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

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8-K - FORM 8K - CenterState Bank Corp	d618739d8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

October 29, 2013

CenterState Banks, Inc. Announces

Third Quarter 2013 Operating Results

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

(All earnings per share amounts are reported on a diluted basis unless otherwise noted)

DAVENPORT, FL. – October 29, 2013 – CenterState Banks, Inc. (NASDAQ: CSFL) reported earnings per share of $0.10 on net income of $3,109 for the third quarter of 2013, compared to $0.09 per share on net income of $2,758 reported during the prior quarter. Positive differences impacting current quarter earnings include (1) higher net interest income and (2) release of allowance for loan losses due to management’s belief that future losses will not be as much as in the past, as evidenced by the decline in the Company’s net charge-off history. Management does not believe it needs to qualitatively increase the historical loss factors because it believes the 8 quarter loss history is reflective of probable incurred losses in the loan portfolio. Negative differences impacting current quarter earnings include (1) lower bond sales activity in the correspondent banking division and (2) a lack of gain on sales of securities during the current quarter compared to $1,008 during the previous quarter.

Earnings comparisons between the current year quarter and prior year quarter are presented below.


	Three months ended
	Sept 30, 2013		Sept 30, 2012
Net income	$	3,109	$	2,642
Earnings per share	$	0.10	$	0.09

Loan Growth: Non covered loans (i.e. loans not covered by FDIC loss share agreements) grew $36,922, or 12.5% annualized, during the three month period ending September 30, 2013. During the nine month period ending September 30, 2013, the annualized growth rate was approximately 8.9%. Total new loans originated during the quarter approximated $114.4 million, of which $81.7 million were funded. The weighted average interest rate on funded loans was approximately 4.35%. About 41% of the loan production was commercial real estate (“CRE”), 27% single family residential, 24% commercial and industrial (“C&I”) and 8% were all other. Approximately 67% of the current quarter production was fixed rate and 33% variable rate. The graph below summarizes total loan production and funded loan production over the past seven quarters.

LOGO

FDIC covered loans and the related indemnification asset: Purchased credit impaired loans acquired pursuant to FDIC assisted transactions of failed financial institutions have been performing better than previously estimated. To the extent future estimated cash flows have improved (i.e. future estimated losses have decreased), the additional amount of future estimated cash flows are accreted into interest income over the remaining life of the related loan pool(s), thereby increasing the pool’s yield. The yields on the aggregate covered loan portfolio have been trending upward as a result of a decrease in the estimate of future losses. During the past nine quarters, the yields on the covered loan portfolio were as follows:


(unaudited)	3Q13			2Q13			1Q13			4Q12			3Q12			2Q12			1Q12			4Q11			3Q11
FDIC covered loan portfolio		14.15	%		12.03	%		11.06	%		7.71	%		7.03	%		7.51	%		6.69	%		6.80	%		6.21	%

The indemnification asset (“IA”) represents the amount that is expected to be collected from the FDIC for reimbursement of 80% of the estimated losses in the covered pools. When the Company decreases its estimate of future losses, the expected reimbursement from the FDIC, or IA, is decreased by 80% of this amount. The decrease in estimated reimbursements is expensed (negative accretion) over the lesser of the remaining expected life of the related loan pool(s) or the remaining term of the related loss share agreement(s), and is included in the Company’s non-interest income as a negative amount.

At September 30, 2013, the total IA on the Company’s balance sheet was $81,603. Of this amount, the Company expects to receive reimbursements from the FDIC of approximately $50,655 related to future estimated losses, and expects to expense approximately $30,948 for previously estimated losses that are no longer expected. The $30,948 is now expected to be paid by the borrower (or realized upon the sale of OREO) instead of a reimbursement from the FDIC. At September 30, 2013, the $30,948 previously estimated reimbursements from the FDIC will be written off as expense (negative accretion) in the Company’s non-interest income as summarized below.


Year		Year
2013 (3 months)	12.5%	2017	6.3	%
2014	37.6%	2018	5.1	%
2015	18.3%	2019 thru 2021	8.0	%

2016	12.2%	Total	100.0	%

Quarterly condensed consolidated income statements (unaudited) are shown below for the periods indicated. See notes 1 and 2 below for a discussion related to FDIC revenue and amortization (negative accretion) included in non-interest income.


Quarterly Condensed Consolidated Statements of Operations (unaudited)
For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Interest income	$	26,034		$	24,487		$	24,378		$	23,265		$	23,608
Interest expense		1,424			1,507			1,556			1,726			1,941

Net interest income		24,610			22,980			22,822			21,539			21,667
Recovery (provision) for loan losses		1,273			(1,374	)		360			(2,169	)		(2,425	)

Net interest income after loan loss provision		25,883			21,606			23,182			19,370			19,242
Income from correspondent banking and bond sales division		2,909			4,904			6,140			6,450			8,606
Gain on sale of securities available for sale		—			1,008			30			420			675
FDIC-IA amortization (negative accretion) (note 1)		(3,836	)		(3,272	)		(2,199	)		(1,540	)		(671	)
FDIC-revenue (note 2)		3,333			1,396			628			2,025			2,199
All other non-interest income		6,201			5,827			5,680			5,385			5,526
Credit related expenses		(5,755	)		(3,134	)		(2,021	)		(3,573	)		(3,844	)
Acquisition and conversion related expenses		(183	)		—			—			(55	)		(177	)
Correspondent banking division expenses		(4,377	)		(5,363	)		(6,075	)		(6,069	)		(7,235	)
Impairment bank owned property held for sale		—			—			—			—			(449	)
All other non-interest expense		(19,535	)		(18,876	)		(18,994	)		(18,833	)		(20,001	)

