2 0 1 5 A N N U A L R E P O R T
OFFICERS
E. S. “Ernie” Pinner
Chairman of the
Board of Directors
John C. Corbett
President and
Chief Executive Officer of the
Company and the
Company’s Subsidiary Bank
James J. Antal
Chief Financial Officer and
Corporate Secretary
Stephen D. Young
Treasurer and
Chief Operating Officer of the
Company’s Subsidiary Bank
Daniel E. Bockhorst
Chief Risk Officer
C O R P O R A T E
P R O F I L E
CenterState Banks, Inc., headquartered in Davenport, Florida,
is a financial holding company with one nationally chartered
bank: CenterState Bank of Florida. The Company operates
through 57 branches in 20 counties throughout Florida,
providing traditional deposit and lending products and services
to its commercial and retail customers. The Company also
provides correspondent banking and capital market services
INDEPENDENT AUDITORS
for approximately 600 community banks nationwide.
Crowe Horwath LLP
Fort Lauderdale, Florida
STOCK LISTING
Symbol - CSFL
Cusip #15201P 10 9
SHAREHOLDER SERVICES
Continental Stock Transfer &
Trust Company
17 Battery Place, NY, NY 10004
212.509.4000
CORPORATE OFFICES
42745 U.S. Highway 27
Davenport, FL 33837
863.419.7750
CORPORATE WEBSITE
www.centerstatebanks.com
A N N U A L M E E T I N G
The 2016 Annual Meeting of the Shareholders will be held on
Thursday, April 28, 2016 at 10:00 a.m. at the Winter Haven Chamber of Commerce
401 Avenue B, NW, Winter Haven, FL 33881.
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 2-4
Key Performance Indicators . . . . . . . . . . . . . . . . . . . . . 5
Central Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
South Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
West Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
East Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CSFL Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CSFL Stock Performance . . . . . . . . . . . . . . . . . . . . . . 10
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Operating Committee . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dear Fellow CenterState Shareholders,
Ernest S. Pinner,
Executive Chairman;
John C. Corbett,
President & CEO
Thank you for investing in our company. During 2015, your investment
increased in value by 31% during a year that the SNL southeastern bank index
declined by 3%. Over the three year period ending December 31, 2015,
CenterState shares increased in value by 83%. With a steadfast attention to
asset quality and risk management, our goal is to profitably allocate your
capital to produce consistent compounded growth in earnings per share and
deliver superior shareholder value over the long term.
Sixteen years ago, the emerging CenterState team
shared a common vision to build the premier
3. Sustainable Returns By maximizing and
balancing returns for our team, our clients and our
community bank headquartered in Florida. We firmly
shareholders over the long term
believed that we could achieve this vision by
concentrating our efforts in three fundamental areas:
Upon the closing of our two recently announced
1. Our Team By adhering to our core values and
fostering a work environment that attracts, motivates
acquisitions, CenterState will approach $5 billion in assets
and our branch network will stretch from Jacksonville to
the Florida Keys. We’ve grown to become Florida’s
and inspires the brightest bankers
second largest community bank. As our team diligently
2. Prudent Growth By reaching the number
one market share among Florida-based banks and
Southern Bank and Gulfstream Business Bank, we
established the goal of achieving a return on assets
assets greater than $5 Billion
greater than 1% and an efficiency ratio below 65% by the
worked to integrate the 2014 acquisitions of First
2
year 2016. I am pleased to report that both goals were
35% during the year resulting in an NPA’s/Assets ratio of
achieved in 2015, a year ahead of schedule.
.56% and net charge offs of a mere 9 basis points.
A record net income of $39 million in 2015 resulted in
operating EPS of 87 cents, up 61% from 2014. Our return
The challenges ahead
While the Florida economy is on the right track, the
on tangible common equity reached 10.3% in 2015 and
national economy remains fragile after years of tiresome
our goal is to achieve a return in the mid-teens as our
anti-banking and anti-growth rhetoric from Washington.
excess capital is deployed. With the substantial increase
But if we look beyond the political headwinds, the biggest
in earnings, we raised our dividend to 7 cents per share
challenges ahead for the banking
for the year, up from 4 cents in 2014.
industry are the “zero-bound”
Florida is back
After several years at the epicenter of the Great
global interest rate environment
and the rapidly changing role of
the physical bank branch. Low
Recession, the Florida economy is back in full stride.
interest rates and a flat yield
Population growth, housing starts and tourism drive the
curve do not bode well for the
economy and all measures indicate that the current
net interest margin and earnings.
positive momentum will continue for the foreseeable
In a higher rate environment, we
future. With 1,000 people moving to Florida daily, the
believe there
is tremendous
population is estimated at 20 million and Florida recently
unlocked value in CenterState’s
passed New York as the third most populated state in
branch network and core deposit
the country. According to Visit Florida, approximately
franchise which is comprised of
After several
years at the
epicenter
of the Great
Recession,
the Florida
economy’s back
in full stride.
100 million people visit Florida annually and low energy
56% checking accounts and a cost of deposits of 16 basis
prices should act as a further stimulus to our world class
points. At the same time, we are also mindful that interest
tourism industry. And while Florida real estate suffered
rates may remain low for an extended period of time.
greatly through the housing crisis, it is encouraging to
Accordingly, we have worked aggressively to optimize our
note that the undersupply of housing starts since the
physical branch network and to invest in the technology
financial crisis is greater than the oversupply created
necessary to improve our clients’ convenience at a lower
prior to the crisis. The current supply and demand mix
cost. The number of bank branches nationally peaked at
would indicate that single family housing should be a
nearly 100,000 in 2009 and is down approximately 10%
tailwind to the economy in the years to come.
since that time. Starting with 37 branches in 2009,
CenterState added 66 branches through the financial
With an improving economic backdrop, our lenders
crisis primarily through
in-market acquisitions. By
generated a record $792 million in new loan originations
consolidating or selling 46 underperforming branches
which resulted in loan growth of 11% for the year
since 2009, we now have a total of 57 branches that
excluding the purchased credit impaired portfolio. We
house, on average, twice the deposits compared to 2009.
plan to continue expanding our lending team in 2016
By reducing the branch count by 45% over six years, our
with particular emphasis in the metro markets of
efficiency ratio improved considerably and this enables us
Orlando, Jacksonville, Palm Beach and Ft. Lauderdale.
to reallocate resources into new technology and new
Asset quality improvement continues as NPA’s declined
lending teams for the future.
3
A consolidating industry
This is a theme that remained consistent late last year
A team for the long run
Our core values at CenterState focus on themes of
when we announced the acquisitions of Community
sustainability, a long-term horizon and the career
Bank of Florida, which was founded in 1973, and 1st
development of our team. Our founding chairman,
National Bank of South Florida, which was founded in
James White, who passed away a year ago at the age
1932. Together, the two banks comprise approximately
of 88, laid the foundation for our culture many decades
$840 million in assets and a 38% deposit market share in
ago. As tangible evidence of our long-term approach,
south Miami-Dade County. With significant branch
Mr. White hired our current chairman, Ernie Pinner as a
overlap and cost save opportunities, these acquisitions
management trainee 50 years ago and acted as a
are estimated to be double-digit accretive to our
mentor throughout Ernie’s distinguished career. In a
earnings per share when fully integrated and they
similar fashion, Ernie hired me as a management trainee
provide an excellent source of retail and small business
27 years ago and served as a personal mentor and close
relationships.
friend
throughout my career. Last year, Ernie
transitioned the title of holding company CEO to me
As long as interest rates remain at historically low levels,
while he assumed the new position of Executive
consolidation will continue in the banking industry. At
Chairman. He will continue as an active member of our
CenterState, we subscribe to Warren Buffet’s contrarian
executive team and help me ensure that we sustain the
philosophy of being fearful when others are greedy and
CenterState culture that Mr. White created for the
greedy when others are fearful. We believe there are
generations of bankers that will follow us in the future.
times to agressively deploy capital and other times when
it is more prudent to sit on the M&A sidelines. Having
I want to close by thanking our 800 team members for
announced 13 acquisitions through the Great Recession,
our success
in 2015. At CenterState, we push
we are now approaching the optimum size of $5 to $10
responsibility to the lowest level of the bank. On the
billion in assets in this post Dodd-Frank era. We will
pages that follow, we highlight some of the outstanding
continue to seek new strategic bank partners but plan to
individuals at CenterState that lead our decentralized
proceed cautiously as the real estate cycle matures.
and entrepreneurial business model. Our financial
We also believe that a flattening yield curve highlights
Without their dedication, we would not have been able
the importance of a diversified revenue stream of non-
to deliver 2015’s superior shareholder returns.
performance is the direct result of their leadership.
interest income. Our correspondent banking and capital
markets business segment continues as an important
As always, we remain grateful for your investment and
business line and contributed 14 cents earnings per
for your continued trust in the CenterState team.
share during the year, up 10 cents per share from 2014.
The addition of Chris Nichols and his team in San
Francisco during 2014 proved to be an excellent fit. By
adding interest rate swaps to our capital markets suite of
products, we provide an important ALCO management
John C. Corbett
Ernest S. ‘Ernie’ Pinner
tool for our 600 community banking clients while also
President & CEO
Executive Chairman
adding significant new fee revenue for CenterState.
4
Key Performance Indicators
5
Orange | Osceola | Polk | Volusia | Seminole
Central REGION
Home to CenterState’s headquarters, the Central Region stretches along the vibrant
Interstate 4 corridor. The local economy is diversified and includes distribution,
healthcare, construction and tourism related industries. With 100 million visitors to
Florida annually, the Orlando market and its world class attractions continue to
grow. We are expanding our team to become Orlando’s leading community bank.
Dale Dreyer
Regional President
Loan Portfolio
Assets: $1,072
Deposits: $944
Loans: $965
2015 Loan Originations: $288
Amounts are in millions
6
S. Palm Beach | Broward | South Miami-Dade | Monroe
South REGION
With the acquisitions of Gulfstream Business Bank, First Southern and the two
pending acquisitions in South Miami-Dade County, CenterState has grown rapidly
in south Florida since 2014. We have a large niche providing treasury
management and
lending services to condominium and homeowners’
associations along the south Florida coastline. In addition, this market provides
abundant commercial real estate lending oppotunities.
Loan Portfolio
Mark Thompson
Regional President
Assets: $1,367
Deposits: $1,189
Loans: $1,036
2015 Loan Originations: $160
Amounts are in millions
Proforma for pending acquisitions
7
Hillsborough | Sumter | Lake | Hernando | Pasco | Okeechobee | Hendry
West REGION
From the suburban markets around Tampa to rural Okeechobee, the west region is
home to numerous retirement communities and Florida’s robust cattle and citrus
industries. With the addition of several new industrial and commercial parks along
the I-75 corridor, there will be added commercial loan and deposit opportunities.
These are deposit-rich markets with a steady and loyal client base.
Tim Pierson
Regional President
Loan Portfolio
Assets: $562
Deposits: $511
Loans: $387
2015 Loan Originations: $130
Amounts are in millions
8
Duval
| Putnam | Marion | Indian River | St. Lucie | Martin | N. Palm Beach
East REGION
Stretching from the metro market of Jacksonville down to the Treasure Coast,
Gilbert Pomar leads our markets along Florida’s east coast. Following two
decades of consolidation, we believe there is a unique opportunity to build the
next great Florida-headquartered community bank in Jacksonville. Home to two
Navy bases, CSX railroad and a large port, opportunities abound for small and
mid-size lending relationships.
Loan Portfolio
Gilbert Pomar III
Regional President
Assets: $1,256
Deposits: $1,042
Loans: $725
2015 Loan Originations: $214
Amounts are in millions
9
CSFL Leadership
L to R: Jim Antal, Holding Company Chief Financial Officer; Ernie Pinner, Executive Chairman; John Corbett, President & CEO;
Steve Young, Chief Operating Officer; Jennifer Idell, Bank Chief Financial Officer; Dan Bockhorst, Chief Risk Officer.
X
E
D
N
I
Five Year
Performance
Index
The shares of the Company’s
common stock are traded on
the NASDAQ National Market
System. The following graph
compares the yearly percent-
age change in cumulative
shareholder return on the
Company’s common stock,
with the cumulative total return
of the SNL Southeast Bank
Index, since December 31, 2010
(assuming a $100 investment
Y E A R E N D
2010
2011
2012
2013
2014
2015
on December 31, 2010 and
CenterState Banks, Inc.
reinvestment of all dividends).
SNL Southeast Bank Index
100
100
84
59
109
97
130
132
153
148
203
146
10
Board of Directors
James H. Bingham
President
Concire Centers, Inc.
Griffin A. Greene
President
Greene’s Citrus
Management, Inc.
G. Robert Blanchard, Jr.
Chairman & President
WRB Enterprises, Inc.
Charles W. McPherson
Retired Bank CEO
G. Tierso Nunez, II
President & Owner
GT Nunez &
Associates, P.A.
Thomas E. Oakley
President
Oakley Groves, Inc.
Oakley Transport, Inc.
C. Dennis Carlton
President & Owner
Mid-State Realty Co.
Michael F. Ciferri
President & Owner
Ciferri Enterprises
John C. Corbett
President & CEO
CenterState Banks, Inc.
Ernest S. Pinner
Executive Chairman
of the Board
CenterState Banks, Inc.
William Knox Pou, Jr.
Exec. Vice President
W.S. Badcock Corp.
Daniel R. Richey
President & CEO
Riverfront Groves, Inc.
Joshua A. Snively
President
Florida Chemical
Operating Committee
L to R: Cindy Robbins, Chief Retail Officer; Jennifer Idell, Bank Chief Financial Officer; Steve Young, Chief Operating Officer; John
Corbett, President & CEO; Ernie Pinner, Executive Chairman; Robert Dodd, Chief Credit Officer; Jim Antal, Holding Company
Chief Financial Officer; Dan Bockhorst, Chief Risk Officer; Debbie Harsh, Human Resources Director; John Tranter, Chief Banking
Officer; Darlene Bennett, Operations Director; Rod Anthony, EVP of Technology and Operations.
11
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-32017
CENTERSTATE BANKS, INC.
(Name of registrant as specified in its charter)
Florida
(State or Other Jurisdiction
of Incorporation or Organization)
42745 U.S. Highway 27, Davenport, Florida
(Address of principal executive offices)
59-3606741
(I.R.S. Employer
Identification No.)
33837
(Zip Code)
Issuer’s telephone number, including area code:
(863) 419-7750
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
The registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ‘ NO È
The registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ‘ NO È
Check whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. YES È] NO ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). YES È NO ‘
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation SK contained in this form, and
no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
Non-accelerated filer ‘
Accelerated filer È
Smaller reporting company ‘
The registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. YES ‘ NO È
The aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant (31,240,711
shares) on June 30, 2015, was approximately $423,413,000. The aggregate market value was computed by reference to the
last sale of the Common Stock of the registrant at $13.51 per share on June 30, 2015. For the purposes of this response,
directors, executive officers and holders of 5% or more of the registrant’s Common Stock are considered the affiliates of the
issuer at that date.
As of February 29, 2016 there were outstanding 45,651,827 shares of the registrant’s Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2016 to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the registrant’s fiscal year end are
incorporated by reference into Part III, of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business
General
Note about Forward-Looking Statements
Lending Activities
Deposit Activities
Investments
Correspondent Banking
Data Processing
Effect of Governmental Policies
Supervision and Regulation
Competition
Employees
Statistical Profile and Other Financial Data
Availability of Reports furnished or filed with SEC
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
[Removed and Reserved]
PART II
Item 5. Market for Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Item 6.
Selected Consolidated Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Item 8.
Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX
Page
1
1
3
3
4
5
5
6
6
6
14
15
15
15
15
29
29
29
29
30
33
39
78
78
78
78
78
79
79
79
79
79
79
82
162
163
PART I
Item 1.
Business
General
CenterState Banks, Inc. (“We,” “Our,” “CenterState,” “CSFL,” or the “Company”) was incorporated under
the laws of the State of Florida on September 20, 1999. CenterState is a registered financial holding company
under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and owns all the outstanding
shares of CenterState Bank of Florida, N.A. (“CSB” or the “Bank”), R4ALL, Inc. (“R4ALL”) a non bank
subsidiary and CSFL Insurance Corp. (“CSFL IC”) the Company’s captive insurance subsidiary, also a non bank
subsidiary.
The Company was formed and commenced operations by acquiring CenterState Bank Central Florida, N.A.
(“Central”), CenterState Bank, N.A. (“CSNA”) and First National Bank of Polk County (“FNB/Polk”) in June of
2000. Central and CSNA commenced operations in 1989. FNB/Polk commenced operations in 1992.
CSB commenced operations in April of 2000 and was acquired by the Company on December 31, 2002. In
January 2006, FNB/Polk was merged with CSB.
The Company purchased CenterState Bank Mid Florida in March of 2006 and merged it with CSNA in
November of 2007. In April of 2007 we purchased Valrico State Bank (“VSB”). In December 2010 Central and
CSNA were merged into CSB. In June 2012 VSB was merged into CSB.
In September 2009 we formed a separate non bank subsidiary, R4ALL, for the purpose of acquisition and
disposition of troubled assets from our subsidiary bank(s).
Through our subsidiary bank, CSB, we acquired assets and deposits from four failed financial institutions
from the Federal Deposit Insurance Corporation (“FDIC”) in 2009 and 2010, and a fifth and sixth in January of
2012.
In January 2011, we acquired four branch banking offices with approximately $113 million of deposits and
approximately $121 million of performing loans from TD Bank, N.A.
