690			198,428			196,950
Money market accounts		288,892			238,381			275,729			223,724			221,002
Time deposits		583,587			611,280			653,428			657,813			718,148

Total deposits	$	1,791,938		$	1,765,935		$	1,827,902		$	1,685,594		$	1,720,305


Non time deposits as percentage of total deposits		67	%		65	%		64	%		61	%		58	%
Time deposits as percentage of total deposits		33	%		35	%		36	%		39	%		42	%

Total deposits		100	%		100	%		100	%		100	%		100	%

Presented below are condensed consolidated balance sheets and average balance sheets for the periods indicated.


Condensed Consolidated Balance Sheets (unaudited)
At quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Cash and due from banks	$	19,119		$	19,176		$	19,542		$	23,251		$	41,447
Fed funds sold and Fed Res Bank deposits		163,745			230,322			146,275			154,264			85,312
Trading securities		—			1,249			2,192			2,225			1,581
Investments securities, available for sale		557,129			455,131			575,098			500,927			619,282
Loans held for sale		664			899			168			673			1,810
Loans covered by FDIC loss share agreements		171,193			179,982			189,708			198,285			209,682
Loans not covered by FDIC loss share agreements		991,725			1,014,215			1,039,311			930,670			919,136
Allowance for loan losses		(26,192	)		(27,418	)		(28,245	)		(26,267	)		(28,012	)
FDIC indemnification assets		53,820			58,544			60,122			59,456			58,533
Premises and equipment, net		88,995			88,015			86,652			84,982			74,484
Goodwill		38,035			38,035			38,035			38,035			38,035
Core deposit intangible		4,187			4,382			4,582			3,921			4,092
Bank owned life insurance		28,141			27,914			27,678			27,440			27,190
OREO covered by FDIC loss share agreements		9,634			9,696			11,332			11,104			9,405
OREO not covered by FDIC loss share agreements		12,061			11,284			10,222			12,239			11,861
Other assets		41,549			45,100			42,839			41,719			49,210

TOTAL ASSETS	$	2,153,805		$	2,156,526		$	2,225,511		$	2,062,924		$	2,123,048


Deposits	$	1,791,938		$	1,765,935		$	1,827,902		$	1,685,594		$	1,720,305
Federal funds purchased		61,343			87,435			92,111			68,495			72,859
Other borrowings		29,982			34,152			34,022			41,289			46,716
Other liabilities		20,506			18,718			18,489			15,297			26,076
Common stockholders equity		250,036			250,286			252,987			252,249			257,092

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,153,805		$	2,156,526		$	2,225,511		$	2,062,924		$	2,123,048


Condensed Consolidated Average Balance Sheets (unaudited)
For quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Federal funds sold and other	$	230,716		$	153,840		$	143,464		$	159,957		$	125,572
Security investments		458,870			548,264			540,601			556,076			624,123
Loans covered by FDIC loss share agreements		176,275			184,413			194,503			203,234			127,641
Loans not covered by FDIC loss share agreements		991,217			1,032,592			1,018,009			946,747			918,553
Allowance for loan losses		(29,009	)		(26,549	)		(26,614	)		(28,700	)		(25,916	)
All other assets		287,483			286,908			294,991			272,980			278,149

TOTAL ASSETS	$	2,115,552		$	2,179,468		$	2,164,954		$	2,110,294		$	2,048,122


Deposits- interest bearing	$	1,353,164		$	1,399,653		$	1,422,934		$	1,365,362		$	1,292,668
Deposits- non interest bearing		406,455			392,504			354,036			347,046			331,507
Federal funds purchased		67,540			82,118			77,311			74,981			90,368
Other borrowings		31,027			36,113			37,171			39,992			47,559
Other liabilities		8,374			15,172			21,814			27,308			30,958
Stockholders equity		248,992			253,908			251,688			255,605			255,062

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,115,552		$	2,179,468		$	2,164,954		$	2,110,294		$	2,048,122

Non interest income and non interest expense

The table below summarizes the Company’s non interest income for the periods indicated.


Quarterly Condensed Consolidated Non Interest Income (unaudited)
For the quarter ended:	9/30/11			6/30/11			3/31/11		12/31/10		9/30/10
Service charges on deposit accounts	$	1,629		$	1,417		$	1,556	$	1,909	$	1,713
Income from correspondent banking and bond sales division		7,999			5,759			4,470		7,140		11,828
Commissions from sale of mutual funds and annuities		557			322			439		335		318
Debit card and ATM fees		713			714			656		565		458
Loan related fees		199			306			165		159		128
BOLI income		227			235			239		250		220
Trading securities revenue		130			106			161		174		249
Gain on sale of securities available for sale		205			3,120			9		3,808		151
FDIC indemnification asset – amortization of discount rate		(225	)		(47	)		468		373		225
FDIC indemnification income		256			585			1,136		—		—
Other correspondent banking related fees		434			430			339		251		362
Other service charges and fees		121			271			139		215		93

Subtotal	$	12,245		$	13,218		$	9,777	$	15,179	$	15,745
Bargain purchase gains related to acquisitions		—			—			11,129		—		1,377

Total non interest income	$	12,245		$	13,218		$	20,906	$	15,179	$	17,122

The table below summarizes the Company’s non interest expense for the periods indicated.