Income before income tax		4,640			4,096			6,371			3,580			3,871
Income tax provision		(1,531	)		(1,338	)		(1,795	)		(1,344	)		(1,229	)

NET INCOME	$	3,109		$	2,758		$	4,576		$	2,236		$	2,642

Earnings per share (basic)	$	0.10		$	0.09		$	0.15		$	0.07		$	0.09
Earnings per share (diluted)	$	0.10		$	0.09		$	0.15		$	0.07		$	0.09
Average common shares outstanding (basic)		30,109,728			30,098,853			30,089,726			30,079,767			30,077,933
Average common shares outstanding (diluted)		30,243,873			30,161,241			30,159,188			30,153,775			30,142,167
Common shares outstanding at period end		30,112,475			30,104,270			30,095,520			30,079,767			30,079,767

PTPP earnings (note 3)	$	5,972		$	6,200		$	7,343		$	6,932		$	7,892
PTPP diluted earnings per share (note 4)	$	0.20		$	0.21		$	0.24		$	0.23		$	0.26

note 1:

On the date of an FDIC acquisition (with loss share), the Company estimates expected future losses and the timing of those losses by loan pool. The related reimbursements from the FDIC for approximately 80% of those losses are recorded as a receivable from the FDIC, referred to as indemnification asset or “IA.” The Company updates its estimate of future losses and the timing of the losses each quarter. To the extent management estimates that future losses are less than prior expected future losses, management adjusts its estimates of future expected cash flows and this increase is accreted to interest income over the remaining life of those specific loan pools, increasing the yield on loans. Because management no longer expects these incremental future losses on the loan pool(s), then the expected future reimbursements from the FDIC for approximately 80% of these losses are also reduced. Instead of immediately charging down the IA for expected future FDIC reimbursements, the IA is written down over the shorter of the loss share period or the life of the related loan pool(s) by negative accretion (amortization) in this line item.

note 2:

Two FDIC related revenue items are included in this line item. The first item is FDIC reimbursement income from the sale of OREO. When OREO (those covered by loss share agreements) is sold for a loss, approximately 80% of the loss is recognized as income and included in this line item. Second, when a loan pool (with loss share) is impaired, the impairment expense is included in provision for loan losses, and approximately 80% of that loss is recognized as income from FDIC reimbursement, and included in this line item.

note 3:

Pre-tax pre-provision earnings (“PTPP”) is a non-GAAP measure that is defined as income before income tax excluding the provision for loan losses and gain on sale of available for sale (“AFS”) securities. In addition, the Company also excludes 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 following reconciliation table.

note 4:

PTPP earnings per share means, PTPP as defined in note 3 above divided by the average number of diluted common shares outstanding.

A reconciliation of the quarterly condensed PTPP is presented below (unaudited):


For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Income before income tax (GAAP)	$	4,640		$	4,096		$	6,371		$	3,580		$	3,871
exclude provision for loan losses		(1,273	)		1,374			(360	)		2,169			2,425
FDIC income from pool impairment		(28	)		70			21			(261	)		(619	)
exclude other credit related costs		5,755			3,134			2,021			3,573			3,844
OREO indemnification income from FDIC		(3,305	)		(1,466	)		(649	)		(1,764	)		(1,580	)
exclude gain on sale of AFS securities		—			(1,008	)		(30	)		(420	)		(675	)
exclude non-recurring items:
impairment bank owned property held for sale		—			—			—			—			449
gain on sale of bank owned property held for sale		—			—			(31	)		—			—
acquisition and conversion related expenses		183			—			—			55			177

PTPP earnings	$	5,972		$	6,200		$	7,343		$	6,932		$	7,892

The condensed quarterly results of the Company’s correspondent banking and bond sales segment are presented below.


Quarterly Condensed Segment Information - Correspondent banking and bond sales division (unaudited)
For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Net interest income	$	725		$	607		$	774		$	878		$	925
Total non-interest income (note 1)		3,771			5,609			7,005			7,193			9,453
Total non-interest expense (note 2)		(4,377	)		(5,363	)		(6,075	)		(6,069	)		(7,235	)
Income tax provision		(46	)		(329	)		(657	)		(753	)		(1,183	)

Net income	$	73		$	524		$	1,047		$	1,249		$	1,960

Contribution to diluted earnings per share	$	—		$	0.02		$	0.03		$	0.04		$	0.07


Allocation of indirect expenses net of income tax benefit (note 3)	$	(303	)	$	(283	)	$	(286	)	$	(369	)	$	(400	)

Contribution to diluted earnings per share after deduction of allocated indirect expenses	$	(0.01	)	$	0.01		$	0.03		$	0.03		$	0.05

note 1:

The primary component in this line item is gross commissions earned on bond sales (“income from correspondent banking and bond sales division”) which was $2,909, $4,904, $6,140, $6,450 and $8,606 for 3Q13, 2Q13, 1Q13, 4Q12 and 3Q12 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 2:

A significant portion of these expenses are variable in nature and are a derivative of the income from correspondent banking and bond sales division. The amounts do not include any indirect support allocation costs.

note 3:

A portion of the cost of the Company’s indirect departments such as human resources, accounting, deposit operations, item processing, information technology, compliance and others have been allocated to the correspondent banking and bond sales division based on management’s estimates.