In November 2011, we acquired Federal Trust Corporation in Sanford, Florida, with approximately $157
million of selected performing loans, $198 million of deposits and five branch banking offices from The Hartford
Insurance Group, Inc., the sole owner of Federal Trust Corporation.
In January 2014, we acquired Gulfstream Bancshares, Inc. (“Gulfstream”) which added four additional
branches (approximately $479 million of deposits) and two additional counties, Palm Beach and Martin, to our
market area.
In June 2014, we acquired First Southern Bancorp, Inc. (“FSB”) with approximately $600 million in loans,
$853 million in deposits and 17 branches, of which 10 were either sold or closed in September 2014, and added
Broward County to our market area.
In July 2015, we purchased the branch real estate, and assumed approximately $15 million in deposits, of
SouthBank, F.S.B.’s (“SB”) main banking office located in Palm Beach County. On the same date, we closed
two nearby existing leased branches and consolidated these offices into the newly acquired location.
In October 2015, we entered into an agreement to acquire Community Bank of South Florida, Inc. and its
subsidiary bank, Community Bank of Florida, Inc. with approximately $334 million in loans and $438 million in
deposits. Also in October 2015, we entered into an agreement to acquire Hometown of Homestead Banking
Company and its subsidiary bank, 1st National Bank of South Florida, with approximately $206 million in loans
and $281 million in deposits. Both acquisitions closed on March 1, 2016.
In December 2015, we created CSFL IC for the purpose of initiating a captive insurance subsidiary pursuant
to section 831(b) of the U.S. Tax Code.
Headquartered in Davenport, Florida between Orlando and Tampa, we provide a range of consumer and
commercial banking services to individuals, businesses and industries throughout our branch network located
within 20 counties throughout Central, Northeast and Southeastern Florida. As of December 31, 2015, our 57
bank branch offices were located in the following Florida counties:
Broward
Duval
Hendry
Hernando
Hillsborough
Indian River
Lake
Marion
Martin
Okeechobee
Orange
Osceola
Palm Beach
Pasco
Polk
Putnam
St. Lucie
Seminole
Sumter
Volusia
The basic services we offer include: demand interest-bearing and noninterest-bearing accounts, money
market deposit accounts, time deposits, safe deposit services, cash management, direct deposits, notary services,
money orders, night depository, travelers’ checks, cashier’s checks, domestic collections, savings bonds, bank
drafts, automated teller services, drive-in tellers, and banking by mail and by internet. In addition, we make
residential and commercial real estate loans, secured and unsecured commercial loans and consumer loans. We
provide automated teller machine (ATM) cards, thereby permitting customers to utilize the convenience of larger
ATM networks. We also offer internet banking services to our customers. We also offer trust services to
customers throughout our existing markets in Florida. We also have a wealth management division that offers
other financial products to our customers, including mutual funds, annuities and other products.
Our revenue is primarily derived from interest on, and fees received in connection with, real estate and other
loans, interest and dividends from investment securities and short-term investments, and commissions on bond
sales. The principal sources of funds for our lending activities are customer deposits, repayment of loans, and the
sale and maturity of investment securities. Our principal expenses are interest paid on deposits, and operating and
general administrative expenses.
In addition to providing traditional deposit and lending products and services to our commercial and retail
customers through our 57 locations, we also operate a correspondent banking and capital markets division. The
division is integrated with and part of our subsidiary bank, CSB, located in Winter Haven, Florida, although the
majority of our bond salesmen, traders and operations personnel are physically housed in leased facilities located
in Birmingham, Alabama and Atlanta, Georgia. Its primary revenue generating activities are related to the capital
markets division which includes commissions earned on fixed income security sales, fees from hedging services,
loan brokerage fees and consulting fees for services related to these activities. Income generated related to the
correspondent banking services includes spread income earned on correspondent bank deposits (i.e. federal funds
purchased) and fees generated from safe-keeping activities, bond accounting services, asset/liability consulting
services, international wires, clearing and corporate checking account services and other correspondent banking
related services. The fees derived from the correspondent banking services are less volatile than those generated
through the capital markets group. The customer base includes small to medium size financial institutions
primarily located throughout the United States.
As is the case with banking institutions generally, our operations are materially and significantly influenced
by the real estate market, general economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Deposit flows and costs of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand for financing of real estate and
2
other types of loans, which in turn is affected by the interest rates at which such financing may be offered and
other factors affecting local demand and availability of funds. We face strong competition in the attraction of
deposits (our primary source of lendable funds) and in the origination of loans. See “Competition.”
At December 31, 2015, our primary asset is our ownership of 100% of the stock of our subsidiary bank. At
December 31, 2015, we had total consolidated assets of $4,022,717,000, total consolidated loans of
$2,593,776,000, total consolidated deposits of $3,215,178,000, and total consolidated stockholders’ equity of
$490,514,000.
Note about Forward-Looking Statements
This Form 10-K contains forward-looking statements, such as statements relating to our financial condition,
results of operations, plans, objectives, future performance and business operations. These statements relate to
expectations concerning matters that are not historical facts. These forward-looking statements reflect our current
views and expectations based largely upon the information currently available to us and are subject to inherent
risks and uncertainties. Although we believe our expectations are based on reasonable assumptions, they are not
guarantees of future performance and there are a number of important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking statements. By making these forward-
looking statements, we do not undertake to update them in any manner except as may be required by our
disclosure obligations in filings we make with the Securities and Exchange Commission under the Federal
securities laws. Our actual results may differ materially from our forward-looking statements.
Lending Activities
We offer a range of lending services, including real estate, consumer and commercial loans, to individuals
and small businesses and other organizations that are located in or conduct a substantial portion of their business
in our market area. Our consolidated loans at December 31, 2015 and 2014 were $2,593,776,000, or 64% and
$2,429,525,000, or 64%, respectively, of total consolidated assets. The interest rates charged on loans vary with
the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money
market rates, availability of funds, and government regulations. We have no foreign loans or loans for highly
leveraged transactions. We do have immaterial amounts of loans with foreigners on property located within our
Florida market area, primarily vacation and second homes.
Our loans are concentrated in three major areas: real estate loans, commercial loans and consumer loans. A
majority of our loans are made on a secured basis. As of December 31, 2015, approximately 85% of our
consolidated loan portfolio consisted of loans secured by mortgages on real estate, 12% of the loan portfolio
consisted of commercial loans (not secured by real estate) and 3% of our loan portfolio consisted of consumer
and other loans.
At December 31, 2015, approximately 6.8% of our loans, or $177,320,000, were covered by FDIC loss
sharing agreements related to the acquisition of three failed financial institutions during the third quarter of 2010,
two during the first quarter of 2012 and two were assumed pursuant to our 2014 acquisition of First Southern
Bank. Pursuant to the terms of the loss sharing agreements, the FDIC was obligated to reimburse us for losses
with respect to the covered loans, subject to the terms of the various agreements. On February 3, 2016, we
entered into an agreement with the FDIC to terminate all existing loss share agreements. We will now recognize
the full amounts of all future charge-offs and recoveries related to the former covered assets as the FDIC will no
longer be sharing in the such amounts.
Our real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses
for the purchase, improvement of or investment in real estate, for the construction of single-family residential and
commercial units, and for the development of single-family residential building lots. These real estate loans may
3
be made at fixed or variable interest rates. Generally, we do not make fixed-rate commercial real estate loans for
terms exceeding five years. Loans in excess of five years are generally adjustable. Our residential real estate
loans generally are repayable in monthly installments based on up to a 15-year or a 30-year amortization
schedule with variable or fixed interest rates.
Our commercial loan portfolio includes loans to individuals and small-to-medium sized businesses located
primarily in twenty Florida counties listed under “Business” or contiguous counties for working capital,
equipment purchases, and various other business purposes. A majority of commercial loans are secured by
equipment or similar assets, but these loans may also be made on an unsecured basis. Commercial loans may be
made at variable or fixed rates of interest. Commercial lines of credit are typically granted on a one-year basis,
with loan covenants and monetary thresholds. Other commercial loans with terms or amortization schedules of
longer than one year will normally carry interest rates which vary with the prime lending rate and will become
payable in full and are generally refinanced in three to five years. Commercial and agricultural loans not secured
by real estate amounted to approximately 12% and 12% of our Company’s total loan portfolio as of
December 31, 2015 and 2014, respectively.
Our consumer loan portfolio consists primarily of loans to individuals for various consumer purposes, but
includes some business purpose loans which are payable on an installment basis. The majority of these loans are
for terms of less than five years and are secured by liens on various personal assets of the borrowers, but
consumer loans may also be made on an unsecured basis. Consumer loans are made at fixed and variable interest
rates, and are often based on up to a five-year amortization schedule.
At December 31, 2015, approximately 49% of our total non-PCI (“Purchased Credit Impaired”) loan
portfolio is fixed rate, 20% is floating rate and 31% is variable rate other than floating.
For additional information regarding our loan portfolio, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
Loan originations are derived primarily from employee loan officers within our local market areas, but can
also be attributed to referrals from existing customers and borrowers, advertising, or walk-in customers.
Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from
uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that
economic conditions will change and adversely affect collectability. We attempt to minimize credit losses
through various means. In particular, on larger credits, we generally rely on the cash flow of a debtor as the
source of repayment and secondarily on the value of the underlying collateral. In addition, we attempt to utilize
shorter loan terms in order to reduce the risk of a decline in the value of such collateral.
Deposit Activities
Deposits are the major source of our funds for lending and other investment activities. We consider the
majority of our regular savings, demand, NOW and money market deposit accounts to be core deposits. These
accounts comprised approximately 87% and 84% of our consolidated total deposits at December 31, 2015 and
2014, respectively. Approximately 13% of our consolidated deposits at December 31, 2015, were certificates of
deposit compared to 16% at December 31, 2014. Generally, we attempt to maintain the rates paid on our deposits
at a competitive level. Time deposits of $100,000 and over made up approximately 8% of consolidated total
deposits at December 31, 2015 and 9% at December 31, 2014. The majority of the deposits are generated from
market areas where we conduct business. Generally, we do not accept brokered deposits and we do not solicit
deposits on a national level. We obtain substantially all of our deposits from customers in our local markets. For
additional information regarding the Company’s deposit accounts, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Deposits.”
4
Investments
Our investment securities portfolio available for sale was $604,739,000 and $517,457,000 at December 31,
2015 and 2014, respectively, representing 15% and 14% of our total consolidated assets. At December 31, 2015,
approximately 94% of this portfolio was invested in U.S. government mortgage backed securities (“MBS”),
specifically residential FNMA, FHLMC, and GNMA MBSs. We do not own any private label MBSs.
Approximately 6%, or $35,287,000, of this portfolio is invested in municipal securities. Our investments are
managed in relation to loan demand and deposit growth, and are generally used to provide for the investment of
excess funds at acceptable risks levels while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits. Investment securities available for sale are recorded on our balance sheet at market value
at each balance sheet date. Any change in market value is recorded directly in our stockholders’ equity account
and is not recognized in our income statement unless the security is sold or unless it is impaired and the
impairment is other than temporary. During 2015, we sold approximately $16,305,000 of these securities and
recognized a net gain on the sales of approximately $4,000.
We have selected these types of investments because such securities generally represent what we believe to
be a minimal investment risk. Occasionally, we may purchase certificates of deposits of national and state banks.
These investments may exceed $250,000 in any one institution (the limit of FDIC insurance for deposit
accounts). Federal funds sold, money market accounts and interest bearing deposits held at the Federal Reserve
Bank represent the excess cash we have available over and above daily cash needs. Federal funds sold and money
market funds are invested on an overnight basis with approved correspondent banks.
We monitor changes in financial markets. In addition to investments for our portfolio, we monitor daily cash
positions to ensure that all available funds earn interest at the earliest possible date. A portion of the investment
account is invested in liquid securities that can be readily converted to cash with minimum risk of market loss.
These investments usually consist of obligations of U.S. government agencies, mortgage backed securities and
federal funds. The remainder of the investment account may be placed in investment securities of different type
and/or longer maturity. Daily surplus funds are sold in the federal funds market for one business day. We attempt
to stagger the maturities of our securities so as to produce a steady cash-flow in the event cash is needed, or
economic conditions change.
We also have a trading securities portfolio managed at our subsidiary bank. For this portfolio, realized and
unrealized gains and losses are included in trading securities revenue, a component of non interest income in our
Consolidated Statement of Operations and Comprehensive Income. Securities purchased for this portfolio have
primarily been municipal securities and are held for short periods of time. During 2015, we purchased
approximately $147,693,000 of securities for this portfolio and sold $149,409,000 recognizing a net gain on sale
of approximately $403,000. At December 31, 2015 we had $2,107,000 of securities in our trading portfolio.
Our held to maturity securities portfolio was $272,840,000 and $237,362,000 at December 31, 2015 and
December 31, 2014, respectively, representing 7% and 6% of our total consolidated assets. These securities had
gross unrecognized net gains of approximately $1,143,000 and $1,069,000, resulting in estimated fair values of
$273,983,000 and $238,431,000 at December 31, 2015 and 2014, respectively. At December 31, 2015,
approximately 57% of this portfolio is invested in mortgage backed securities, 22% in municipal securities and
21% in obligations of U.S. government sponsored entities and agencies. It is anticipated that this portfolio will
generally hold longer term securities for the primary purpose of yield. This classification was chosen to minimize
temporary effects on our tangible equity and tangible equity ratio due to increases and decreases in general
market interest rates.
Correspondent Banking
We have a correspondent banking and capital markets segment which operates as a division within our
subsidiary bank. Its primary revenue generating activities are related to the capital markets division which
includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and
5
consulting fees for services related to these activities. Income generated related to the correspondent banking
services includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and fees
generated from safe-keeping activities, bond accounting services, asset/liability consulting services, international
wires, clearing and corporate checking account services and other correspondent banking related services. The
fees derived from the correspondent banking services are less volatile than those generated through the capital
markets group. The customer base includes small to medium size financial institutions located throughout the
United States.
Data Processing
We use a single in-house core data processing solution. The core data processing system provides deposit
processing, loan processing and overall accounting services.
A division of our subsidiary bank provides item processing services and certain other information
technology (“IT”) services for the bank and the Company overall. These services include; sorting, encoding,
processing, and imaging checks and rendering checking and other deposit statements to commercial and retail
customers, as well as providing IT services, including intranet and internet services for our bank and the
Company overall.
Effect of Governmental Policies
Our earnings and business are and will be affected by the policies of various regulatory authorities of the
United States, especially the Federal Reserve. The Federal Reserve, among other things, regulates the supply of
credit and deals with general economic conditions within the United States. The instruments of monetary policy
employed by the Federal Reserve for these purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates paid on liabilities and received on assets. The
monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial
banks and are expected to continue to do so in the future. The monetary policies of the Federal Reserve are
influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the
effect of such policies on the future business and earnings of the Company and our subsidiary bank cannot be
predicted.
Supervision and Regulation
Banks and their holding companies, and many of their affiliates, are extensively regulated under both
federal and state law. The following is a brief summary of certain statutes, rules, and regulations affecting our
Company, and our subsidiary bank. This summary is qualified in its entirety by reference to the particular
statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of our Company and subsidiary bank. Proposals to change the
laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The
likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on the
Company and the Bank, are difficult to ascertain. A change in applicable laws and regulations, or in the manner
such laws and regulations are interpreted by regulatory agencies or courts, may have a material adverse effect on
the Company’s and the Bank’s business, operations, and earnings. Supervision, regulation, and examination of
banks by regulatory agencies are intended primarily for the protection of depositors, rather than shareholders.
Regulation of the Company
Our Company is registered with the Federal Reserve as a financial holding company under the Gramm-
Leach-Bliley Act (“GLB Act”) and is registered with the Federal Reserve as a bank holding company under the
BHC Act. As such, we are subject to the supervision, examination and regulation by the Federal Reserve. The
6
GLB Act, the BHC Act, and other federal laws subject financial holding companies to particular restrictions on
the types of activities in which they may engage, and to a range of supervisory requirements and activities,
including regulatory enforcement actions for violations of laws and regulations.
Under current law and Federal Reserve policy, a financial holding company is expected to act as a source of
financial and managerial strength to its subsidiary bank and to maintain resources adequate to support its bank.
The term “source of financial strength” is defined under the Dodd-Frank Act as the ability of a company to
provide financial assistance to its insured depository institution subsidiaries in the event of financial distress. The
appropriate federal banking agency for such a depository institution may require reports from companies that
control the insured depository institution to assess their abilities to serve as a source of strength and to enforce
compliance with the source-of-strength requirements. The appropriate federal banking agency may also require a
holding company to provide financial assistance to a bank with impaired capital. Under this requirement, in the
future, we could be required to provide financial assistance to our subsidiary bank should it experience financial
distress. Based on our ownership of a national bank subsidiary, the OCC could assess us if the capital of our
subsidiary bank were to become impaired. If a holding company fails to pay an imposed assessment within three
months, it could be ordered to sell its stock of its subsidiary bank to cover the deficiency. As disclosed below,
holding companies also have minimum capital requirements which must be maintained to remain in regulatory
compliance.
The BHC Act requires that a financial holding company obtain the prior approval of the Federal Reserve
before (i) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank,
(ii) taking any action that causes a bank to become a subsidiary of the financial holding company, or (iii) merging
or consolidating with any other financial holding company.
The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in
a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any
other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs of the community to be served.
The Federal Reserve is also required to consider the financial and managerial resources and future prospects of
the bank holding companies and banks concerned and the convenience, and needs of the community to be served.