Quarterly Condensed Consolidated Non Interest Expense (unaudited)
For the quarter ended:	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Employee salaries and wages	$	12,621		$	11,246		$	10,572		$	11,947		$	13,544
Employee incentive/bonus compensation accrued		600			594			612			938			1,020
Employee stock based compensation expense		158			182			195			181			180
Deferred compensation expense		114			115			116			120			97
Health insurance and other employee benefits		483			831			833			659			311
Payroll taxes		618			649			933			578			642
401K employer contributions		231			230			279			191			211
Other employee related expenses		231			104			92			162			179
Incremental direct cost of loan origination		(112	)		(131	)		(126	)		(144	)		(175	)

Total salaries, wages and employee benefits	$	14,944		$	13,820		$	13,506		$	14,632		$	16,009

Occupancy expense		2,036			2,114			2,094			2,084			1,633
Depreciation of premises and equipment		1,016			996			999			918			971
Supplies, stationary and printing		314			366			304			345			248
Marketing expenses		611			760			728			732			615
Data processing expenses		848			1,625			1,292			865			726
Legal, auditing and other professional fees		559			623			694			828			785
Bank regulatory related expenses		617			645			800			868			819
Postage and delivery		293			200			231			302			198
ATM and debit card related expenses		335			424			316			334			365
Amortization of CDI		194			201			190			172			142
Loss (gain) on sale of repossessed real estate (“OREO”)		307			(463	)		518			579			153
Valuation write down of repossessed real estate (“OREO”)		1,389			1,235			2,035			368			1,273
Loss on repossessed assets other than real estate		218			82			21			54			171
Foreclosure and repossession related expenses		1,052			2,008			987			616			803
Internet and telephone banking		324			282			156			236			132
Visa/Mastercard processing expenses		35			35			35			145			82
Put back option amortization expense		109			110			73			—			—
Operational write-offs and losses		166			120			121			265			296
Correspondent account and Federal Reserve charges		118			120			118			114			83
Conferences, seminars, education and training		134			122			74			252			236
Director fees		71			66			68			83			92
Travel expenses		30			40			37			91			224
Other expenses		488			529			851			589			705

Subtotal	$	26,208		$	26,060		$	26,248		$	25,472		$	26,761
Merger and acquisition related expenses		579			469			401			—			769

Total non interest expense	$	26,787		$	26,529		$	26,649		$	25,472		$	27,530

Explanation of Certain Unaudited Non-GAAP Financial Measures

This press release contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The attached financial highlights provide reconciliations between GAAP interest income, net interest income and tax equivalent basis interest income and net interest income, as well as total stockholders equity and tangible common equity. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.

Reconciliation of GAAP to non-GAAP Measures (unaudited):


	3Q11		2Q11		3Q10

Interest income, as reported (GAAP)	$	19,837	$	20,705	$	19,106
tax equivalent adjustments		312		322		186

Interest income (tax equivalent)	$	20,149	$	21,027	$	19,292


Net interest income, as reported (GAAP)	$	16,956	$	17,539	$	14,763
tax equivalent adjustments		312		322		186

Net interest income (tax equivalent)	$	17,268	$	17,861	$	14,949



	9/30/11			6/30/11			3/31/11			12/31/10			9/30/10
Total stockholders’ equity (GAAP)	$	250,036		$	250,286		$	252,987		$	252,249		$	257,092
Goodwill		(38,035	)		(38,035	)		(38,035	)		(38,035	)		(38,035	)
Core deposit intangible		(4,187	)		(4,382	)		(4,582	)		(3,921	)		(4,092	)

Tangible common equity	$	207,814		$	207,869		$	210,370		$	210,293		$	214,965

About CenterState Banks, Inc.

The Company, headquartered in Davenport, Florida, between Orlando and Tampa, is a multi bank holding company that was formed in June 2000 as part of a merger of three independent commercial banks. Currently, the Company operates through its two subsidiary banks with 52 full service branch banking locations in 14 counties throughout central Florida. Through its subsidiary banks, the Company provides a range of consumer and commercial banking services to individuals, businesses and industries.

In addition to providing traditional deposit and lending products and services to its commercial and retail customers in central Florida, the Company also operates a correspondent banking and bond sales division. The division is integrated with and part of the lead subsidiary bank located in Winter Haven, Florida, although the majority of the bond salesmen, traders and operations personnel are physically housed in leased facilities located in Birmingham, Alabama, Atlanta, Georgia and Winston-Salem, North Carolina. The customer base includes small to medium size financial institutions primarily located in Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

For additional information contact Ernest S. Pinner, CEO, John C. Corbett, EVP, or James J. Antal, CFO, at 863-419-7750.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

Some of the statements in this report constitute forward-looking statements, within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements related to future events, other future financial and operating performance, costs, revenues, economic conditions in our markets, loan performance, credit risks, collateral values and credit conditions, or business strategies, including expansion and acquisition activities and may be identified by terminology such as “may,” “will,” “should,” “expects,” “scheduled,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should specifically consider the factors described throughout this report. We cannot assure you that future results, levels of activity, performance or goals will be achieved, and actual results may differ from those set forth in the forward looking statements.

Forward-looking statements, with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance or achievements of the Company or the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our annual report on Form 10-K for the year ended December 31, 2010, and otherwise in our SEC reports and filings.

Attached files

CenterState Bank Corp Reports

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