Net Interest Margin (“NIM”)

The Company accounts for loans acquired pursuant to acquisitions of failed financial institutions (i.e. purchased credit impaired loans) pursuant to ASC 310-30. If the Company receives a cash payment (or repossessed and transferred an asset to OREO) in an amount in excess of the carrying value of the entire pool, the excess is immediately accreted into interest income, pursuant to ASC 310-30. This event occurred in several loan pools during the current quarter and in certain prior quarters, resulting in additional income of approximately $697 and $1,047, during the third and second quarter of 2013, respectively. Excluding this additional interest income, the yield on the FDIC covered loan portfolio is equal to approximately 13.04% and 10.45% compared to the reported 14.15% and 12.03% during the third and second quarters of 2013, respectively.

The reported NIM increased 37bps to 4.96% in the current quarter compared to 4.59% in the prior quarter. Excluding the ASC 310-30 events in loans covered by FDIC loss share, as discussed above, the current quarter NIM increased approximately 44 bps to 4.82% compared to 4.38% in the prior quarter as summarized in the table below (presented on a tax equivalent yield basis).


	3Q13						2Q13
(unaudited)	net int income			NIM			net int income			NIM
as reported	$	24,964			4.96	%	$	23,322			4.59	%
additional income from increased collections during the quarter:
ASC 310-30 – covered loans		(697	)					(1,047	)

NIM excluding above items	$	24,267			4.82	%	$	22,275			4.38	%

The primary reason for the increase in NIM between sequential quarters is the increase in yields, excluding the accelerated cash payments received as discussed above, on FDIC covered loans accounted for pursuant to ASC 310-30. Each quarter, management reviews and evaluates the amount of potential future losses (i.e. estimated future cash flows) and the timing of those estimated future cash flows. To the extent estimated future losses are revised downward, and as such future estimated cash flows are revised upward, the estimated increase in estimated future cash flows are accreted into interest income over the remaining lives of the related loan pools, thereby increasing yields. During the last nine quarters, the yields on the covered loan portfolio were as follows:


(unaudited)	3Q13			2Q13			1Q13			4Q12			3Q12			2Q12			1Q12			4Q11			3Q11
FDIC covered loan portfolio		14.15	%*		12.03	%**		11.06	%***		7.71	%		7.03	%		7.51	%		6.69	%		6.80	%		6.21	%

*	As described earlier, excluding the $697, the yield for 3Q13 is equal to approximately 13.04%.

**	As described earlier, excluding the $1,047, the yield for 2Q13 is equal to approximately 10.45%.

***	Similar to 3Q13 and 2Q13, excluding $1,849 for the same reason as described above, the yield for 1Q13 is equal to approximately 8.42%.

Other factors contributing to the increase in NIM were: (1) increase in loans (excluding covered loans) as a percentage of total interest earning assets during the current quarter compared to the prior quarter; (2) change in mix between federal funds sold and securities available for sale; and, (3) to a lesser extent the 2bps decrease in cost of interest bearing deposits.

The table 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.

Yield and cost table (unaudited)


	3Q13							2Q13							3Q12
	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)	$	1,195,105	$	14,243		4.73	%	$	1,155,737	$	13,995		4.86	%	$	1,129,783	$	14,815		5.22	%
Covered loans (note 2)		249,154		8,886		14.15	%		264,769		7,943		12.03	%		327,847		5,796		7.03	%
Taxable securities		430,995		2,560		2.36	%		392,974		2,097		2.14	%		438,317		2,653		2.41	%
Tax - exempt securities (TEY)		40,119		550		5.44	%		44,841		566		5.06	%		39,770		538		5.38	%
Fed funds sold and other		80,346		149		0.74	%		179,982		228		0.51	%		102,627		149		0.58	%

Tot. interest earning assets (TEY)	$	1,995,719	$	26,388		5.25	%	$	2,038,303	$	24,829		4.89	%	$	2,038,344	$	23,951		4.67	%

Interest bearing deposits	$	1,402,753	$	1,246		0.35	%	$	1,433,806	$	1,330		0.37	%	$	1,532,538	$	1,748		0.45	%
Fed funds purchased		36,823		5		0.05	%		35,619		6		0.07	%		47,885		6		0.05	%
Other borrowings		22,847		21		0.36	%		23,831		21		0.35	%		23,202		27		0.46	%
Corporate debentures		16,987		152		3.55	%		16,981		150		3.54	%		16,962		160		3.75	%

Total interest bearing liabilities	$	1,479,410	$	1,424		0.38	%	$	1,510,237	$	1,507		0.40	%	$	1,620,587	$	1,941		0.48	%

Net Interest Spread (TEY)						4.87	%						4.49	%						4.19	%

Net Interest Margin (TEY)						4.96	%						4.59	%						4.30	%

* 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.

The table below summarizes the Company’s yields on interest earning assets and costs of interest bearing liabilities over the prior five quarters.