Consideration of financial resources generally focuses on capital adequacy and consideration of convenience and
needs issues includes the parties’ performance under the Community Reinvestment Act of 1977 (the “CRA”),
both of which are discussed below.
The Federal Reserve requires financial and bank holding companies to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights. The Federal Reserve’s
requirements provide that a bank holding company must have minimum capital equivalent to 8% of risk-
weighted assets to be considered adequately capitalized. At December 31, 2015, our Tier 1 and total risk-based
capital ratios were 15.0% and 15.8%, respectively.
Banks are subject to the provisions of the CRA. Under the terms of the CRA, the appropriate federal bank
regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in
meeting the credit needs of the community served by that bank, including low- and moderate-income
neighborhoods. The regulatory agency’s assessment of the bank’s record is made available to the public. Further,
such assessment is required of any bank which has applied to:
•
•
establish a new branch office that will accept deposits,
relocate an office, or
• merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated
financial institution
7
In the case of a financial holding company applying for approval to acquire a bank or other bank holding
company, the Federal Reserve will assess the record of each subsidiary bank of the applicant financial holding
company, and such records may be the basis for denying the application.
The BHC Act generally prohibits a financial holding company from engaging in activities other than
banking, or managing or controlling banks or other permissible subsidiaries, and from acquiring or retaining
direct or indirect control of any company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident
thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether
the performance of such an activity can reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.
For example, factoring accounts receivable, acquiring or servicing loans, leasing personal property, conducting
securities brokerage activities, performing certain data processing services, acting as agent or broker in selling
credit life insurance and certain other types of insurance in connection with credit transactions, and certain
insurance underwriting activities have all been determined by regulations of the Federal Reserve to be
permissible activities of financial holding companies. Despite prior approval, the Federal Reserve has the power
to order a holding company or its subsidiaries to terminate any activity or terminate its ownership or control of
any subsidiary, when it has reasonable cause to believe that continuation of such activity or such ownership or
control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that
financial holding company.
Regulation of the Bank
CSB is chartered under the national banking laws and is subject to comprehensive regulation, examination
and supervision by the OCC. The deposits of the Bank are insured by the FDIC to the extent provided by law
and, accordingly, the Bank is also subject to certain FDIC regulations and the FDIC has backup examination
authority and some enforcement powers over the Bank. The Bank also is subject to various federal and state laws
and regulations applicable to banks. Such regulations include limitations on loans to a single borrower and to its
directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of
required capital and liquidity ratios; the granting of credit under equal and fair conditions; and the disclosure of
the costs and terms of such credit. The Bank submits to its examining agencies periodic reports regarding its
financial condition and other matters. The bank regulatory agencies have a broad range of powers to enforce
regulations under their jurisdiction, and to take discretionary actions determined to be for the protection and
safety and soundness of banks, including the institution of cease and desist orders and the removal of directors
and officers. The bank regulatory agencies also have the authority to approve or disapprove mergers,
consolidations, and similar corporate actions.
There are various statutory limitations on our ability to pay dividends. The bank regulatory agencies also
have the general authority to limit the dividend payment by banks to their holding company parent if such
payment may be deemed to constitute an unsafe and unsound practice. For information on the restrictions on the
right of our Bank to pay dividends to us, see Part II – Item 5 “Market for the Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Transactions with Affiliates. The Bank also is subject to restrictions as to the limit of the size and number of
transactions that it may have with its affiliates, as well as restrictions on lending to its and our executive officers
and directors and their related interest. Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent holding companies or other affiliates,
on investment in the stock or other securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. Also, the Company and the Bank are prohibited from engaging in asset purchases
or sales transactions with their officers, directors, or principal shareholders unless the transaction is on market
terms and, if the transaction represents greater than 10% of the capital and surplus of the Bank, a majority of the
8
Bank’s disinterested directors has approved the transaction. In addition, banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.
FIRREA. The Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) imposed stronger
capital standards and stronger civil and criminal enforcement provisions. FIRREA also provides that a depository
institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred
by, the FDIC in connection with:
•
•
the default of a commonly controlled FDIC insured depository institution; or
any assistance provided by the FDIC to a commonly controlled FDIC insured institution in danger of
default.
FDICIA. The FDIC Improvement Act (“FDICIA”) made a number of reforms addressing the safety and
soundness of deposit insurance funds, supervision, accounting, and prompt regulatory action, and also
implemented other regulatory improvements. Periodic full-scope, on-site examinations are required of all insured
depository institutions. The cost for conducting an examination of an institution may be assessed to that
institution, with special consideration given to affiliates and any penalties imposed for failure to provide
information requested. Insured state banks also are precluded from engaging as principal in any type of activity
that is impermissible for a national bank, including activities relating to insurance and equity investments. The
Act also recodified restrictions on extensions of credit to insiders under the Federal Reserve Act.
Basel III. In 2010 the Group of Governors and Heads of Supervision, the oversight body of the Basel
Committee on Banking Supervision, announced an agreement to a strengthened set of capital requirements
known as Basel III. The OCC and the Federal Reserve have approved a final rule that establishes a new
regulatory capital framework that incorporates revisions to the Basel capital framework, including Basel III and
other elements. The rule strengthens the definition of regulatory capital, increases risk-based capital
requirements, and amends the methodologies for determining risk-weighted assets. The rule applies to all banks,
including national banks. Subject to various transition periods, the rule became effective for certain banks
(including the Bank) on January 1, 2015. Among other things, the rule:
•
Implements strict eligibility criteria for regulatory capital instruments.
• Revises the Prompt Corrective Act action framework to incorporate new regulatory capital minimum
thresholds.
• Adds a new common equity Tier 1 capital ratio of 4.5% and increases the minimum Tier 1 capital ratio
requirement from 4% to 6%.
•
Improves the measure of risk-weighted assets to enhance risk sensitivity.
• Allows certain depository institution holding companies to continue to include in Tier 1 capital
previously issued trust preferred securities and cumulative perpetual preferred stock.
• Limits capital distributions and certain discretionary bonus payments if banks do not maintain a capital
conservation buffer of common equity Tier 1 capital above minimum capital requirements.
• Establishes due diligence requirements for securitization exposures.
The Basel III rules provide risk-based capital guidelines designed to make regulatory capital requirements
more sensitive to differences in risk profiles among banks, to account for off-balance sheet exposures, and to
minimize disincentives for holding certain assets. Under these guidelines, assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate risk-weights. The institution’s total risk-weighted assets
are used to calculate its regulatory capital ratios. Under the Basel III rules, the minimum ratio of total capital to
total risk-weighted assets is 8%. The required ratio of “Tier 1 Capital” (consisting generally of shareholders’
equity and qualifying preferred stock, less certain goodwill items and other intangible assets) to risk-weighted
9
assets is 6%. There is a new category of capital ratio of “Common Equity Tier 1 Capital” (which generally
consists of common stock, retained earnings, certain qualifying capital instruments issued by consolidated
subsidiaries, and accumulated other comprehensive income, subject to certain adjustments) to risk-weighted
assets, of 4.5%.
In addition, the federal banking agencies have established minimum leverage ratio requirements for banking
organizations they supervise, calculated as the ratio of Tier 1 Capital to adjusted average consolidated assets.
Under the Basel III rules, as of January 1, 2015, the required minimum leverage ratio for all banks is 4%.
The Basel III rules additionally provide for countercyclical capital requirements so that the required amount
of capital increases in times of economic expansion and decreases in times of economic contraction, consistent
with safety and soundness. Under the Basel III rules, banks must maintain a capital conservation buffer
consisting of additional Common Equity Tier 1 Capital equal to 2.5% of risk-weighted assets above each of the
required minimum capital levels in order to avoid limitations on paying dividends, engaging in share
repurchases, and paying certain discretionary bonuses. This new capital conversation buffer requirement was
phased in beginning January 2016 at 0.625% of risk-weighted assets and will increase each year until fully
implemented at 2.5% in January 2019.
As an additional means of identifying problems in the financial management of depository institutions, the
federal banking regulatory agencies have established certain non-capital safety and soundness standards for
institutions for which they are the primary federal regulator. The standards relate generally to operations and
management, asset quality, interest rate exposure, and executive compensation. The agencies are authorized to
take action against institutions that fail to meet such standards.
Prompt Corrective Action. FDICIA contains “prompt corrective action” provisions pursuant to which banks
are to be classified into one of five categories based upon capital adequacy, ranging from “well capitalized” to
“critically undercapitalized” and which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which becomes “significantly
undercapitalized” or “critically undercapitalized.” The classifications depend upon a bank’s ratios of its (i) Tier 1
Capital (generally consisting of shareholders’ equity and qualifying preferred stock, less certain goodwill items
and other intangible assets) to risk-weighted assets, (ii) Total Capital to its risk-weighted assets, (iii) Common
Equity Tier 1 Capital to risk-weighted assets, and (iv) leverage ratio (e.g., the ratio of its Tier 1 Capital to its
adjusted average consolidated assets). A bank’s Total Capital consists of the sum of its Tier 1 Capital and Tier 2
Capital (up the extent of its Tier 1 Capital), less reciprocal holdings of other banking organizations’ capital
instruments, investments in unconsolidated subsidiaries, and any other deductions as determined by the
appropriate regulator. Tier 2 Capital generally consists of a bank’s (i) allowance for loan losses of up to 1.25% of
risk-weighted assets (ii) preferred stock not qualifying as Tier 1 Capital, (iii) hybrid capital instruments,
(iv) perpetual debt, (v) mandatory convertible securities, and (vi) certain subordinated debt and intermediate –
term preferred stock up to 50% of Tier 1 Capital. Common Equity Tier 1 Capital generally consists of common
stock, retained earnings, certain qualifying capital instruments issued by consolidated subsidiaries, and
accumulated other comprehensive income, subject to certain adjustments.
The OCC has issued regulations to implement the “prompt corrective action” provisions of FDICIA. A bank
is deemed “well-capitalized” if its leverage ratio, Common Equity Tier 1 ratio, Tier 1 Capital Ratio, and Total
Capital ratio meet or exceed 5%, 6.5%, 8%, and 10%, respectively. A bank is deemed to be “adequately
capitalized” or better if its leverage, Common Equity Tier 1, Tier 1, and Total Capital ratios meet or exceed the
minimum federal regulatory capital requirements, and “undercapitalized” if it fails to meet these minimal capital
requirements. An institution is “significantly undercapitalized” if its leverage, Common Equity Tier 1, Tier 1,
and Total Capital Ratios fall below 3%, 3%, 4%, and 6%, respectively and “critically undercapitalized” if the
institution has a ratio of tangible equity to total assets that is equal to or less than 2%.
10
The OCC and the FDIC, after an opportunity for a hearing, have authority to downgrade an institution from
“well capitalized” to “adequately capitalized” or to subject an “adequately capitalized” or “undercapitalized”
institution to the supervisory actions applicable to the next lower category, for supervisory concerns.
Generally, FDICIA requires that an “undercapitalized” institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency. The appropriate federal banking agency may not
accept a capital restoration plan unless, among other requirements, each company having control of the
institution has guaranteed that the institution will comply with the plan until the institution has been adequately
capitalized on average during each of the three consecutive calendar quarters and has provided adequate
assurances of performance.
An “undercapitalized” institution may not acquire an interest in any company or any other insured
depository institution, establish or acquire additional branch offices or engage in any new business unless the
appropriate federal banking agency has accepted its capital restoration plan, the institution is implementing the
plan, and the agency determines that the proposed action is consistent with and will further the achievement of
the plan, or the appropriate Federal banking agency determines the proposed action will further the purpose of
the “prompt corrective action” sections of FDICIA.
If an institution is “critically undercapitalized,” it must comply with the restrictions described above. In
addition, the appropriate Federal banking agency is authorized to restrict the activities of any “critically
undercapitalized” institution and to prohibit such an institution, without the appropriate Federal banking agency’s
prior written approval, from:
•
•
•
•
entering into any material transaction other than in the usual course of business;
engaging in any covered transaction with affiliates (as defined in Section 23A(b) of the Federal
Reserve Act);
paying excessive compensation or bonuses; and
paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted
average costs of funds to a level significantly exceeding the prevailing rates of interest on insured
deposits in the institution’s normal market areas.
The “prompt corrective action” provisions of FDICIA also provide that in general no institution may make a
capital distribution if it would cause the institution to become “undercapitalized.” Capital distributions include
cash (but not stock) dividends, stock purchases, redemptions, and other distributions of capital to the owners of
an institution.
Additionally, FDICIA requires, among other things, that:
•
•
only a “well capitalized” depository institution may accept brokered deposits without prior regulatory
approval and
the appropriate federal banking agency annually examine all insured depository institutions, with some
exceptions for small, “well capitalized” institutions and state-chartered institutions examined by state
regulators.
FDICIA also contains a number of consumer banking provisions, including disclosure requirements and
substantive contractual limitations with respect to deposit accounts.
Enforcement Powers. Congress has provided the federal bank regulatory agencies with an array of powers to
enforce laws, rules, regulations and orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in the affairs of insured depository
institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-
affiliated parties for certain violations.
11
Maximum Legal Interest Rates. Like the laws of many states, Florida law contains provisions on interest
rates that may be charged by banks and other lenders on certain types of loans. Numerous exceptions exist to the
general interest limitations imposed by Florida law. The relative importance of these interest limitation laws to
the financial operations of the Banks will vary from time to time, depending on a number of factors, including
conditions in the money markets, the costs and availability of funds, and prevailing interest rates.
Change of Control. Federal law restricts the amount of voting stock of a bank holding company and a bank
that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to
make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it
might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be
less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts
to acquire control of other companies. Federal law also imposes restrictions on acquisitions of stock in a bank
holding company and a state bank. Under the federal Change in Bank Control Act and the regulations thereunder,
a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding
company, and the OCC before acquiring control of any national bank. Upon receipt of such notice, the bank
regulatory agencies may approve or disapprove the acquisition. The Change in Bank Control Act creates a
rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding
company’s or bank’s voting stock, or if one or more other control factors set forth in the Act are present.
Anti-Money Laundering Requirements. Under federal law, including the Bank Secrecy Act, the PATRIOT
Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, certain types of
financial institutions, including insured depository institutions, must maintain anti-money laundering programs
that include established internal policies, procedures and controls; a designated compliance officer; an ongoing
employee training program; and testing of the program by an independent audit function. Among other things,
these laws are intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities
to work together to combat terrorism on a variety of fronts. Financial institutions are prohibited from entering
into specified financial transactions and account relationships and must meet enhanced standards for due
diligence and customer identification in their dealings with non-U.S. financial institutions and non-U.S.
customers. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account
relationships to guard against money laundering and to report any suspicious information maintained by financial
institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must
consider an institution’s compliance in connection with the regulatory review of applications, including
applications for banking mergers and acquisitions. The regulatory authorities have imposed “cease and desist”
orders and civil money penalty sanctions against institutions found to be violating these obligations.
The OFAC is responsible for helping to insure that U.S. entities do not engage in transactions with certain
prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of
persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as
Specially Designated Nationals and Blocked Persons. If we or our Bank find a name on any transaction, account
or wire transfer that is on an OFAC list, we or our Bank must freeze or block such account or transaction, file a
suspicious activity report and notify the appropriate authorities.
Consumer Laws and Regulations. Banks and other financial institutions are subject to numerous laws and
regulations intended to protect consumers in their transactions with banks. These laws include, among others,
laws regarding unfair and deceptive acts and practices and usury laws, as well as the following consumer
protection statutes: Truth in Lending Act, Truth in Savings Act, Electronic Funds Transfer Act, Expedited Funds
Availability Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act, Fair Housing Act,
Fair Credit Reporting Act, Fair Debt Collection Practices Act, GLB Act, Home Mortgage Disclosure Act,
National Flood Insurance Program, Right to Financial Privacy Act and Real Estate Settlement Procedures Act.
Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed
above. These federal, state and local laws regulate the manner in which financial institutions deal with customers
12
when taking deposits, making loans or conducting other types of transactions. Failure to comply with these laws
and regulations could give rise to regulatory sanctions, customer rescission rights, action by state and local
attorneys general and civil or criminal liability.
GLB Act. The GLB Act includes a minimum federal standard of financial privacy. Financial institutions are
required to have written privacy policies that must be disclosed to customers. The disclosure of a financial
institution’s privacy policy must take place at the time a customer relationship is established and not less than
annually during the continuation of the relationship. The act also provides for the functional regulation of bank
securities activities. The law repealed the exemption that banks were afforded from the definition of “broker,”
and replaced it with a set of limited exemptions that allow the continuation of some historical activities
performed by banks. In addition, the act amended the securities laws to include banks within the general
definition of dealer. Regarding new bank products, the law provides a procedure for handling products sold by
banks that have securities elements. In the area of CRA activities, the law generally requires that financial
institutions address the credit needs of low-to-moderate income individuals and neighborhoods in the
communities in which they operate. Bank regulators are required to take the CRA ratings of a bank or of the bank
subsidiaries of a holding company into account when acting upon certain branch and bank merger and acquisition
applications filed by the institution. Under the law, financial holding companies and banks that desire to engage
in new financial activities are required to have satisfactory or better CRA Act ratings when they commence the
new activity.
Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was enacted which imposes a myriad of corporate
governance and accounting measures designed that shareholders are treated and have full and accurate
information about the public companies in which they invest. All public companies are affected by the Act. Some
of the principal provisions of the Act include:
•
•
•
•
the creation of an independent accounting oversight board (“PCAOB”) to oversee the audit of public
companies and auditors who perform such audits;
auditor independence provisions which restrict non-audit services that independent accountants may
provide to their audit clients;
additional corporate governance and responsibility measures which (a) require the chief executive
officer and chief financial officer to certify financial statements and internal controls and to forfeit
salary and bonuses in certain situations, and (b) protect whistleblowers and informants;
expansion of the authority and responsibilities of the company’s audit, nominating and compensation
committees;
• mandatory disclosure by analysts of potential conflicts of interest; and
•
enhanced penalties for fraud and other violations.
Other Provisions of the Dodd-Frank Act. The Dodd-Frank Act, which became law on July 21, 2010,
implements far-reaching changes across the financial regulatory landscape. In addition to the reforms previously
mentioned, the Dodd-Frank Act also:
•
•
•
requires bank holding companies and banks to be both well capitalized and well managed in order to
acquire banks located outside their home state and requires any bank holding company electing to be
treated as a financial holding company to be both well managed and well capitalized;
eliminates all remaining restrictions on interstate banking by authorizing national and state banks to
establish de novo branches in any state that would permit a bank chartered in that state to open a branch
at that location;
repeals Regulation Q, the federal prohibition on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business transaction and other accounts;
13
•
•
enhances insider transaction limitations by strengthening loan restrictions to insiders and restricting
certain asset sales to and from an insider to an institution, including requirements that such sales be on
market terms and, in certain circumstances, approved by the institution’s board of directors; and
strengthens the previous limits on a depository institution’s credit exposure to one borrower (whether a
person or group of related persons) in an amount exceeding certain thresholds, by expanding the scope
of these restrictions to include credit exposure arising from derivative transactions, repurchase
agreements, and securities lending and borrowing transactions.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been
finalized, many of the new requirements called for have yet to be implemented and will likely be subject to
implementing regulations over the course of several years. Given the uncertainty associated with the manner in
which the provisions of the Dodd-Frank Act will be implemented by the various agencies, the full extent of the
impact such requirements will have on financial institutions’ operations is unclear.
Effect of Governmental Policies. Our earnings and businesses are affected by the monetary and fiscal
policies of various regulatory authorities of the United States, especially the Federal Reserve. The Federal
Reserve, among other things, regulates the supply of credit and deals with general economic conditions within
the United States. The instruments of monetary policy employed by the Federal Reserve for those purposes
influence in various ways the overall level of investments, loans, other extensions of credit, and deposits, and the
interest rates paid on liabilities and received on assets. We cannot project the impact that future changes in
monetary and fiscal policies would have on our earnings and business.
Future Legislation and Regulation. Proposals that could further intensify the regulation of the financial
services industry have been and are expected to continue to be introduced in the United States Congress, in state
legislatures, and by applicable regulatory authorities, from time to time. These proposals may change banking
statutes and regulations and the banking environment in substantial and unpredictable ways. If enacted, these
proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect
the competitive balance among banks, savings associations, credit unions, and other financial institutions. We
cannot predict whether any of these proposals will be enacted and, if enacted, the effect that these proposals, or
any implementing regulations, would have on our business, results of operations or financial condition.
Competition
We encounter strong competition both in making loans and in attracting deposits. The deregulation of the
banking industry and the widespread enactment of state laws which permit multi-bank holding companies as well
as an increasing level of interstate banking have created a highly competitive environment for commercial
banking. In one or more aspects of its business, our Company competes with other commercial banks, savings
and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking companies, and other financial intermediaries. Most of these competitors, some of which are
affiliated with bank holding companies, have substantially greater resources and lending limits, and may offer
certain services that we do not currently provide. In addition, many of our non-bank competitors are not subject
to the same extensive federal regulations that govern bank holding companies and federally insured banks.
Legislation has continued to heighten the competitive environment in which financial institutions must conduct
their business, and the potential for competition among financial institutions of all types has increased
significantly.
To compete, we rely upon specialized services, responsive handling of customer needs, and personal
contacts by its officers, directors, and staff. Large multi-branch banking competitors tend to compete primarily
by rate and the number and location of branches while smaller, independent financial institutions tend to compete
primarily by rate and personal service.
14
Employees
As of December 31, 2015, we had a total of approximately 784 full-time equivalent employees. The
employees are not represented by a collective bargaining unit. We consider relations with employees to be good.
Statistical Profile and Other Financial Data
Reference is hereby made to the statistical and financial data contained in the section captioned
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for statistical and
financial data providing a review of our Company’s business activities.
Availability of Reports furnished or filed with the Securities and Exchange Commission (SEC)
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are
available on our internet website at www.centerstatebanks.com.
Item 1A. Risk Factors
We have identified risk factors described below, which should be viewed in conjunction with the other
information contained in this document and information incorporated by reference, including our consolidated
financial statements and related notes. If any of the following risks or other risks which have not been identified
or which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results
of operations could be harmed. As noted previously, this report contains forward-looking statements that involve
risks and uncertainties, including statements about our future plans, objectives, intentions and expectations.
Many factors, including those described below, could cause actual results to differ materially from those
discussed in forward-looking statements.
Risks relating to our industry and operations
A resumption of recessionary economic conditions could have an adverse effect on our business in the
future.
The economic crisis that began several years ago caused many financial institutions to seek additional
capital, to reduce or eliminate dividends, to merge with larger and stronger institutions and, in some cases, to fail.
This economic turmoil and tightening of credit led to an increased level of commercial and consumer
delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business
activity generally. The resulting economic pressure on consumers and the lack of confidence in the financial
markets adversely affected the banking industry, as well as financial condition and operating results. Although
economic conditions have been improving, future market developments could affect consumer confidence levels
and cause adverse changes in loan payment patterns, causing increases in delinquencies and default rates, which
may impact our charge-offs and the provision for credit losses. Changes in the financial services industry and the
effects of the Dodd-Frank Act, Basel III and other regulatory responses to the credit crisis also could negatively
affect us by restricting our business operations, including our ability to originate or sell loans, and adversely
impact our financial performance.
We are subject to extensive regulation that could limit or restrict our activities.
We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive
regulation by various agencies, including the Federal Reserve, the OCC, the FDIC, FINRA, and the SEC. This
regulation is to protect depositors, the FDIC deposit insurance fund and the banking system as a whole. Our
compliance with these regulations is costly and restricts certain of our activities, including payment of dividends,
mergers and acquisitions, investments, loans and interest rates charged, interest rates paid and deposits and
15
locations of our offices. We are also subject to capitalization guidelines established by our regulators, which
require us to maintain sufficient capital to support our growth. Regulation of the financial services industry has
increased significantly since the global financial crisis. The laws and regulations applicable to the banking
industry could change at any time. The extent and timing of any regulatory reform as well as any effect on our
business and financial results, are uncertain. Additionally, legislation or regulation may impose unexpected or
unintended consequences, the impact of which is difficult to predict. Because government regulation greatly
affects the business and financial results of all commercial banks and bank holding companies, our cost of
compliance could adversely affect our ability to operate profitably.
Our processes for managing risk may not be effective in mitigating risk or losses to us.
The objectives of our risk management processes are to mitigate risk and loss to our organization. We have
established procedures that are intended to identify, measure, monitor report and analyze the types of risks to
which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and
compliance risk, and reputational risk, among others. However, as with any risk management processes, there are
inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we
have not appropriately anticipated or identified. The ongoing developments in the financial institutions industry
continue to highlight both the importance and some of the limitations of managing unanticipated risks. If our risk
management processes prove ineffective, we could suffer unexpected losses and could be materially adversely
affected.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding and other transactions could be adversely affected by the actions
and commercial soundness of other financial institutions. Financial services institutions are interrelated as a
result of trading, clearing, counterparty or other relationships. Defaults by, or even rumors or questions about,
one or more financial services institutions, or the financial services industry generally, have led to market-wide
liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or
defaults by us or by other institutions. We could experience increases in deposits and assets as a result of other
banks’ difficulties or failure, which would increase the capital we need to support our growth.
Our loan portfolio includes commercial and commercial real estate loans that may have higher risks.
Our commercial and commercial real estate loans at December 31, 2015 and 2014 were $1.56 billion and
$1.43 billion, respectively, or 66% and 66% of total loans, excluding purchased credit impaired loans.
Commercial and commercial real estate loans generally carry larger loan balances and can involve a greater
degree of financial and credit risk than other loans. As a result, banking regulators continue to give greater
scrutiny to lenders with a high concentration of commercial real estate loans in their portfolios, and such lenders
are expected to implement stricter underwriting, internal controls, risk management policies and portfolio stress
testing, as well as higher capital levels and loss allowances. The increased financial and credit risk associated
with these types of loans are a result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-
producing properties and the increased difficulty of evaluating and monitoring these types of loans.
The federal bank regulatory agencies have guidance on “Concentrations in Commercial Real Estate
Lending” (the “Guidance”). The Guidance defines commercial real estate loans as exposures secured by raw
land, land development and construction (including 1-4 family residential construction), multi-family property,
and non-farm nonresidential property where the primary or a significant source of repayment is derived from
rental income associated with the property (that is, loans for which 50% or more of the source of repayment
comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent
financing of the property. The Guidance requires that appropriate processes be in place to identify, monitor and
control risks associated with real estate lending concentrations. This could include enhanced strategic planning,
16
underwriting policies, risk management, internal controls, portfolio stress testing and risk exposure limits as well
as appropriately designed compensation and incentive programs. Higher allowances for loan losses and capital
levels may also be required. The Guidance is triggered when commercial real estate loan concentrations exceed
either:
•
total reported loans for construction, land development, and other land of 100% or more of a bank’s
total capital (as of December 31, 2015, our consolidated ratio was 28%); or
• Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for
construction, land development, and other land of 300% or more of a bank’s total capital (as of
December 31, 2015, our consolidated ratio was 226%).
The Guidance applies to the lending activities of our subsidiary bank. Regulators have the right to request
banks to maintain elevated levels of capital or liquidity due to commercial real estate loan concentrations, and
could do so, especially if there is a further downturn in our local real estate markets.
In addition, when underwriting a commercial or industrial loan, we may take a security interest in
commercial real estate, and, in some instances upon a default by the borrower, we may foreclose on and take title
to the property, which may lead to potential financial risks for us under applicable environmental laws. If
hazardous substances were discovered on any of these properties, we may be liable to governmental agencies or
third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many
environmental laws can impose liability regardless of whether the Company knew of, or were responsible for, the
contamination.
Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the
successful operation of the related real estate or commercial project. If the cash flows from the project are
reduced, a borrower’s ability to repay the loan may be impaired. This cash flow shortage may result in the failure
to make loan payments. In such cases, we may be compelled to modify the terms of the loan. In addition, the
nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor.
As a result, repayment of these loans may, to a greater extent than residential loans, be subject to adverse
conditions in the real estate market or economy.
Our business is subject to the success of the local economies where we operate.
Our success significantly depends upon the growth in population, income levels, deposits and housing starts
in our primary and secondary markets. During the recent economic downturn, the rate of growth of each of these
four factors has decreased substantially and in some cases has turned negative. If the communities in which we
operate do not grow or if prevailing economic conditions locally or nationally continue to remain challenging,
our business may be adversely affected. Our specific market areas have experienced decreased growth, which has
affected the ability of our customers to repay their loans to us and has generally affected our financial condition
and results of operations. We are less able than a larger institution to spread the risks of unfavorable local
economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance
we will benefit from any market growth or favorable economic conditions in our primary market areas if they do
occur.
A significant portion of our loan portfolio is secured by real estate, substantially all of which is located in
Florida, and events that negatively impact the real estate market could hurt our resultant business.
Substantially all of our loans are concentrated in Florida and subject to the volatility of the state’s economy
and real estate market. With our loans concentrated in Florida, the decline in local economic conditions has
adversely affected the values of our real estate collateral and will likely continue to do so for the foreseeable
future. Consequently, a continued decline in local economic conditions may have a greater effect on our earnings
and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are
geographically diverse.
17
In addition to relying on the financial strength and cash flow characteristics of the borrower in each case, we
often secure loans with real estate collateral. At December 31, 2015, approximately 85% of our loans have real
estate as a primary or secondary component of collateral. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the borrower but may deteriorate in value during the time
credit is extended. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period
of reduced real estate values, our earnings and capital could be adversely affected.
We are subject to environmental risks in our lending activities.
Since a significant portion of our loan portfolio is secured by real property, we may foreclose upon and take
title to such property in the ordinary course of business. If hazardous substances are found on such property, we
could be liable for remediation costs, as well as for personal injury and property damage. Environmental laws
might require us to incur substantial expenses, materially reduce the property’s value, or limit our ability to use
or sell the property. Although our management has policies requiring environmental reviews before loans
secured by real property are made and before foreclosure is commenced, it is still possible that environmental
risks might not be detected and that the associated costs might have a material adverse effect on our financial
condition and results of operations.
An inadequate allowance for loan losses would reduce our earnings.
The risk of credit losses on loans varies with, among other things, general economic conditions, the type of
loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the value and marketability of the collateral for the loan. Management maintains an
allowance for loan losses based upon, among other things, historical experience, an evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management
makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an
allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their
ultimate collectability is considered questionable. If management’s assumptions and judgments prove to be
incorrect and the allowance for loan losses is inadequate to absorb losses, or if bank regulatory authorities require
us to increase the allowance for loan losses as a part of their examination process, our earnings and capital could
be significantly and adversely affected.
We will realize future losses if the proceeds we receive upon liquidation of non-performing assets
(“NPAs”) are less than the carrying value of such assets.
We record our NPAs on our financial statements at the estimated net realizable valuable that we expect to
receive from ultimately disposing of these assets. We could realize losses in the future as a result of deteriorating
market conditions if the proceeds we receive upon disposition of the NPAs are less than our carrying value of
such assets.
While we use appraisals in deciding whether to make a loan that is secured by real estate, they do not
ensure the value of the real property collateral.
In deciding whether to make a loan secured by real property, we generally require an appraisal. However, an
appraisal is only an estimate of the value of the property at the time the appraisal is made. If the appraised
amount does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may
not realize an amount equal to the indebtedness secured by the property.
18
Our accounting policies and processes are critical to how we report our financial condition and results of
operations and require our management to make estimates about matters that are uncertain.
Accounting policies and processes are fundamental to how we record and report our financial condition and
results of operations. Some of these polices require use of estimates and assumptions that may affect the value of
our assets or liabilities and financial results. Several of our accounting policies are critical because they require
management to make difficult, subjective and complex judgments about matters that are inherently uncertain and
because it is likely that materially different amounts would be reported under different conditions or using
different assumptions. Pursuant to generally accepted accounting principles, we are required to make certain
assumptions and estimates in preparing our financial statements, including and determining credit loss reserves,
reserves related to litigation and the fair value of certain assets and liabilities, among other items. If the
assumptions or estimates underling our financial statements are incorrect, we may experience material losses.
Certain of our financial instruments, including trading assets and liabilities, securities, and certain loans,
among other items, require a determination of their fair value in order to prepare our financial statements. Where
quoted market prices are not available, we may make fair value determinations based on internally developed
models or other means which ultimately rely to some degree on management judgment. Some of these and other
assets and liabilities may have no direct observable price levels, making their valuation particularly subjective,
being based on significant estimation and judgment. In addition, some illiquidity in markets and declines in
prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may
lead to the possibility that such valuations will be subject to further change or adjustment, it could lead to
declines in our earnings.
A lack of liquidity could affect our operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of
loans and other sources could have a substantial negative effect on our liquidity. Our funding sources include
federal funds purchased, securities sold under repurchase agreements, non-core deposits, and short- and long-
term debt. There are other sources of liquidity available to us should they be needed, including our ability to
acquire additional non-core deposits, the issuance and sale of debt securities, and the issuance and sale of
preferred or common securities in public or private transactions. Our access to funding sources in amounts
adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors
that affect us specifically or the financial services industry or economy in general. Our ability to borrow could be
impaired by factors that are not specific to us, such as further disruption in the financial markets or negative
views and expectations about the prospects for the financial services industry in light of the recent turmoil faced
by banking organizations and the continued deterioration in credit markets.
Our profitability is vulnerable to interest rate fluctuations.
Our profitability depends substantially upon our net interest income. That interest income is the difference
between the interest earned on assets (such as loans and securities held in our investment portfolio) and the
interest paid for liabilities (such as interest paid on savings and money market accounts and time deposits).
Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be
affected uniformly by fluctuations in interest rates. The magnitude and duration of changes in interest rates are
events over which we have no control, and such changes may have an adverse effect on our net interest income.
Prepayment and early withdrawal levels, which are also impacted by changes in interest rates, can significantly
affect our assets and liabilities. For example, an increase in interest rates could, among other things, reduce the
demand for loans and decrease loan repayment rates. Such an increase could also adversely affect the ability of
our floating-rate borrowers to meet their payment obligations, which could in turn lead to an increase in non-
performing assets and net charge-offs. Conversely, a decrease in the general level of interest rates could affect us
by, among other things, leading to greater competition for deposits and incentivizing borrowers to prepay or
refinance their loans more quickly or frequently than they otherwise would. Generally, interest rates on our
interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same extent or on the
19
same basis. Even assets and liabilities with similar maturities or repricing periods may react in different degrees
to changes in market interest rates. Interest Rates on certain types of assets and liabilities may fluctuate in
advance of changes in general market interest rates, while interest rates on other types of assets and liabilities
may lag behind changes in general market rates. Certain assets, such as fixed and adjustable rate mortgage loans,
have features that limit changes in interest rates on a short-term basis and over the life of the asset. Changes in
interest rates could materially and adversely affect our financial condition and results of operations.
We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient
capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition,
liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be
adversely affected.
Our financial holding company and our subsidiary bank must meet regulatory capital requirements and
maintain sufficient liquidity. Banking organizations experiencing growth, especially those making acquisitions
are expected to hold additional capital, above regulatory minimums. From time to time, the regulators implement
changes to these regulatory capital adequacy guidelines, such as through the Dodd-Frank Act and the Basel III
initiatives described above. It is anticipated that these standards will result in higher and more stringent capital
requirements for us and our banking subsidiary. In particular, Basel III will require us to maintain an increased
minimum ratio of Tier 1 common equity to risk weighed assets.
Actions (if necessary) to increase capital, may adversely affect us. Our ability to raise additional capital,
when and if needed, will depend on conditions in the capital markets, economic conditions and a number of other
factors, including investor perceptions regarding the banking industry and market condition, and governmental
activities, many of which are outside our control, and on our financial condition and performance. Accordingly,
we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we
fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of
operations would be materially and adversely affected.
Our failure to remain “well capitalized” for bank regulatory purposes could affect customer confidence, our
ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock and
make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of
operations and financial condition. Under FDIC rules, if our subsidiary bank ceases to be a “well capitalized”
institution for bank regulatory purposes, the interest rates that it pays and its ability to accept brokered deposits
may be restricted. Although we had no wholesale brokered deposits as of December 31, 2015, we had
approximately $20 million of in-market CDARs deposits, $33 million of ICS deposits and approximately $78
million of deposits related to our prepaid card business, which are considered brokered deposits for regulatory
purposes.
Our business strategy includes continued growth, and our financial condition and results of operations
could be negatively affected if we fail to grow or fail to manage our growth effectively.
We intend to continue pursuing a growth strategy for our business. Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of
development. Particularly in light of prevailing economic conditions, we cannot assure you we will be able to
expand our market presence in our existing markets or successfully enter new markets or that any such expansion
will not adversely affect our results of operations. Failure to manage our growth effectively could have a material
adverse effect on our business, future prospects, financial condition or results of operations, and could adversely
affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than
anticipated or declines, our operating results could be materially adversely affected.
Our ability to successfully grow will depend on a variety of factors including the continued availability of
desirable business opportunities, the competitive responses from other financial institutions in our market areas,
20
our ability to continue to implement and improve our operational, credit, financial, management and other risks
controls and processes and our reporting systems and procedures in order to manage a growing number of client
relationships, and our ability to integrate our acquisitions and develop consistent policies throughout our various
businesses. While we believe we have the management resources and internal systems in place to successfully
manage our future growth, there can be no assurance growth opportunities will be available or growth will be
successfully managed. In addition, if we are unable to manage future expansion in our operations, we may
experience compliance and operational problems, have to slow the pace of growth, or have to incur additional
expenditures beyond current projections to support such growth, any of which could adversely affect our
business.
We may face risks with respect to future expansion.
We have historically pursued acquisitions, and in the future we may acquire other financial institutions or
parts of those institutions and we may engage in additional de novo branch expansion. We may also consider and
enter into new lines of business or offer new products or services. We also may receive future inquiries and have
discussions with potential acquirers of us. Acquisitions and mergers involve a number of risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
the time and costs associated with identifying and evaluating potential acquisitions and merger
partners;
inaccurate estimates and judgments regarding credit, operations, management and market risks of the
target institution;
the time and costs of evaluating new markets, hiring experienced local management and opening new
offices, and the time lags between these activities and the generation of sufficient assets and deposits to
support the costs of the expansion;
our ability to receive regulatory approvals on terms that are acceptable to us;
our ability to finance an acquisition and possible dilution to our existing shareholders;
the diversion of our management’s attention to the negotiation of a transaction, and the integration of
the operations and personnel of the combining businesses;
entry into new markets where we lack experience;
the strain of growth on our infrastructure, staff, internal controls and management, which may require
additional personnel, time and expenditures;
exposure to potential asset quality issues with acquired institutions;
the introduction of new products and services into our business;
the possibility of unknown or contingent liabilities;
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse
short-term effects on our results of operations; and
the risk of loss of key employees and customers.
We may incur substantial costs to expand, and we can give no assurance such expansion will result in the
levels of profits we seek. There can be no assurance that integration efforts for any future mergers or acquisitions
will be successful. Also, we may issue equity securities, including common stock and securities convertible into
shares of our common stock, in connection with future acquisitions, which could cause ownership and economic
dilution to our current shareholders and to investors purchasing common stock in this offering. There is no
assurance that, following any future mergers or acquisitions, our integration efforts will be successful or our
company, after giving effect to the acquisition, will achieve profits comparable to or better than our historical
experience.
21
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, as our earnings and capital position improve, we may consider the
acquisition of other businesses, including, as discussed above, failed depository institutions offered for sale in
FDIC-assisted transactions. The FDIC determines the timing and terms of the sale of failed institutions, and
selects the winning bidder based on the “least cost” to the FDIC. The failed banks offered for sale may or may
not meet our business objectives. We expect that other banking and financial companies, many of which have
significantly greater resources, will compete with us to acquire financial services businesses. This competition
could increase prices for potential acquisitions, including the premiums on deposits and the prices paid for assets
in FDIC-assisted transactions. This could reduce our potential returns, and reduce the attractiveness of these
opportunities and increase their credit and other risks. Also, acquisitions are subject to various regulatory
approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an
acquisition that we believe is in our best interests. Among other things, our regulators consider our capital,
liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering
acquisition and expansion proposals. Any acquisition could be dilutive to our earnings and shareholders’ equity
per share of our common stock.
Our recent results may not be indicative of our future results.
We may not be able to sustain our historical rate of growth or may not even be able to grow our business at
all. In addition, our recent growth may distort some of our historical financial ratios and statistics. Various
factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede
or prohibit our ability to expand our market presence. If we experience a significant decrease in our historical
rate of growth, our results of operations and financial condition may be adversely affected due to a high
percentage of our operating costs being fixed expenses.
Our continued pace of growth may require us to raise additional capital in the future, but that capital may
not be available when it is needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support
our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets
at that time, which are outside our control, and on our financial performance. Accordingly, there is no assurance
as to our ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional
capital when needed, our ability to further expand our operations through internal growth and acquisitions could
be materially impaired.
Our asset and liability structures are monetary in nature and are affected by a variety of factors, including
changes in interest rates, which can impact the value of our assets.
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the
difference between interest income earned on interest-earnings assets, such as loans and investment securities,
and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Because different
types of assets and liabilities may react differently and at different times to market interest rate changes, changes
in interest rates can increase or decrease net interest income. Interest rates are sensitive to many factors that are
beyond our control, including general economic conditions, competition and policies of various governmental
and regulatory agencies and, in particular, the policies of the Federal Reserve. Changes in monetary policy,
including changes in interest rates, could influence not only the interest our Banks receive on loans and
investment securities and the amount of interest they pay on deposits and borrowings, but such changes could
also affect (i) the Bank’s ability to originate loans and obtain deposits, (ii) the fair value of our financial assets
and liabilities, including the available for sale securities portfolio, and (iii) the average duration of our interest-
earning assets. Changes in monetary policy could also expose us to the risk that interest-earning assets may be
more responsive to changes in interest rates than interest-bearing liabilities, or vice versa (repricing risk), the risk
that the individual interest rates or rates indices underlying various interest-earning assets and interest-bearing
22
liabilities may not change in the same degree over a given time period (basis risk), and the risk of changing
interest rate relationships across the spectrum of interest-earning asset and interest-bearing liability maturities
(yield curve risk), including a prolonged flat or inverted yield curve environment. Any substantial, unexpected,
prolonged change in market interest rates could have a material adverse effect on our financial condition and
results of operations.
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.
The FDIC insures deposits at FDIC-insured depository institutions, such as our subsidiary bank, up to
applicable limits. The amount of a particular institution’s deposit insurance assessment is based on that
institution’s risk classification under an FDIC risk- based assessment system. An institution’s risk classification
is assigned based on its capital levels and the level of supervisory concern the institution poses to its regulators.
Market developments have significantly depleted the deposit insurance fund of the FDIC (which is referred to as
the “DIF”) and reduced the ratio of reserves to insure deposits. As a result of recent economic conditions and the
enactment of the Dodd-Frank Act, the FDIC has increased the deposit insurance assessment rates and thus raised
deposit premiums for insured depository institutions. If these increases are insufficient for the DIF to meet its
funding requirements, there may need to be further special assessments or increases in deposit insurance
premiums. We are generally unable to control the amount of premiums that we are required to pay for FDIC
insurance. If there are additional bank or financial institution failures, we may be required to pay even higher
FDIC premiums than the recently increased levels. Any future additional assessments, increases or required
prepayments in FDIC insurance premiums may materially adversely affect results of operations, including by
reducing our profitability or limiting our ability to pursue business opportunities.
We are periodically subject to examination and scrutiny by a number of banking agencies and, depending
upon the findings and determinations of these agencies, we may be required to make adjustments to our
business that could adversely affect us.
The banking agencies periodically conduct examinations of our business, including compliance with
applicable laws and regulations. If, as a result of an examination, a banking agency were to determine that the
financial condition, capital resources, asset quality, asset concentration, earning prospects, management,
liquidity, sensitivity to market risk or other aspects of any of our operations has become unsatisfactory, or that we
or our management is in violation of any law or regulation, it could take a number or different remedial actions
as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require
affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the
asset composition of our portfolio or balance sheet, to assess civil money penalties against our officers or
directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there
is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such
regulatory actions, our business, results of operations and reputation may be negatively impacted.
Market volatility could adversely affect our operations or ability to access capital.
The capital and credit markets have experienced volatility and disruption from time to time during the past
several years. In some cases, the markets have produced downward pressure on stock prices and credit
availability for certain issuers without regard to those issuers’ underlying financial condition or performance. If
these periodic market disruptions and volatility continue or worsen, we may experience adverse effects, which
may be material, on our ability to maintain or access capital and on our business, financial condition and results
of operations.
23
Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments,
interest rates and competitive pressures.
Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments,
interest rates and competitive pressures. We have traditionally obtained funds principally through local deposits
and we have a base of lower cost transaction deposits. Generally, we believe local deposits are a less expensive
and more stable source of funds than other borrowings because interest rates paid for local deposits are typically
lower than interest rates charged for borrowings from other institutional lenders and reflect a mix of transaction
and time deposits, whereas brokered deposits typically are higher cost time deposits. Our costs of funds and our
profitability and liquidity are likely to be adversely affected, if and to the extent we have to rely upon higher cost
borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs, and changes in our
deposit mix and growth could adversely affect our profitability and the ability to expand our loan portfolio.
Competition from financial institutions and other financial service providers may adversely affect our
profitability.
The banking business is highly competitive and we experience competition in our markets from many other
financial institutions. We compete with commercial banks, credit unions, mortgage banking firms, consumer
finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual
funds, as well as other super-regional, national and international financial institutions that operate offices in our
primary market areas and elsewhere. Some of these competitors may have a long history of successful operation
in our markets, greater ties to local businesses and more expansive banking relationships, as well as better
established depositor bases. Competitors with greater resources may possess an advantage by being capable of
maintaining numerous banking locations and more convenient sites, operating more ATMs and conducting
extensive promotional and advertising campaigns or operating a more developed Internet platform.
We compete with these institutions both in attracting deposits and in making loans. In addition, we have to
attract our customer base from other existing financial institutions and from new residents. Many of our
competitors are well-established, larger financial institutions. While we believe we can and do successfully
compete with these other financial institutions in our primary markets, we may face a competitive disadvantage
as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs
across a broader market. Although we compete by concentrating our marketing efforts in our primary markets
with local advertisements, personal contacts, and greater flexibility and responsiveness in working with local
customers, we can give no assurance this strategy will be successful.
The fiscal and monetary policies of the federal government and its agencies could have a material adverse
effect on our earnings.
The Federal Reserve regulates the supply of money and credit in the U.S. as its policies determine in large
part the cost of funds for lending and investing and return earned on those loans and investments, both of which
affect our net interest margin. They can also materially decrease the value of financial assets we hold. Federal
Reserve policies also can adversely affect borrowers, potentially increasing the risk that they may fail to repay
their loans, or could result in volatile markets and rapid declining collateral values. Changes in Federal Reserve
policies are beyond our control and difficult to predict. Accordingly, the impact of these changes on our activities
and results of operations is difficult to predict.
We are dependent upon the services of our management team.
Our future success and profitability are substantially dependent upon the management and banking abilities
of our senior executives. Although we currently have employment agreements in place with our senior
management team, we cannot guarantee you that our senior executives will remain with us. Changes in key
personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on
24
our business, financial condition and results of operations. We believe that our future results will also depend in
part upon our attracting and retaining highly skilled and qualified management and sales and marketing
personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in
retaining such personnel.
Technological changes affect our business, and we may have fewer resources than many competitors to
invest in technological improvements.
The financial services industry continues to undergo rapid technological changes with frequent introductions
of new technology-driven products and services. In addition to serving clients better, the effective use of
technology may increase efficiency and may enable financial institutions to reduce costs. Our future success will
depend, in part, upon our ability to use technology to provide products and services that provide convenience to
customers and to create additional efficiencies in operations. We may need to make significant additional capital
investments in technology in the future, and we may not be able to effectively implement new technology-driven
products and services. Many competitors have substantially greater resources to invest in technological
improvements.
We rely on other companies to provide key components of our business infrastructure.
Third parties provide key components of our business infrastructure such as banking services, processing,
and internet connections and network access. Any disruption in such services provided by these third parties or
any failure of these third parties to handle currently or higher volumes of use could adversely affect our ability to
deliver products and services to clients and otherwise to conduct business. Technological or financial difficulties
of a third party service provider could adversely affect our business to the extent those difficulties result in the
interruption or discontinuation of services provided by that party. Further, in some instances we may responsible
for the failure of such third parties to comply with government regulations. We may not be insured against all
types of losses as a result of third party failures and our insurance coverage may not be inadequate to cover all
losses resulting from system failures or other disruptions. Failures in our business structure could interrupt the
operations or increase the cost of doing business.
A failure and/or breach of our operational or securities systems or infrastructure, or those of our third
party vendors and other service providers, including as a result of cyber-attacks, could disrupt our
business, result in a disclosure or misuse of confidential or propriety information, damage our reputation,
increase our costs and cause losses.
We depend on our ability to process, record and monitor a large number of client transactions on a
continuous basis. As client, public and regulatory expectations regarding operational and information security
have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for
potential failures, disruptions and breakdowns. Our business, financial, accounting, data processing, or other
operating systems and facilities may stop operating properly or become disabled or damaged as a result of a
number of factors including events that are wholly or partially beyond our control. Although we have business
continuity plans and other safeguards in place, our business operations may be adversely affected by significant
and widespread disruption to our physical infrastructure or operating systems that support our businesses and
clients.
Information security risks for financial institutions have generally increased in recent years in part because
of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct
financial transactions, and the increased sophistication and activities of hackers, terrorists, activists, and other
external parties. As noted, above, our operations rely on the secure processing, transmission, and storage of
confidential information in our computer systems and networks. Our banking and other businesses rely on our
digital technologies, computer and e-mail systems, software and networks to conduct our operations. In addition,
to access our products and services, our clients may use personal smartphones, tablets, personal computers, and
25
other mobile devices that are beyond our control systems. Although we have information security procedures and
controls in places, our technologies, systems, networks and our client’s devices may become the target of cyber-
attacks or information security breaches that could result in the unauthorized release, gathering, monitoring,
misuse, loss of destruction of our or our client’s confidential, proprietary and other information, or otherwise
disrupt our or our clients’ or other third parties’ business operations.
Any failure or interruption in the operation of our communications and information systems could impair or
prevent the effective operation of our customer relationship management, general ledger, deposit, lending or
other functions. While we have policies and procedures designed to prevent or limit the effect of a failure or
interruption in the operation of our information systems, there could be no assurance that any such failures or
interruptions will not occur or, if they do, that they will be adequately addressed. The occurrence of any failures
or interruptions impacting our information systems could damage our reputation, result in a loss of customer
business, and expose us to additional regulatory scrutiny, civil litigation, and possible financial liability, any of
which could have a material adverse effect on our financial condition and results of operations.
Although to date we have not experienced any material losses related to cyber-attacks or other information
security breaches, there can be no assurance that we will not suffer such losses in the future.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure control and procedures are designed to provide reasonable assurance that information
required to be disclosed by us in reports we file or submit with the SEC is accurately accumulated and
communicated to management, and recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms. We believe that any disclosure controls and procedures or controls and
procedures, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the control systems are met.
These inherent limitations include the reality that judgments and decision making can be faulty, that
alternative reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people or by an authorized override of the controls. Accordingly, because of the inherent limitations in our
controls systems, misstatements due to error or fraud may occur and not be detected, which could result in a
material weakness in our internally controls over financial reporting and the restatement of previously filed
financial statements.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so
may materially adversely affect our performance.
Our reputation is one of the most valuable components of our business. As such, we strive to conduct our
business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring, and retaining
employees who share our core values of being an integral part of the communities we serve, delivering superior
service to our customers, and caring about our customers and associates. If our reputation is negatively affected
by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially
adversely affected.
Adverse weather or manmade events could negatively affect our local economies or disrupt our operations,
which would have an adverse effect on our business or results of operations.