Five quarter trend of yields and costs (unaudited)
For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Yield on loans (TEY)*		4.73	%		4.86	%		4.92	%		5.12	%		5.22	%
Yield on FDIC covered loans		14.15	%		12.03	%		11.06	%		7.71	%		7.03	%
Yield on securities (TEY)		2.62	%		2.44	%		2.57	%		2.52	%		2.66	%
Yield on fed funds sold and other		0.74	%		0.51	%		0.58	%		0.56	%		0.58	%
Yield on total interest earning assets		5.18	%		4.82	%		4.90	%		4.58	%		4.61	%
Yield on total interest earning assets (TEY)		5.25	%		4.89	%		4.96	%		4.65	%		4.67	%
Cost of interest bearing deposits		0.35	%		0.37	%		0.38	%		0.41	%		0.45	%
Cost of fed funds purchased		0.05	%		0.07	%		0.05	%		0.05	%		0.05	%
Cost of other borrowings		0.36	%		0.35	%		0.36	%		0.38	%		0.46	%
Cost of corporate debentures		3.55	%		3.54	%		3.58	%		3.66	%		3.75	%
Cost of interest bearing liabilities		0.38	%		0.40	%		0.41	%		0.44	%		0.48	%
Net interest margin (TEY)		4.96	%		4.59	%		4.64	%		4.31	%		4.30	%
Cost of total deposits		0.25	%		0.27	%		0.28	%		0.31	%		0.34	%

*TEY	= tax equivalent yield

The table below summarizes selected financial ratios over the prior five quarters.


Selected financial ratios (unaudited)
As of or for the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Return on average assets (annualized)		0.53	%		0.46	%		0.78	%		0.37	%		0.44	%
Return on average equity (annualized)		4.56	%		4.00	%		6.76	%		3.25	%		3.85	%
Loan / deposit ratio		74.3	%		72.6	%		70.3	%		71.9	%		72.8	%
Stockholders’ equity (to total assets)		11.7	%		11.5	%		11.6	%		11.6	%		11.5	%
Common tangible equity (to total tangible assets)		9.7	%		9.5	%		9.6	%		9.6	%		9.5	%
Tier 1 capital (to average assets)		10.6	%		10.3	%		10.1	%		9.9	%		9.7	%
Efficiency ratio, including correspondent banking (note 1)		78.1	%		77.8	%		75.6	%		76.4	%		76.5	%
Efficiency ratio, excluding correspondent banking (note 2)		72.8	%		73.7	%		73.0	%		74.3	%		76.8	%
Common equity per common share		$9.06			$9.02			$9.18			$9.09			$9.10
Common tangible equity per common share		$7.35			$7.30			$7.45			$7.36			$7.36

note 1:

Numerator equals non-interest expense less non-recurring expenses (e.g. merger costs, bank property impairment, etc.) less intangible amortization (both CDI and Trust intangible) less credit related expenses. Denominator equals net interest income on a taxable equivalent yield basis (“TEY”) before the provision for loan losses plus non-interest income less non-recurring income (e.g. bargain purchase gain, gain on sale of securities available for sale, etc.) less FDIC income related to losses on the sales of covered OREO properties and impairment of loan pool(s) covered by FDIC loss share arrangements.

note 2:

Numerator starts with the same numerator as in “note 1”, less correspondent bank non-interest expense, including indirect expense allocations. Denominator starts with the same denominator as in “note 1”, less correspondent bank net interest income and less correspondent bank non-interest income.

Loan portfolio mix and covered loans

Approximately 16.7% of the Company’s loans, or $242,891, are covered by FDIC loss sharing agreements related to the acquisition of three failed financial institutions during the third quarter of 2010 and two during the first quarter of 2012. 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.

The table below summarizes the Company’s loan mix over the most recent five quarter ends.


Loan mix (unaudited)
At quarter ended:	9/30/13		6/30/13			3/31/13			12/31/12			9/30/12
Loans not covered by FDIC loss share agreements
Real estate loans
Residential	$	449,224	$	437,946		$	432,892		$	428,554		$	428,138
Commercial		529,172		504,487			478,790			480,494			468,261
Land, development and construction loans		60,375		60,928			59,524			55,474			56,454

Total real estate loans		1,038,771		1,003,361			971,206			964,522			952,853
Commercial loans		126,451		124,465			115,217			124,225			131,302
Consumer and other loans, (note 1)		1,259		2,851			2,818			2,732			1,998
Consumer and other loans		49,065		48,084			47,991			48,547			48,808

Total loans before unearned fees and costs		1,215,546		1,178,761			1,137,232			1,140,026			1,134,961
Unearned fees and costs		135		(2	)		(217	)		(458	)		(522	)

Total loans not covered by FDIC loss share agreements		1,215,681		1,178,759			1,137,015			1,139,568			1,134,439

Loans covered by FDIC loss share agreements
Real estate loans
Residential		124,027		128,930			135,068			142,480			161,827
Commercial		109,285		118,999			130,549			134,413			133,069
Land, development and construction loans		5,673		4,897			7,777			13,259			18,478

Total real estate loans		238,985		252,826			273,394			290,152			313,374
Commercial loans		3,906		4,002			4,577			6,143			6,374

Total loans covered by FDIC loss share agreements		242,891		256,828			277,971			296,295			319,748

Total Loans	$	1,458,572	$	1,435,587		$	1,414,986		$	1,435,863		$	1,454,187

note 1:

Consumer loans acquired pursuant to five FDIC assisted transactions of failed financial institutions during the third quarter of 2010 and first quarter of 2012. These loans are not covered by an FDIC loss share agreement and are being accounted for pursuant to ASC Topic 310-30.

Credit quality and allowance for loan losses

During the quarter, excluding loans covered by FDIC loss share agreements, the Company recorded a negative loan loss provision expense of $1,309 and charge-offs net of recoveries of $1,226, resulting in a decrease in the allowance for loan losses (excluding covered loans) of $2,535 as shown in the table below.

With regard to loans covered by FDIC loss share agreements, the Company recorded a loan loss provision expense of $36. See the table “Allowance for loan losses” for additional information.

The allowance for loan losses (“ALLL”) was $21,321 at September 30, 2013 compared to $23,820 at June 30, 2013, a decrease of $2,499. This decrease is the result of the aggregate effect of a $2,719 decrease in general loan loss allowance, a $184 increase in the specific loan loss allowance related to impaired loans and a $36 increase in the loan loss allowance related to certain impaired loan pools of FDIC covered loans accounted for pursuant to ASC Topic 310-30. The changes in the Company’s ALLL components between September 30, 2013 and June 30, 2013 are summarized in the table below.


	Sept 30, 2013							June 30, 2013							increase (decrease)
	loan balance		ALLL Balance		%			Loan Balance		ALLL balance		%			loan balance			ALLL balance
Non impaired loans	$	1,175,801	$	18,481		1.57	%	$	1,140,066	$	21,200		1.86	%	$	35,735		$	(2,719	)	-29 bps
Impaired loans		39,880		784		1.97	%		38,693		600		1.55	%		1,187			184		42 bps

Loans (note 1)		1,215,681		19,265		1.58	%		1,178,759		21,800		1.85	%		36,922			(2,535	)	-27 bps
Covered loans (note 2)		242,891		2,056					256,828		2,020					(13,937	)		36

Total loans	$	1,458,572	$	21,321		1.46	%	$	1,435,587	$	23,820		1.66	%	$	22,985		$	(2,499	)	-20 bps

note 1:

Total loans not covered by FDIC loss share agreements.

note 2:

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. Four loan pools with an aggregate carrying value of $8,254 are impaired at September 30, 2013, and have a specific allowance of $2,056. The aggregate carrying value of $8,254 represents approximately 69% of the underlying loan balances outstanding.

The general loan loss allowance (non-impaired loans) decreased by a net amount of $2,719. This decrease was primarily due to the Company’s continued improvement in its credit metrics, as evidenced by the continued decline in the Company’s two year charge-off history, partially offset by the growth in its non-impaired loan portfolio.

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 share agreement. 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 $3,448 to $39,880 ($39,096 when the $784 specific allowance is considered) from their legal unpaid principal balance outstanding of $43,328. In the aggregate, total impaired loans have been written down to approximately 90% of their legal unpaid principal balance, and non-performing impaired loans have been written down to approximately 67% 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, $21,139 at September 30, 2013) have been written down to approximately 75% of their legal unpaid principal balance.

Approximately $31,998 of the Company’s impaired loans (80%) are accruing performing loans. This group of impaired loans is not included in the Company’s non-performing loans or non-performing assets categories.

Any losses in loans covered by FDIC loss share agreements, as described in note 2 above, are reimbursable from the FDIC to the extent of 80% of such 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 loan loss is recorded.

Management believes the Company’s allowance for loan losses is adequate at September 30, 2013. 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	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Loans not covered by FDIC loss share agreements
Allowance at beginning of period	$	21,800		$	22,631		$	24,033		$	24,019		$	23,634
Charge-offs		(1,570	)		(2,603	)		(1,231	)		(2,121	)		(2,245	)
Recoveries		344			310			163			293			978

Net charge-offs		(1,226	)		(2,293	)		(1,068	)		(1,828	)		(1,267	)
Provision for loan losses		(1,309	)		1,462			(334	)		1,842			1,652

Allowance at end of period for loans not covered by FDIC loss share agreements	$	19,265		$	21,800		$	22,631		$	24,033		$	24,019


Loans covered by FDIC loss share agreements
Allowance at beginning of period	$	2,020		$	2,623		$	2,649		$	2,322		$	1,549
Charge-offs		—			(515	)		—			—			—
Recoveries		—			—			—			—			—

Net charge-offs		—			(515	)		—			—			—
Provision for loan losses		36			(88	)		(26	)		327			773

Allowance at end of period for loans covered by FDIC loss share agreements	$	2,056		$	2,020		$	2,623		$	2,649		$	2,322

Total allowance at end of period	$	21,321		$	23,820		$	25,254		$	26,682		$	26,341

The Company defines non-performing loans (“NPLs”) as non-accrual loans plus loans past due 90 days or more and still accruing interest. NPLs do not include loans covered by FDIC loss share agreements, which are accounted for pursuant to ASC Topic 310-30. NPLs as a percentage of total loans not covered by FDIC loss share agreements were 1.74% at September 30, 2013 compared to 2.11% at June 30, 2013.