Our market areas in Florida are susceptible to hurricanes and tropical storms and related flooding and wind
damage. Such weather events and manmade events can disrupt operations, result in damage to properties and
negatively affect the local economies in the markets where they operate. We cannot predict whether or to what
extent damage that may be caused by future natural disasters or manmade events will affect our operations or the
26
economies in our current or future market areas, but such events could result in a decline in loan originations, a
decline in the value or destruction of properties securing our loans and an increase in delinquencies,
bankruptcies, foreclosures or loan losses that could result in a higher level of non-performing assets, net charge-
offs, and provision for loan losses. Our business or results of operations may be adversely affected by these and
other negative effects of future hurricanes or tropical storms, including flooding and wind damage, or manmade
events. Many of our customers have incurred significantly higher property and casualty insurance premiums on
their properties located in our markets, which may adversely affect real estate sales and values in those markets.
We are or may become involved from time to time in suits, legal proceedings, information-gathering
requests, investigations, and proceedings by governmental and self-regulatory agencies that may lead to
adverse consequences.
Many aspects of the banking business involve a substantial risk of legal liability. The Company and the
Bank have been named or threatened to be named as defendants in various law suits arising from our business
activities (and in some cases from the activities of companies that we have acquired). In addition, from time to
time, we are, or may become, the subject of self-regulatory agency information-gathering requests, reviews,
investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, the
SEC and law enforcement authorities. The results of such proceedings could lead to significant civil or criminal
penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions
on the way the Company and the Bank conduct their business, or reputational harm.
The Bank is subject to numerous laws designed to protect consumers, including the Community
Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety
of sanctions.
The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act, and
other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
The U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and
regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws
and regulations could result in a wide variety of sanctions, including damages and civil money penalties,
injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on
entering new business lines. Private parties may also have the ability to challenge an institution’s performance
under fair lending laws in private class action litigation. Such actions could have a material adverse effect on the
Bank’s business, financial condition, results of operations, and future prospects.
The Bank is subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations,
and any deemed deficiency by the Bank with respect to these laws could result in significant liability.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial
institutions, among other duties, to institute and maintain an effective anti-money laundering program and file
suspicious activity and currency transaction reports when appropriate. In addition to other bank regulatory
agencies, the federal Financial Crimes Enforcement Network of the Department of the Treasury is authorized to
impose significant civil money penalties for violations of those requirements and has recently engaged in
coordinated enforcement efforts with the state and federal banking regulators, as well as the U.S. Department of
Justice, Consumer Financial Protection Bureau, Drug Enforcement Administration, and Internal Revenue
Service. the Bank is also subject to increased scrutiny of compliance with the rules enforced by the Office of
Foreign Assets Control of the Department of the Treasury regarding, among other things, the prohibition of
transacting business with, and the need to freeze assets of, certain persons and organizations identified as a threat
to the national security, foreign policy, or economy of the United States. If the Bank’s policies, procedures, and
systems are deemed deficient, the Bank could be subject to liability, including fines and regulatory actions,
which may include restrictions on its ability to pay dividends and the necessity to obtain regulatory approvals to
proceed with certain aspects of its business plan, including acquisition plans. Failure to maintain and implement
27
adequate programs to combat money laundering and terrorist financing could also have serious reputational
consequences for the bank. Any of these results could have a material adverse effect on the Bank’s business,
financial condition, results of operations, and future prospects.
Risks Relating to our Common Stock
We have provisions in our articles of incorporation that could impede a takeover of CenterState.
Our articles of incorporation contain provisions providing for the ability to issue preferred stock without
shareholder approval. Although these provisions were not adopted for the express purpose of preventing or
impeding the takeover of CenterState without the approval of our board of directors, such provisions may have
that effect. Such provisions may prevent our shareholders from taking part in a transaction in which our
shareholders could realize a premium over the current price of our common stock.
Shares of our Common Stock are not insured deposits and may lose value.
Shares of our common stock are not savings or deposit accounts and are not insured by the FDIC, or any
other agency or private entity. Such shares are subject to investment risk, including the possible loss of some or
all of the value of your investment.
Future capital needs could result in dilution of shareholder investment.
Our board of directors may determine from time to time there is a need to obtain additional capital through
the issuance of additional shares of our common stock or other securities. These issuances would dilute the
ownership interest of our shareholders and may dilute the per share book value of our common stock. New
investors also may have rights, preferences and privileges senior to our shareholders which may adversely impact
our shareholders.
The trading volume in our common stock and the sale of substantial amounts of our common stock in the
public market could depress the price of our common stock
We cannot predict the effect, if any, that future sales of our common stock in the market, or availability of
shares of our common stock for sale in the market, will have on the market price of our common stock. Our stock
price can fluctuate widely in response to a variety of factors. General market fluctuations, industry factors, and
general economic and political conditions and events, such as terrorist attacks, economic slowdowns or
recessions, interest rate changes, credit loss trends, or currency fluctuations, also could cause our stock price to
decrease regardless of operating results. We therefore can give no assurance that sales of substantial amounts of
our common stock in the market, or the potential for large amounts of sales in the market, or any of the other
factors discussed above, would not cause the price of our common stock to decline or impair our ability to raise
capital through sales of our common stock.
Our ability to pay dividends is limited and we may be unable to pay future dividends
During the last 60 fiscal quarters, we paid cash dividends on our common stock outstanding. Our ability to
pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital. The
ability of the Bank to pay dividends to us is limited by its obligations to maintain sufficient capital and by other
general restrictions on its dividends that are applicable to national banks that are regulated by the OCC. If we do
not satisfy these regulatory requirements, or if the Bank does not have sufficient earnings to make payments to us
while maintaining adequate capital levels, we will be unable to pay dividends on our common stock.
28
Holders of our junior subordinated debentures have rights that are senior to those of our common
stockholders
We have helped support our continued growth through the issuance of, and the acquisition of, through prior
mergers, trust preferred securities from special purpose trusts and accompanying junior subordinated debentures.
At December 31, 2015, we had outstanding trust preferred securities and accompanying junior subordinated
debentures totaling $27.5 million. Payments of the principal and interest on these debt instruments are
conditionally guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the
special purpose trusts are senior to our shares of common stock. As a result, we must make payments on the
junior subordinated debentures before any dividends can be paid on our common stock and, in the event of our
bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before
any distributions can be made on our common stock. We have the right to defer distributions on our junior
subordinated debentures (and the related trust preferred securities) for up to five years, during which time no
dividends may be paid on our common stock.
At December 31, 2015, our shareholders include three funds owning approximately 18% of our common
stock and they may exercise significant influence over us and their interests may be different from our
other shareholders.
Based on their 13G forms filed for the year end December 31, 2015, our shareholders include three funds
that collectively own approximately 18% of the outstanding shares of our common stock. Top ten institutional
owners collectively own approximately 44% of our outstanding shares of common stock, as reported by SNL.
While the federal banking laws require prior bank regulatory approval if shareholders owning in excess of 9.9%
of a financial holding company’s outstanding voting shares desire to act in concert, nonetheless the three or ten
institutional owners could vote the same way on matters submitted to our shareholders without being deemed to
be acting in concert and, if so, could exercise significant influence over us and actions taken by our shareholders.
Interests of institutional funds may be different from our other shareholders. Accordingly, given their collective
ownership, the funds could have significant influence over whether or not a proposal submitted to our
shareholders receives required shareholder approval.
Item 1B. Unresolved Staff Comments
None
Item 2.
Properties
Our Holding Company owns no real property. Our corporate office is leased from our subsidiary bank, and
is located at 42745 U.S. Highway 27, Davenport, Florida 33837. At the end of 2015, our Company, through our
subsidiary bank, operated a total of 57 full service banking offices in 20 counties in central, southeast and
northeast Florida. We own 42 and lease 15 of these offices. We also have four loan production offices of which
we own 1 and lease 3. In addition to our banking locations, we lease non-banking office space in Winter Haven,
Florida for IT and operations purposes. We also lease office space for our Correspondent banking division,
primarily in Birmingham, Alabama and in Atlanta, Georgia. See Note 8 to the Consolidated Financial Statements
of our Company included in this Annual Report on Form 10-K and Managements Discussion and Analysis –
Bank Premises and Equipment, for additional information regarding our premises and equipment.
Item 3.
Legal Proceedings
Our bank subsidiary is periodically a party to or otherwise involved in legal proceedings arising in the
normal course of business, such as claims to enforce liens, claims involving the making and servicing of real
property loans, and other issues incident to their respective businesses. We do not believe any pending or
threatened legal proceedings in the ordinary course against the bank would have a material adverse effect on our
consolidated results of operations or consolidated financial position.
Item 4.
[Removed and Reserved]
29
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The shares of our Common Stock are traded on the NASDAQ Global Select Market. The following sets
forth the high and low trading prices for trades of our Common Stock that occurred during 2015 and 2014.
2015
2014
High
Low
High
Low
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.35
$13.98
$15.00
$16.24
$10.94
$11.70
$12.20
$14.24
$11.65
$11.60
$11.60
$12.00
$ 9.87
$10.28
$10.03
$10.10
As of December 31, 2015, there are 45,459,195 shares of common stock outstanding. As of this same date
we have approximately 1,037 shareholders of record, as reported by our transfer agent, Continental Stock
Transfer & Trust Company.
Dividends
We have historically paid cash dividends on a quarterly basis, on the last business day of the calendar
quarter. The following sets forth per share cash dividends paid during 2015 and 2014.
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.01
$0.02
$0.02
$0.02
$0.01
$0.01
$0.01
$0.01
2015
2014
The payment of dividends is a decision of our Board of Directors based upon then-existing circumstances,
including our rate of growth, profitability, financial condition, existing and anticipated capital requirements, the
amount of funds legally available for the payment of cash dividends, regulatory constraints and such other factors
as the Board determines relevant. Our source of funds for payment of dividends is dividends received from our
Bank, or excess cash available to us. Payments by our subsidiary Bank to us are limited by law and regulations of
the bank regulatory authorities. There are various statutory and contractual limitations on the ability of our Bank
to pay dividends to us. The bank regulatory agencies also have the general authority to limit the dividends paid
by banks if such payment may be deemed to constitute an unsafe and unsound practice. Our Bank may not pay
dividends from its paid-in surplus. All dividends must be paid out of undivided profits then on hand, after
deducting expenses, including reserves for losses and bad debts. In addition, a national bank is prohibited from
declaring a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been
transferred to surplus no less than one/tenth of the bank’s net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net profits for that year combined with its
retained net profits for the preceding two years, less any required transfers to surplus.
30
Share Repurchases
A summary of our common stock repurchases during the fourth quarter of 2015 is set forth in the table
below.
Period
Beginning
Ending
October 1, 2015
October 31, 2015
November 1, 2015
November 30, 2015
December 1, 2015
December 31, 2015
Total for quarter ending December 31, 2015
Total
Number of
Shares
Purchased
—
—
11,385
11,385
Average
Price paid
per Share
—
—
$15.43
$15.43
Total Number of
Shares
Purchased as
part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that
may yet be
Purchased Under
the Plans or
Programs
—
—
—
—
1,934,735
1,934,735
1,934,735
1,934,735
(1) We did not repurchase any shares of our common stock during the fourth quarter of 2015 pursuant to our
stock repurchase plan currently in place. We repurchased 11,385 shares of our common stock from our
employees during December 2015 for settlement of certain tax withholding obligations related to certain
equity based compensation awards.
Stock Plans
With respect to information regarding our securities authorized for issuance under equity incentive plans,
the information contained in the section entitled “Equity Compensation Plan Information” in our Definitive
Proxy Statement for the 2015 Annual Meeting of Shareholders is incorporated herein by reference.
31
Performance Graph
Shares of our common stock are traded on the Nasdaq Global Select Market. The following graph compares
the yearly percentage change in cumulative shareholder return on the Company’s common stock, with the
cumulative total return of the S&P 500 Index and the SNL Southeast Bank Index, since December 31, 2010
(assuming a $100 investment on December 31, 2010 and reinvestment of all dividends).
CENTERSTATE BANKS, INC.
Five Year Performance Index
250
200
150
100
X
E
D
N
I
50
0
2010
2011
2012
2013
2014
2015
YEAR
CENTERSTATE BANKS, INC.
SNL SOUTHEAST BANK INDEX
S&P 500
CenterState Banks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SNL Southeast Bank Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
100
100
84
102
59
109
118
97
130
157
132
153
178
148
203
181
146
2010
2011
2012
2013
2014
2015
32
Item 6.
Selected Consolidated Financial Data
Use of Non-GAAP Financial Measures and Ratios
The accounting and reporting policies of the Company conform to generally accepted accounting principles
(“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP
performance measures and ratios are used by management to evaluate and measure the Company’s performance.
These include tax-equivalent net interest income (including its individual components), net interest margin
(including its individual components), the efficiency ratio, tangible assets, tangible shareholders’ equity, tangible
book value per common share, and tangible equity to tangible assets. Management believes that these measures
and ratios provide users of the Company’s financial information with a more meaningful view of the
performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating
efficiency. Other financial holding companies may define or calculate these measures and ratios differently.
Management also uses non-GAAP financial measures to help explain the variance in total non-interest expenses
excluding merger and acquisition related expenses, impairment of bank property held for sale, credit related
expenses and correspondent banking division expenses between the periods presented. Management uses this
non-GAAP financial measure in its analysis of the Company’s performance and believes this presentation
provides useful supplemental information, and a clearer understanding of the Company’s non-interest expense
between periods presented.
Management reviews yields on certain asset categories and the net interest margin of the Company and its
banking subsidiaries on a fully taxable equivalent basis. In this non-GAAP presentation, net interest income is
adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures the
comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a
fully taxable equivalent basis is also used in the calculation of the Company’s efficiency ratio. The efficiency
ratio is calculated by dividing non-interest expense (less nonrecurring items, credit related expenses and
intangible amortization ) by total taxable-equivalent net interest income and non-interest income (less securities
gains or losses, FDIC indemnification income and nonrecurring items). The efficiency ratio is also calculated
excluding correspondent income and expense from the calculation. These measures provide an estimate of how
much it costs to produce one dollar of revenue. The items excluded from this calculation provide a better match
of revenue from daily operations to operational expenses.
Tangible assets is defined as total assets reduced by goodwill and other intangible assets. Tangible common
equity is defined as total common equity reduced by goodwill and other intangible assets. Tangible common
equity to tangible assets is defined as tangible common equity divided by tangible assets. These measures are
important to many investors in the marketplace who are interested in the common equity to assets ratio exclusive
of the effect of changes in intangible assets on common equity and total assets.
Tangible common equity per common share outstanding is defined as tangible common equity divided by
total common shares outstanding. This measure is important to many investors in the marketplace who are
interested in changes from period to period in book value per share exclusive of changes in intangible assets.
Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing
total book value while not increasing our tangible book value.
These disclosures should not be considered in isolation or a substitute for results determined in accordance
with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be presented
by other bank holding companies. Management compensates for these limitations by providing detailed
reconciliations between GAAP information and the non-GAAP financial measures.
33
The following tables present a reconciliation of certain non-GAAP performance measures and ratios used by
the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP
financial measures:
(Dollars in thousands)
2015
2014
2013
2012
2011
Years ended December 31,
Income Statement Non-GAAP measures and ratios
Interest income (GAAP)
Loans, excluding purchase credit impaired (“PCI”) loans . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . . .
$101,051
40,645
16,460
2,641
1,523
$ 87,094
34,168
13,991
1,435
1,539
$ 55,549
32,725
9,889
1,430
785
$ 56,376
25,216
11,297
1,423
638
$ 54,235
11,658
14,296
1,422
632
Total Interest income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,320
138,227
100,378
94,950
82,243
Tax equivalent adjustment
Non PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tax equivalent adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
819
1,379
2,198
628
746
628
744
646
697
539
678
1,374
1,372
1,343
1,217
Interest income—tax equivalent
Loans excluding PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . . .
101,870
40,645
16,460
4,020
1,523
87,722
34,168
13,991
2,181
1,539
56,177
32,725
9,889
2,174
785
57,022
25,216
11,297
2,120
638
54,774
11,658
14,296
2,100
632
Total interest income—tax equivalent
. . . . . . . . . . . . . . . . . . . . . .
Total Interest expense (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,518
(7,286)
139,601
(7,356)
101,750
(5,885)
96,293
(8,481)
83,460
(12,207)
Net interest income—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . .
$157,232
$132,245
$ 95,865
$ 87,812
$ 71,253
Net interest income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$155,034
$130,871
$ 94,493
$ 86,469
$ 70,036
Yields and costs
Yield on Loans excluding PCI—tax equivalent . . . . . . . . . . . . . . .
Yield on loans—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield on securities tax-exempt—tax equivalent . . . . . . . . . . . . . . .
Yield on interest earning assets (GAAP) . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Yield on interest earning assets—tax equivalent
Cost of interest bearing liabilities (GAAP) . . . . . . . . . . . . . . . . . . .
Net interest spread (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest spread—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio
Non interest income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecurring income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.49%
5.66%
5.01%
4.66%
4.72%
0.32%
4.34%
4.40%
4.45%
4.51%
4.69%
5.64%
5.04%
4.61%
4.66%
0.36%
4.25%
4.30%
4.37%
4.41%
4.77%
6.18%
5.19%
4.93%
5.00%
0.39%
4.54%
4.61%
4.64%
4.71%
5.07%
5.67%
5.41%
4.58%
4.65%
0.51%
4.07%
4.14%
4.18%
4.24%
5.30%
5.46%
5.88%
4.30%
4.36%
0.81%
3.49%
3.55%
3.66%
3.72%
$ 37,450
(4)
(1,686)
—
$ 26,226
(46)
(2,982)
—
$ 33,946
(1,060)
(5,542)
—
$ 59,261
(2,423)
(6,017)
(453)
$101,972
(3,464)
(1,132)
(57,020)
Adjusted non interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent banking non interest income . . . . . . . . . . . . . . . . . .