Non-performing assets (“NPAs”) (which the Company defines as NPLs, 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 agreement; and (b) other repossessed assets that are not real estate, and are not covered by FDIC loss share agreement), were $26,084 at September 30, 2013, compared to $30,526 at June 30, 2013. NPAs as a percentage of total assets was 1.12% at September 30, 2013 compared to 1.30% at June 30, 2013. NPAs as a percentage of loans plus OREO and other repossessed assets, excluding loans and OREO covered by FDIC loss share agreements, was 2.14% at September 30, 2013 compared to 2.58% at June 30, 2013.

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


Selected credit quality ratios (unaudited)
As of or for the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Non-accrual loans (note 1)	$	21,104		$	24,219		$	24,456		$	25,448		$	28,658
Past due loans 90 days or more and still accruing interest (note 1)		35			615			316			293			121

Total non-performing loans (“NPLs”) (note 1)		21,139			24,834			24,772			25,741			28,779
Other real estate owned (OREO) (note 1)		4,804			5,469			6,186			6,875			5,858
Repossessed assets other than real estate (note 1)		141			223			380			770			996

Total non-performing assets (“NPAs”) (note 1)	$	26,084		$	30,526		$	31,338		$	33,386		$	35,633
Non-performing loans as percentage of total loans not covered by FDIC loss share agreements		1.74	%		2.11	%		2.18	%		2.26	%		2.54	%
Non-performing assets as percentage of total assets		1.12	%		1.30	%		1.31	%		1.41	%		1.50	%
Non-performing assets as percentage of loans and
OREO plus other repossessed assets (note 1)		2.14	%		2.58	%		2.74	%		2.91	%		3.12	%
Net charge-offs (note 1)	$	1,226		$	2,293		$	1,068		$	1,828		$	1,267
Net charge-offs as a percentage of average loans for the period (note 1)		0.10	%		0.20	%		0.09	%		0.16	%		0.11	%
Net charge-offs as a percentage of average loans for the period on an annualized basis (note 1)		0.40	%		0.80	%		0.36	%		0.64	%		0.44	%
Loans past due 30 thru 89 days and accruing interest as a percentage of total loans (note 1)		0.75	%		0.99	%		1.06	%		0.65	%		0.87	%
Allowance for loan losses as percentage of NPLs (note 1)		91	%		88	%		91	%		93	%		83	%

Troubled debt restructure (“TDRs”) (note 2)	$	15,811		$	13,103		$	14,073		$	14,660		$	15,428
Impaired loans that were not TDRs		24,069			25,590			26,031			33,519			29,383

Total impaired loans		39,880			38,693			40,104			48,179			44,811
Non impaired loans		1,175,801			1,140,066			1,096,911			1,091,389			1,089,628

Total loans not covered by FDIC loss share agreements		1,215,681			1,178,759			1,137,015			1,139,568			1,134,439
Total loans covered by FDIC loss share agreements		242,891			256,828			277,971			296,295			309,743

Total loans	$	1,458,572		$	1,435,587		$	1,414,986		$	1,435,863		$	1,444,182


As of or for the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Allowance for loan losses for loans not covered by FDIC loss share agreements
Specific loan loss allowance - impaired loans	$	784		$	600		$	990		$	1,022		$	949
General loan loss allowance - non impaired		18,481			21,200			21,641			23,011			23,070

Total allowance for loan losses	$	19,265		$	21,800		$	22,631		$	24,033		$	24,019

Allowance for loan loss percentage of period end loans:
Impaired loans (note 1)		1.97	%		1.55	%		2.47	%		2.12	%		2.12	%
All other non impaired loans (note 1)		1.57	%		1.86	%		1.97	%		2.11	%		2.12	%

Total loans (note 1)		1.58	%		1.85	%		1.99	%		2.11	%		2.12	%

Note 1:

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

Note 2:

The Company has approximately $15,811 of TDRs. Of this amount $11,604 are performing pursuant to their modified terms, and $4,207 are not performing and have been placed on non-accrual status and included in 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.

Deposit activity

During the quarter, total deposits decreased by $14,737 (time deposits decreased by $9,603 and non-time deposits decreased by $5,134). The loan to deposit ratio was approximately 74.3% at quarter end. The cost of interest bearing deposits decreased 2 bps to 0.35% in the current quarter compared to 0.37% in the prior quarter. The overall cost of total deposits (i.e. includes non-interest bearing checking accounts) also decreased by 2 bps to 0.25% in the current quarter compared to 0.27% in the prior quarter. The table below summarizes the Company’s deposit mix over the periods indicated.