35,760
(27,563)
23,198
(20,153)
27,344
(20,410)
50,368
(35,707)
40,356
(27,066)
. . . . . . . . . . . . .
Adjusted non interest income, ex. Correspondent
Net interest income before provision (GAAP) . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tax equivalent adjustment
8,197
155,034
2,198
3,045
130,871
1,374
Adjusted net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent net interest income . . . . . . . . . . . . . . . . . . . . . . . . .
157,232
(6,330)
132,245
(3,239)
6,934
94,493
1,372
95,865
(2,854)
14,661
86,469
1,343
87,812
(4,023)
13,290
70,036
1,217
71,253
(3,822)
Adjusted net interest income, ex. Correspondent . . . . . . . . . . . . . .
150,902
129,006
93,011
83,789
67,431
34
Income Statement Non-GAAP measures and ratios (continued)
Years ended December 31,
continued from previous page
2015
2014
2013
2012
2011
Non interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CDI and Trust intangible amortization . . . . . . . . . . . . . . . . . . . . . .
Credit related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecurring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent banking non interest expense . . . . . . . . . . . . . . . . .
126,082
(2,537)
(2,295)
(827)
120,423
(23,414)
$136,181
(2,284)
(5,282)
(14,306)
$110,762
(1,191)
(12,730)
(722)
$121,980
(1,372)
(11,206)
(3,328)
$114,689
(804)
(12,696)
(7,696)
114,309
(20,638)
96,119
(22,491)
106,074
(30,651)
93,493
(25,467)
Adjusted non interest expense, ex. Correspondent . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio—excluding Correspondent . . . . . . . . . . . . . . . . . .
$ 97,009
$ 93,671
$ 73,628
$ 75,423
$ 68,026
62%
61%
74%
71%
78%
74%
77%
77%
84%
84%
Analysis of changes in interest income and expense
Net change Dec. 31, 2015 versus 2014
Volume
Rate
Net change
Loans—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,280
1,851
25,592
25,404
$ 345
(12)
(675)
(417)
$20,625
1,839
24,917
24,987
Analysis of changes in interest income and expense
Net change Dec. 31, 2014 versus 2013
Volume
Rate
Net change
Loans—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest income—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,257
72
45,119
43,246
$(8,269)
(65)
(7,268)
(6,866)
$32,988
7
37,851
36,380
(Dollars in thousands, except per share data)
2015
2014
2013
2012
2011
Years ended December 31,
Balance Sheet Non-GAAP measures and
ratios
$2,284,459
$2,363,240
$2,416,011
$3,776,869
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $4,022,717
(38,035)
(44,924)
(44,924)
(76,739)
(76,739)
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,203)
(7,307)
(6,116)
(15,401)
Intangible assets, net
(13,001)
. . . . . . . . . . . . . . . . . .
$2,241,221
$2,311,009
$2,364,971
$3,684,729
Tangible assets . . . . . . . . . . . . . . . . . . . . . . . $3,932,977
$ 262,633
$ 273,531
$ 273,379
$ 452,477
490,514
Common stockholders’ equity . . . . . . . . . . .
(38,035)
(44,924)
(44,924)
(76,739)
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(76,739)
(5,203)
(7,307)
(6,116)
(15,401)
(13,001)
. . . . . . . . . . . . . . . . . .
Intangible assets, net
$ 219,395
$ 221,300
$ 222,339
$ 360,337
Tangible common stockholders’ equity . . . . $ 400,774
8.74
9.09
9.08
9.98
10.79
Book value per common share . . . . . . . . . . . $
$
$
$
$
(1.44)
(1.74) $
(1.69) $
(2.03) $
(1.97) $
Effect of intangible assets . . . . . . . . . . . . . . $
7.30
$
7.36
$
7.38
$
7.95
$
8.82
Tangible book value per common share . . . $
11.50%
11.57%
11.32%
11.98%
12.19%
Equity to total assets . . . . . . . . . . . . . . . . . . .
Effect of intangible assets . . . . . . . . . . . . . .
-1.71%
-2.00%
-1.91%
-2.20%
-2.00%
Tangible common equity to tangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.19%
9.78%
9.40%
9.58%
9.79%
The selected consolidated financial data presented below should be read in conjunction with management’s
discussion and analysis of financial condition and results of operations, and the consolidated financial statements
and footnotes thereto, of the Company at December 31, 2015 and 2014, and the three year period ended
December 31, 2015, presented elsewhere herein. Operating results for prior periods are not necessarily indicative
of results that might be expected for any future period.
35
Selected Consolidated Financial Data
For the twelve month period ending or as of December 31
(Dollars in thousands except for share and per share
data)
SUMMARY OF OPERATIONS:
Total interest income . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . .
Income from correspondent banking capital
markets division . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of securities available for sale . .
Bargain purchase gain, acquisition of
institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of bank branch office real estate . . . .
Credit related expenses . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PER COMMON SHARE DATA:
Basic earnings per share . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . .
Common equity per common share
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity per common share
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per common share . . . . . . . . . . . . . . . .
Actual shares outstanding . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding . .
Diluted weighted average common shares
$
$
$
$
$
$
2015
2014
2013
2012
2011
$
162,320
(7,286)
155,034
(4,493)
138,227
(7,356)
130,871
(826)
$
100,378
(5,885)
$
$
94,950
(8,481)
86,469
(9,220)
82,243
(12,207)
70,036
(45,991)
77,249
20,336
35,707
2,423
453
342
(11,206)
(110,774)
14,530
(4,625)
9,905
0.33
0.33
9.09
$
$
$
$
24,045
14,422
27,066
3,464
57,020
—
(12,696)
(101,993)
11,328
(3,419)
7,909
0.26
0.26
8.74
94,493
76
94,569
12,445
20,410
1,060
—
31
(12,730)
(98,032)
17,753
(5,510)
12,243
0.41
0.41
9.08
$
$
$
$
150,541
9,883
27,563
4
—
—
(2,295)
(123,787)
61,909
(22,571)
39,338
0.87
0.85
10.79
$
$
$
$
130,045
6,027
20,153
46
—
—
(5,282)
(130,899)
20,090
(7,126)
12,964
0.32
0.31
9.98
$
$
$
$
8.82
0.07
45,459,195
45,182,224
$
$
7.95
0.04
45,323,553
40,852,002
$
$
7.38
0.04
30,112,475
30,102,777
$
$
7.36
0.04
30,079,767
30,073,959
$
$
7.30
0.04
30,055,499
30,034,573
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,788,632
41,235,552
30,220,127
30,141,863
30,039,187
BALANCE SHEET DATA:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . .
Common stockholders’ equity . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . .
Tangible capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible (CDI) . . . . . . . . . . . . . . . .
Trust intangible . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average total assets . . . . . . . . . . . . . . . . . . . . . . . .
Average loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average interest earning assets . . . . . . . . . . . . . . .
Average deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Average interest bearing deposits . . . . . . . . . . . . .
Average interest bearing liabilities . . . . . . . . . . . .
Average total stockholders’ equity . . . . . . . . . . . .
$ 4,022,717
2,593,776
22,264
3,215,178
252,722
24,093
490,514
490,514
400,774
76,739
12,164
837
3,928,523
2,518,572
3,484,739
3,178,569
2,038,955
2,278,427
471,130
36
$ 3,776,869
2,429,525
19,898
3,092,040
179,014
23,917
452,477
452,477
360,337
76,739
14,417
984
3,419,541
2,160,155
2,995,845
2,891,459
1,942,299
2,046,061
391,574
$ 2,415,567
1,474,179
20,454
2,056,231
50,366
16,996
273,379
273,379
222,339
44,924
4,958
1,158
2,381,620
1,439,069
2,034,542
2,087,004
1,425,858
1,502,481
273,852
$ 2,363,240
1,435,863
26,682
1,997,232
57,724
16,970
273,531
273,531
221,300
44,924
5,944
1,363
2,445,902
1,451,492
2,070,990
2,062,682
1,555,755
1,652,460
269,282
$ 2,284,459
1,283,766
27,944
1,919,789
69,276
16,945
262,633
262,633
219,395
38,035
5,203
—
2,176,571
1,216,086
1,914,812
1,800,998
1,407,942
1,512,898
253,398
Selected Consolidated Financial Data—continued
For the twelve month period ending or as of December 31
SELECTED FINANCIAL RATIOS:
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio, excluding correspondent (2) . . . . . . . . . . . . . . . . . . . . . .
Net interest margin, tax equivalent basis (3) . . . . . . . . . . . . . . . . . . . . . . .
Net interest spread, tax equivalent basis (4) . . . . . . . . . . . . . . . . . . . . . . . .
CAPITAL RATIOS:
Tier 1 leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-based capital
Common equity Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASSET QUALITY RATIOS:
Net charge-offs to average loans (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance to period end loans (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses to non-performing loans (5) . . . . . . . . . . . . . . .
Non-performing assets to total assets (5) . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DATA:
Banking locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Full-time equivalent employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
2012
2011
1.00% 0.38% 0.51% 0.40% 0.36%
8.35% 3.31% 4.47% 3.68% 3.12%
8% 13% 10% 12% 15%
62% 74% 78% 77% 84%
61% 71% 74% 77% 84%
4.51% 4.41% 4.71% 4.24% 3.72%
4.40% 4.30% 4.61% 4.14% 3.55%
10.53% 10.11% 10.38% 9.91% 10.49%
—
14.39% —
—
14.99% 14.36% 16.64% 16.63% 17.79%
15.79% 15.14% 17.89% 17.89% 19.05%
10.19% 9.78% 9.40% 9.58% 9.79%
—
0.09% 0.07% 0.42% 0.93% 4.28%
0.93% 0.90% 1.58% 2.11% 2.46%
106% 76% 73% 93% 71%
0.56% 0.92% 1.39% 1.41% 2.16%
57
784
58
785
55
693
55
689
58
655
(1) Efficiency ratio is non-interest expense (less non-recurring items, credit related expenses and intangible
amortization) divided by the sum of the tax equivalent net interest income before the provision for loan
losses plus non-interest income (less non-recurring items and FDIC indemnification income).
(2) Efficiency ratio is same as (1) above excluding correspondent banking non-interest expense (including
indirect expense allocations) from the numerator and excluding correspondent banking net interest income
and non-interest income from the denominator.
(3) Net interest margin is net interest income divided by total average earning assets.
(4) Net interest spread is the difference between the average yield on earning assets and the average yield on
average interest bearing liabilities.
(5) Excludes purchased credit impaired loans.
37
Quarterly Financial Information
The following table sets forth, for the periods indicated, certain consolidated quarterly financial information.
This information is derived from our unaudited financial statements which include, in the opinion of
management, all normal recurring adjustments which management considers necessary for a fair presentation of
the results for such periods. The sum of the four quarters of earnings per share may not equal the total earnings
per share for the full year due to rounding and the issuance of stock related to the Gulfstream and FSB
acquisitions in 2014. This information should be read in conjunction with our consolidated financial statements
and the notes thereto included elsewhere in this document. The results for any quarter are not necessarily
indicative of results for future periods.
Selected Quarterly Data
(unaudited)
(Dollars in thousands except
for per share data)
2015
2014
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
Interest income . . . . . . . . . . . . . $ 41,098 $ 40,112 $ 41,625 $ 39,485 $ 38,019 $ 37,347 $ 33,079 $ 29,782
(1,589)
Interest expense . . . . . . . . . . . .
(1,818)
(1,819)
(1,865)
(1,822)
(1,784)
(1,848)
(2,097)
Net interest income . . . . . . . . . .
Provision for loan losses . . . . . .
39,279
(543)
38,328
—
39,807
(2,308)
37,620
(1,642)
36,171
(18)
35,250
(955)
31,257
106
28,193
41
Net interest income after
provision for loan losses . . . .
Non-interest income . . . . . . . . .
Correspondent banking and
capital markets division
income . . . . . . . . . . . . . . . . .
Gain on sales of securities
38,736
3,425
38,328
2,191
37,499
1,986
35,978
2,281
36,153
1,740
34,295
1,417
31,363
1,041
28,234
1,829
6,241
5,935
8,587
6,800
5,795
5,142
5,285
3,931
available for sale . . . . . . . . . .
Non-interest expenses . . . . . . . .
—
(32,086)
4
(30,855)
—
(32,538)
—
(30,603)
—
(32,091)
—
(35,534)
46
(36,153)
—
(32,403)
Income before income tax . . . .
Income tax expense . . . . . . . . .
16,316
(5,920)
15,603
(5,687)
15,534
(5,656)
14,456
(5,308)
11,597
(4,316)
5,320
(1,727)
1,582
(545)
1,591
(538)
Net income . . . . . . . . . . . . . . . . $ 10,396 $ 9,916 $ 9,878 $ 9,148 $ 7,281 $ 3,593 $ 1,037 $ 1,053
Basic earnings per common
share . . . . . . . . . . . . . . . . . . . $
0.23 $
0.22 $
0.22 $
0.20 $
0.16 $
0.08 $
0.03 $
0.03
Diluted earnings per common
share . . . . . . . . . . . . . . . . . . . $
0.23 $
0.22 $
0.21 $
0.20 $
0.16 $
0.08 $
0.03 $
0.03
The 2014 results were impacted by the merger and acquisition related expenses due to the 2014 acquisitions
of Gulfstream and FSB as reflected in the table above. The acquisitions resulted in an increase in net interest
income to the extent of the earning assets and deposits acquired while limiting the additional noninterest expense
due to significant cost reductions related to the consolidation of back office operations and elimination of branch
redundancies created by the acquisitions. In addition, expenses were incurred, primarily in the first quarter of
2014 as reflected above, for branch closures and efficiency initiatives unrelated to the acquisitions. The
significant improvement of the fourth quarter 2015 results compared to the fourth quarter 2014 are primarily a
reflection of the benefits of the acquisitions noted above and the realization of the expense reductions and
efficiencies initiated during the first quarter of 2014.
38
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All dollar amounts in this Item 7 are in thousands of dollars, except shares
and per share data or when specifically identified.)
Some of the statements in this report constitute forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These statements
related to future events, other future financial performance or business strategies, and include statements
containing 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 from the results anticipated in these
forward looking statements, due to a variety of factors, including, without limitation: the effects of future
economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes;
the risks of changes in interest rates and the level and composition of deposits, loan demand, and the values of
loan collateral; and the effects of competition from other commercial banks, thrifts, consumer finance companies,
and other financial institutions operating in our market area and elsewhere. All forward looking statements
attributable to our Company are expressly qualified in their entirety by these cautionary statements. We disclaim
any intent or obligation to update these forward looking statements, whether as a result of new information,
future events or otherwise. There is no assurance that future results, levels of activity, performance or goals will
be achieved.
Our discussion and analysis of earnings and related financial data are presented herein to assist investors in
understanding the financial condition of our Company at December 31, 2015 and 2014, and the results of
operations for the years ended December 31, 2015, 2014 and 2013. This discussion should be read in conjunction
with the consolidated financial statements and related footnotes of our Company presented elsewhere herein.
Executive Summary
Organizational structure
Our consolidated financial statements include the accounts of CenterState Banks, Inc. (the “Parent
Company,” “Company,” “Corporate,” “CenterState,” “Holding Company”, “CSFL”, “we” or “our”), our wholly
owned subsidiary bank (“CSB” or the “Bank”), our non bank subsidiary R4ALL, Inc. (“R4ALL”) and our non
bank subsidiary CSFL Insurance Corp (“CSFL IC”).
As background, in December 2010 we merged our three national chartered banks together, with CSB as the
surviving bank. In June of 2012 we merged our state charted bank, Valrico State Bank, into CSB. We currently
have one subsidiary bank, and two non bank subsidiaries, R4ALL and CSFL IC. R4ALL has no employees and
its sole purpose is to acquire and dispose of troubled assets from our only remaining subsidiary bank. CSFL IC
also has no employees and its sole purpose is to serve as a captive insurance subsidiary for our subsidiary bank,
CSB. CSB is insuring certain deductibles and excesses related to existing insurance policies with third party
providers with CSFL IC. As such, the Company is permitted annual permanent tax deductions for the premiums
CSB pays CSFL IC up to $1.2 million per year, effectively reducing the Company’s consolidated federal and
state income taxes pursuant to Section 831(b) of the U.S. Tax Code. The general administrative and recording
keeping activities of both non bank subsidiaries are performed by one of our employees.
At the Holding Company level, we perform functions that include strategic planning, merger and acquisition
functions, investor relations, capital management, financial reporting, income tax management and reporting,
loan review, internal audit, risk assessment and monitoring, and generally oversee and monitor the activities of
our subsidiary bank. All of the operating activities associated with and related to the commercial and retail
banking business, as well as the correspondent banking business, is performed and managed at the subsidiary
bank level.
39
A condensed consolidating balance sheet at December 31, 2015 and a condensed consolidating statement of
operations for the year ending December 31, 2015 are presented below.
Condensed Consolidating Balance Sheet
At December 31, 2015
CSB
INS. CORP R4ALL
COMPANY Eliminations Consolidated
CSFL
PARENT
Cash and due from banks . . . . . . . . . .