Deposit mix (unaudited)
For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Checking accounts
Non-interest bearing	$	562,027		$	555,721		$	565,404		$	519,510		$	504,528
Interest bearing		452,583			456,660			459,528			452,961			410,517
Savings deposits		240,431			241,609			239,127			238,216			240,326
Money market accounts		306,706			312,891			316,785			311,241			314,441
Time deposits		400,208			409,811			432,752			475,304			528,037

Total deposits	$	1,961,955		$	1,976,692		$	2,013,596		$	1,997,232		$	1,997,849


Non time deposits as percentage of total deposits		80	%		79	%		79	%		76	%		74	%
Time deposits as percentage of total deposits		20	%		21	%		21	%		24	%		26	%

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)
For the quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Cash and due from banks	$	21,216		$	21,160		$	20,823		$	19,160		$	20,259
Fed funds sold and Fed Res Bank deposits		85,600			82,395			155,872			117,588			82,872
Trading securities		398			—			—			5,048			—
Investments securities, available for sale		456,555			492,087			460,534			425,758			458,796
Loans held for sale		1,317			1,760			2,131			2,709			1,707
Loans covered by FDIC loss share agreements		242,891			256,828			277,971			296,295			319,748
Loans not covered by FDIC loss share agreements		1,215,681			1,178,759			1,137,015			1,139,568			1,134,439
Allowance for loan losses		(21,321	)		(23,820	)		(25,254	)		(26,682	)		(26,341	)
FDIC indemnification assets		81,603			88,716			97,958			119,289			121,871
Premises and equipment, net		97,289			96,506			96,946			97,954			97,749
Goodwill		44,924			44,924			44,924			44,924			44,924
Core deposit intangible		5,196			5,441			5,691			5,944			6,229
Bank owned life insurance		48,961			48,634			48,296			47,957			47,601
OREO covered by FDIC loss share agreements		21,633			28,532			29,434			26,783			25,967
OREO not covered by FDIC loss share agreements		4,804			5,469			6,186			6,875			5,858
Other assets		29,274			27,962			30,712			34,070			35,936

TOTAL ASSETS	$	2,336,021		$	2,355,353		$	2,389,239		$	2,363,240		$	2,377,615


Deposits	$	1,961,955		$	1,976,692		$	2,013,596		$	1,997,232		$	1,997,849
Federal funds purchased		45,356			53,274			45,130			38,932			46,574
Other borrowings		39,140			38,873			37,398			35,762			38,005
Other liabilities		16,829			15,098			16,890			17,783			21,338
Common stockholders’ equity		272,741			271,416			276,225			273,531			273,849

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,336,021		$	2,355,353		$	2,389,239		$	2,363,240		$	2,377,615


Condensed Consolidated Average Balance Sheets (unaudited)
For quarter ended:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Federal funds sold and other	$	80,346		$	179,982		$	137,776		$	138,236		$	102,627
Security investments		471,114			437,815			460,228			434,059			478,087
Loans covered by FDIC loss share agreements		249,154			264,769			284,151			309,502			327,847
Loans not covered by FDIC loss share agreements		1,195,105			1,155,737			1,136,076			1,138,127			1,129,783
Allowance for loan losses		(23,819	)		(23,962	)		(26,782	)		(26,930	)		(25,893	)
All other assets		377,072			367,969			398,334			395,267			401,145

TOTAL ASSETS	$	2,348,972		$	2,382,310		$	2,389,783		$	2,388,261		$	2,413,596


Deposits - interest bearing	$	1,402,753		$	1,433,806		$	1,462,511		$	1,490,327		$	1,532,538
Deposits - non interest bearing		581,827			574,345			545,579			521,890			503,654
Federal funds purchased		36,823			35,619			44,662			44,520			47,885
Other borrowings		39,834			40,812			37,356			36,972			40,164
Other liabilities		17,315			22,135			25,200			20,860			16,655
Stockholders’ equity		270,420			275,593			274,475			273,692			272,700

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,348,972		$	2,382,310		$	2,389,783		$	2,388,261		$	2,413,596

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:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Income from correspondent banking and bond sales division	$	2,909		$	4,904		$	6,140		$	6,450		$	8,606
Other correspondent banking related revenue		862			705			865			743			847
Wealth management related revenue		1,179			1,130			1,070			942			1,000
Service charges on deposit accounts		2,244			2,081			1,819			1,825			1,695
Debit, prepaid, ATM and merchant card related fees		1,399			1,342			1,285			1,242			1,160
BOLI income		327			338			339			355			360
Other service charges and fees		190			231			302			278			464
Gain on sale of securities available for sale		—			1,008			30			420			675

Subtotal	$	9,110		$	11,739		$	11,850		$	12,255		$	14,807
FDIC indemnification asset – amortization (see explanation below)		(3,836	)		(3,272	)		(2,199	)		(1,540	)		(671	)
FDIC indemnification income		3,333			1,396			628			2,025			2,199

Total non-interest income	$	8,607		$	9,863		$	10,279		$	12,740		$	16,335

The FDIC indemnification asset (“IA”) is producing amortization (versus accretion) due to reductions in the estimated losses in the FDIC covered loan portfolio. To the extent current projected losses in the covered loan portfolio are less than originally projected losses, the related projected reimbursements from the FDIC contemplated in the IA are less, which produces a negative income accretion in non-interest income. This event corresponds to the increase in yields in the FDIC covered loan portfolio, although there is not perfect correlation. Higher expected cash flows (i.e. less expected future losses) on the loan side of the equation is accreted into interest income over the life of the related loan pool. The lower expected reimbursement from the FDIC (i.e. 80% of the lower expected future losses) is amortized over the lesser of the remaining life of the related loan pool(s) or the remaining term of the loss share period.

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 approximately eighty percent of the loss is recorded as FDIC indemnification income and included in non-interest income. Eighty percent of any related loan pool impairments also are reflected in this non-interest income account.

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:	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Employee salaries and wages	$	11,168		$	12,142		$	12,665		$	12,580		$	14,083
Employee incentive/bonus compensation accrued		1,325			1,171			1,094			1,032			1,247
Employee stock based compensation expense		147			143			146			153			154
Deferred compensation expense		147			134			141			124			131
Health insurance and other employee benefits		842			796			951			878			1,034
Payroll taxes		655			733			1,017			610			718
401K employer contributions		276			308			367			236			268
Other employee related expenses		272			344			296			336			298
Incremental direct cost of loan origination		(487	)		(537	)		(437	)		(228	)		(227	)

Total salaries, wages and employee benefits		14,345			15,234			16,240			15,721			17,706


Loss (gain) on sale of OREO		68			177			76			(17	)		33
Loss (gain) on sale of FDIC covered OREO		1,784			386			(77	)		548			120
Valuation write down of OREO		338			295			342			287			368
Valuation write down of FDIC covered OREO		2,846			1,385			645			1,146			1,367
Loss (gain) on repossessed assets other than real estate		39			104			242			(52	)		37
Loan put back expense		—			—			4			734			852
Foreclosure and repossession related expenses		376			438			441			355			858
Foreclosure and repo expense, FDIC (note 1)		304			349			348			572			209

Total credit related expenses		5,755			3,134			2,021			3,573			3,844


Occupancy expense		1,924			1,942			1,892			1,909			2,246
Depreciation of premises and equipment		1,364			1,455			1,497			1,530			1,465
Supplies, stationary and printing		268			285			288			245			261
Marketing expenses		722			586			528			655			716
Data processing expenses		1,026			912			884			1,131			890
Legal, auditing and other professional fees		1,176			844			783			755			551
Bank regulatory related expenses		588			635			581			448			623
Postage and delivery		266			267			285			279			282
ATM and debit card related expenses		435			428			511			377			312
Amortization of CDI		246			250			253			284			294
Internet and telephone banking		286			239			224			235			209
Put back option amortization expense		—			—			37			134			182
Correspondent account and Federal Reserve charges		114			120			109			115			133
Conferences, seminars, education and training		138			138			153			114			105
Director fees		99			102			102			103			100
Travel expenses		119			104			74			114			112
Impairment of bank property held for sale		—			—			—			—			449
Other expenses		796			698			628			753			1,049

Subtotal		29,667			27,373			27,090			28,475			31,529
Merger, acquisition and conversion related expenses		183			—			—			55			177

Total non - interest expense	$	29,850		$	27,373		$	27,090		$	28,530		$	31,706

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.

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 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. It also reconciles income before income taxes and Pre-tax Pre-Provision (“PTPP”) earnings. 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):


	3Q13		2Q13		3Q12
Interest income, as reported (GAAP)	$	26,034	$	24,487	$	23,720
tax equivalent adjustments		354		342		343

Interest income (tax equivalent)	$	26,388	$	24,829	$	24,063


Net interest income, as reported (GAAP)	$	24,610	$	22,980	$	21,779
tax equivalent adjustments		354		342		343

Net interest income (tax equivalent)	$	24,964	$	23,322	$	22,122


	9/30/13			6/30/13			3/31/13			12/31/12			9/30/12
Total stockholders’ equity (GAAP)	$	272,741		$	271,416		$	276,225		$	273,531		$	273,849
Goodwill		(44,924	)		(44,924	)		(44,924	)		(44,924	)		(44,924	)
Core deposit intangible		(5,196	)		(5,441	)		(5,691	)		(5,944	)		(6,229	)
Trust intangible		(1,209	)		(1,259	)		(1,309	)		(1,363	)		(1,422	)

Tangible common equity	$	221,412		$	219,792		$	224,301		$	221,300		$	221,274


	3Q13			2Q13			1Q13			4Q12			3Q12
Income before income tax (GAAP)	$	4,640		$	4,096		$	6,371		$	3,580		$	3,871
exclude provision for loan losses		(1,273	)		1,374			(360	)		2,169			2,425
FDIC income from pool impairment		(28	)		70			21			(261	)		(619	)
exclude other credit related costs		5,755			3,134			2,021			3,573			3,844
OREO indemnification income from FDIC		(3,305	)		(1,466	)		(649	)		(1,764	)		(1,580	)
exclude gain on sale of AFS securities		—			(1,008	)		(30	)		(420	)		(675	)
exclude non-recurring items:
impairment bank owned property held for sale		—			—			—			—			449
gain on sale of bank owned property held for sale		—			—			(31	)		—			—
acquisition and conversion related expenses		183			—			—			55			177

PTPP earnings	$	5,972		$	6,200		$	7,343		$	6,932		$	7,892

About CenterState Banks, Inc.

The Company, headquartered in Davenport, Florida, between Orlando and Tampa, is a bank holding company that was formed in June 2000 as part of a merger of three independent commercial banks. Currently, the Company operates through one subsidiary bank with 55 full service branch banking locations in 18 counties throughout central Florida. Through its subsidiary bank 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 Company’s 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 southeastern United States.

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, 2012, and otherwise in our SEC reports and filings.

CenterState Bank Corp - FORM 8-K - EX-99.1 - PRESS RELEASE - October 29, 2013

Attached files

CenterState Bank Corp Reports