Federal funds sold and Federal
Reserve deposits . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . .
Investment securities . . . . . . . . . . . . .
Purchase credit impaired (“PCI”)
loans . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding PCI loans . . . . . . . .
Allowance for loan losses . . . . . . . . . .
Bank premises and equipment, net . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangibles . . . . . . . . . . .
OREO covered by FDIC loss share
$
52,243
$1,591
$104
$
15
$
(1,460) $
52,493
101,580
153,823
879,686
—
1,591
—
210,528
2,383,153
(22,256)
101,435
76,739
12,164
—
—
—
—
—
—
—
—
—
—
104
—
—
95
(8)
—
—
—
—
—
—
—
15
—
—
—
—
386
—
—
—
—
485,686
34,315
—
(1,460)
—
101,580
154,073
879,686
—
—
—
—
—
—
—
—
(485,686)
(26,129)
210,528
2,383,248
(22,264)
101,821
76,739
12,164
9,629
1,567
—
215,526
agreements . . . . . . . . . . . . . . . . . . .
9,629
OREO not covered by FDIC loss
share agreements . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . .
1,567
—
207,307
25
8
Total assets . . . . . . . . . . . . . . . . . . . . .
$4,013,775
$1,616
$199
$520,402
$(513,275) $4,022,717
Deposits . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . .
All other liabilities . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . .
$3,216,638
252,722
59,422
484,993
$ —
—
1,121
495
$—
—
1
198
$ — $
24,093
5,795
490,514
(1,460) $3,215,178
276,815
40,210
490,514
—
(26,129)
(485,686)
Total liabilities and stockholders’
equity . . . . . . . . . . . . . . . . . . . . . . .
$4,013,775
$1,616
$199
$520,402
$(513,275) $4,022,717
Condensed Consolidating Statement of
Operations
For the 12 month period ending
December 31, 2015
CSB
INS. CORP R4ALL
COMPANY Eliminations Consolidated
CSFL
PARENT
Interest income . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .
$ 162,320
(6,318)
$ —
—
Net interest income . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . .
156,002
(4,494)
Net interest income after loan loss
provision . . . . . . . . . . . . . . . . . . . . .
Non interest income . . . . . . . . . . . . . .
Non interest expense . . . . . . . . . . . . . .
Net income before income tax
151,508
37,567
(121,850)
provision . . . . . . . . . . . . . . . . . . . . .
Income tax (provision) benefit . . . . . .
67,225
(24,629)
Net income . . . . . . . . . . . . . . . . . . . . .
$
42,596
$
—
—
—
58
(65)
(7)
25
18
$—
—
—
1
1
—
79
$ — $
(968)
— $ 162,320
(7,286)
—
(968)
—
—
—
155,034
(4,493)
(968)
42,663
(4,421)
—
(42,838)
175
150,541
37,450
(126,082)
80
(31)
37,274
2,064
(42,663)
—
61,909
(22,571)
$ 49
$ 39,338
$ (42,663) $
39,338
40
Through our subsidiary bank, we conduct commercial and retail banking business consisting of attracting
deposits from the general public and applying those funds to the origination of commercial real estate loans,
residential real estate loans, construction, development and land loans, and commercial loans and consumer
loans. Most of our loans are secured by real estate located in Florida.
Our profitability depends primarily on net interest income, which is the difference between interest income
generated from interest-earning assets (i.e. loans and investments) less the interest expense incurred on interest-
bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon the interest rate spread which is the difference between the
average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities.
The interest rate spread is impacted by interest rates, deposit flows, and loan demand. Additionally, our
profitability is affected by such factors as the level of non-interest income and expenses, the provision for credit
losses, and the effective tax rate. Non-interest income consists primarily of service fees on deposit accounts and
related services, and also includes commissions earned on bond sales, brokering single family home loans, Trust
services, sale of mutual funds, annuities and other non-traditional and non-insured investments. Non-interest
expense consists of compensation, employee benefits, occupancy and equipment expenses, and other operating
expenses.
At December 31, 2015, our subsidiary bank operated through 57 bank branch locations in 20 counties in
Florida as summarized in the table below:
Broward
Duval
Hendry
Hernando
Hillsborough
Indian River
Lake
Marion
Martin
Okeechobee
Orange
Osceola
Palm Beach
Pasco
Polk
Putnam
St. Lucie
Seminole
Sumter
Volusia
In addition to full service bank branches, we also originate loans in four loan production offices located in
Tampa, Gainesville, Crystal River and Ft. Myers, Florida.
On July 2, 2015, we converted our bank holding company into a financial holding company, which allows
additional flexibility such as initiating a captive insurance subsidiary.
On July 17, 2015, upon recommendation of Chairman and CEO Pinner, our Board of Directors appointed
John Corbett as the Company’s President and CEO. Mr. Pinner assumed the new role of Executive Chairman.
See the Company’s 2016 Proxy Statement for additional information relating to this transition.
On July 24, 2015, we purchased the branch real estate, and assumed approximately $15 million in deposits,
of SouthBank, F.S.B.’s (“SB”) main banking office located in Palm Beach County. On the same date, we closed
two nearby existing leased branches and consolidated these offices into the newly acquired location.
In October 2015, we announced two acquisitions in Homestead, Florida, Community Bank of South Florida,
Inc. (approximately $486 million of total assets) and Hometown of Homestead Banking Company
(approximately $348 million of total assets). Both transactions closed on March 1, 2016.
On December 14, 2015, we formed a captive insurance subsidiary in order to insure current deductibles,
excess limits and uninsured exposures. CSFL IC made an election per Section 831(b) in the US Tax Code to
exempt the premium income from federal income tax as allowed by the Code.
41
Correspondent banking division
We also operate a correspondent banking and capital markets division. The division is integrated with and
part of our subsidiary bank, CSB, located in Winter Haven, Florida, although the majority of our bond salesmen,
traders and operations personnel are physically housed in leased facilities located in Birmingham, Alabama and
Atlanta, Georgia. Its primary revenue generating activities are related to the capital markets division which
includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and
consulting fees for services related to these activities. Income generated related to the correspondent banking
services includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and fees
generated from safe-keeping activities, bond accounting services, asset/liability consulting services, international
wires, clearing and corporate checking account services and other correspondent banking related services. The
fees derived from the correspondent banking services are less volatile than those generated through the capital
markets group. The customer base includes small to medium size financial institutions located throughout the
United States.
Critical Accounting Policies
Our accounting policies are integral to understanding the results reported. Accounting policies are described
in detail in Note 1 of the notes to the consolidated financial statements. The critical accounting policies require
management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have
established policies and control procedures that are intended to ensure valuation methods are well controlled and
applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the
process for changing methodologies occurs in an appropriate manner. The following is a brief description of our
current accounting policies involving significant management valuation judgments.
Allowance for Loan Losses
The allowance for loan losses represents our estimate of probable incurred losses inherent in the existing
loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and
reduced by loans charged off, net of recoveries. The allowance for loan losses is determined based on our
assessment of several factors: reviews and evaluation of individual loans, changes in the nature and volume of
the loan portfolio, current economic conditions and the related impact on specific borrowers and industry
concentrations, historical loan loss experiences and the level of classified and nonperforming loans.
Changes in the financial condition of individual borrowers, in economic conditions, in historical loss
experience and in the condition of the various markets in which collateral may be sold may all affect the required
level of the allowance for loan losses and the associated provision for loan losses.
We use a standardized loan grading system which is integral to our risk assessment function related to
lending. Loan officers assign a loan grade to newly originated loans in accordance with the standard loan grades.
Throughout the lending relationship, the loan officer is responsible for periodic reviews, and if warranted he/she
will downgrade or upgrade a particular loan based on specific events and/or analyses. We use a loan grading
system of 1 through 7. Grade 1 is “excellent” and grade 7 is “doubtful.” Loans graded 5 or higher are placed on a
watch list each month end and reported to the special asset committee, which includes CEO Corbett, Executive
Chairman Pinner and CSB’s Chief Credit Officer. Our loan review officers, who are independent of the lending
function periodically review loan portfolios and lending relationships. The loan review officer may disagree with
the bank’s grade on a particular loan and subsequently downgrade or upgrade such loan(s) based on his risk
analysis.
Our Chief Credit Officer (“CCO”), our Chief Special Asset Disposition Manager (“CSPA”) and their teams
are responsible for identifying and reporting all impaired loans, non-accrual loans, TDRs and OREO. They hold
quarterly meetings with our CEO, our Executive Chairman, and a senior level accounting officer who along with
the CCO and CSPA is ultimately responsible for preparing the Company’s allowance for loan loss calculations
each quarter. The Company’s CFO and others also attend these meetings periodically. The CCO, CSPA and their
42
teams make sure that all non-performing loans, subject to ASC 310, as well as OREO properties have a current
appraisal (less than one year old) and that the asset is written down to 90% of the current appraisal, or less under
certain circumstances, such as a listing price in the case of OREO, or a time value adjustment in the case of loans
with appraisals approaching their one year life, and the related collateral is either in a type of category or in a
market area with declining values. When these quarterly meetings start, these teams have already evaluated their
positions and have identified the course of action on each of the troubled assets listed. The purpose of the
meetings is to allow the sharing of information and allow our CEO and Executive Chairman to review these
evaluations with our CCO and CSPA, and either approve or modify their recommendations.
We maintain an allowance for loan losses that we believe is adequate to absorb probable incurred losses
inherent in our loan portfolio. The allowance consists of three components. The first component consists of
amounts specifically reserved (“specific allowance”) for specific loans identified as impaired, as defined by
FASB Accounting Standards Codification No. 310 (“ASC 310”). Impaired loans are those loans that
management has estimated will not repay as agreed pursuant to the loan agreement. Each of these loans is
required to have a written analysis supporting the amount of specific reserve allocated to the particular loan, if
any. That is to say, a loan may be impaired (i.e. not expected to repay as agreed), but may be sufficiently
collateralized such that we expect to recover all principal and interest eventually, and therefore no specific
reserve is warranted.
The second component is a general reserve (“general allowance”) on all of the Company’s loans other than
those identified as impaired. We group these loans into categories with similar characteristics and then apply a
loss factor to each group which is derived from our historical loss factor for that category adjusted for current
internal and external environmental factors, as well as for certain loan grading factors.
The third component consists of amounts reserved for purchased credit-impaired loans. On a quarterly basis,
the Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating
assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that
are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the
recognition of impairment, which is then measured as the present value of the expected principal loss plus any
related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after
the acquisition date are recognized through the provision for loan losses. Probable and significant increases in
expected principal cash flows would first reverse any previously recorded allowance for loan losses; any
remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes
in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized
prospectively as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of
payments in full by the borrower, or foreclosure, result in removal of the loan from the purchased credit impaired
portfolio. The aggregate of these three components results in our total allowance for loan losses.
Goodwill and Intangible Assets
Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the
purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business
combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration
transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets
acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite useful life are not amortized, but tested for
impairment at least annually. The Company has selected November 30 as the date to perform the annual
impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their
estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet. We
have $77 million of goodwill on our consolidated balance sheet at December 31, 2015. Other intangible assets
consist of core deposit intangible and trust intangible assets arising from whole bank and branch acquisitions.
They are initially measured at fair value and then amortized on an accelerated method over their estimated useful
lives, generally 10 years.
43
Goodwill and intangible assets are described further in Note 9 of the notes to the consolidated financial
statements.
Income Taxes
We determine our income tax expense based on management’s judgments and estimates regarding
permanent differences in the treatment of specific items of income and expense for financial statement and
income tax purposes. These permanent differences result in an effective tax rate, which differs from the federal
statutory rate. In addition, we recognize deferred tax assets and liabilities, recorded in the Consolidated
Statements of Financial Condition, based on management’s judgment and estimates regarding timing differences
in the recognition of income and expenses for financial statement and income tax purposes.
We must also assess the likelihood that any deferred tax assets will be realized through the reduction or
refund of taxes in future periods and establish a valuation allowance for those assets for which recovery is not
more likely than not. In making this assessment, management must make judgments and estimates regarding the
ability to realize the asset through carryback to taxable income in prior years, the future reversal of existing
taxable temporary differences, future taxable income, and the possible application of future tax planning
strategies. Management believes that it is more likely than not that deferred tax assets included in the
accompanying Consolidated Statements of Financial Condition will be fully realized, although there is no
guarantee that those assets will be recognizable in future periods. We have a net deferred tax asset of $46.2
million in our consolidated balance sheet at December 31, 2015. For additional discussion of income taxes, see
Notes 1 and 15 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.
Purchased Credit-Impaired (“PCI”) Loans
We account for acquisitions under the purchase accounting method. All identifiable assets acquired and
liabilities assumed are recorded at fair value. We review each loan or loan pool acquired to determine whether
there is evidence of deterioration in credit quality since inception and if it is probable that the Company will be
unable to collect all amounts due under the contractual loan agreements. We consider expected prepayments and
estimated cash flows including principal and interest payments at the date of acquisition. The amount in excess of
the estimated future cash flows is not accreted into earnings. The amount in excess of the estimated future cash
flows over the book value of the loan is accreted into interest income over the remaining life of the loan
(accretable yield). The Company records these loans on the acquisition date at their net realizable value. Thus, an
allowance for estimated future losses is not established on the acquisition date. We refine our estimates of the fair
value of loans acquired for up to one year from the date of acquisition. Subsequent to the date of acquisition, we
update the expected future cash flows on loans acquired on a quarterly basis. Losses or a reduction in cash flow
which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses.
An increase in the expected cash flows adjusts the level of the accretable yield recognized on a prospective basis
over the remaining life of the loan.
FDIC Loss Share Receivable
We entered into agreements with the FDIC for reimbursement of losses within acquired loan portfolios. The
FDIC loss share receivable was recorded at fair value on the date of acquisition based upon the expected
reimbursements to be received from the FDIC adjusted by a discount rate which reflects counter party credit risk
and other uncertainties. Changes in the underlying credit quality of the loans covered by the FDIC loss share
receivable resulted in either an increase or a decrease in the FDIC loss share receivable. Deterioration in loan
credit quality increased the FDIC loss share receivable; increases in credit quality decreased the FDIC loss share
receivable. Proceeds received for reimbursement of incurred losses reduced the FDIC loss share receivable.
The FDIC bought out the remaining FDIC loss share arrangements on February 3, 2016 resulting in a pre-
tax loss of approximately $17.5 million. See Form 8K filed on February 4, 2016 for additional information.
44
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015 AND
DECEMBER 31, 2014.
Net Income
Our net income for the year ended December 31, 2015 was $39,338 or $0.87 and $0.85 per share basic and
diluted, respectively, compared to $12,964 or $0.32 and $0.31 per share basic and diluted for the year ended
December 31, 2014. Our net income, excluding merger related and efficiency initiative expenses and gain on sale
of securities, for year 2015 was $39,862 ($0.87 per share diluted), compared to $22,403 ($0.54 per share diluted)
for year 2014. The increase of $17,459 was primarily due to the January 2014 acquisition of Gulfstream and the
June 2014 acquisition of FSB.
Net Interest Income/Margin
Net interest income consists of interest income generated by earning assets, less interest expense.
Net interest income increased $24,163, or 18% to $155,034 during the year ended December 31, 2015
compared to $130,871 for the same period in 2014. The increase was the result of a $24,093 increase in interest
income and a $70 decrease in interest expense.
Interest earning assets averaged $3,484,739 during the year ended December 31, 2015 as compared to
$2,995,845 for the same period in 2014, an increase of $488,894, or 16%. The yield on average interest earning
assets increased 5 basis points (“bps”) to 4.66% (6bps to 4.72% tax equivalent basis) during the year ended
December 31, 2015, compared to 4.61% (4.66% tax equivalent basis) for the same period in 2014. The combined
net effects of the $488,894 increase in average interest earning assets and the increase in yields on average
interest earning assets resulted in the $24,093 ($24,917 tax equivalent basis) increase in interest income between
the two years.
45
Interest bearing liabilities averaged $2,278,427 during the year ended December 31, 2015 as compared to
$2,046,061 for the same period in 2014, an increase of $232,366, or 11%. The cost of average interest bearing
liabilities decreased 4 bps to 0.32% during the year ended December 31, 2015, compared to 0.36% for 2014. The
combined net effects of the $232,366 increase in average interest bearing liabilities and the 4 bps decrease in cost
of average interest bearing liabilities resulted in the $70 decrease in interest expense between the two years. See
the tables “Average Balances – Yields & Rates,” and “Analysis of Changes in Interest Income and Expenses”
below.
Average Balances (8) – Yields & Rates
Years Ended December 31,
2015
2014
Average
Balance
Interest
Inc / Exp
Average
Rate
Average
Balance
Interest
Inc / Exp
Average
Rate
ASSETS:
Loans, excluding PCI (1) (2) (7) . . . . . . . . . . . . . . . .
Purchased credit impaired loans (9)
. . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt (7) . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . .
$2,270,525
248,047
696,386
80,240
189,541
TOTAL INTEREST EARNING ASSETS . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,484,739
(21,521)
465,305
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,928,523
LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Money market
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Other borrowed funds (3)
Corporate debenture (4) . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST BEARING LIABILITIES . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND STOCKHOLDERS’
$ 625,274
726,159
241,921
445,601
30,727
184,451
289
24,005
$2,278,427
1,139,614
39,352
471,130
$101,870
40,645
16,460
4,020
1,523
$164,518
$
520
1,954
129
2,903
186
622
4
968
$
7,286
4.49% $1,869,859
290,296
16.39%
534,326
2.36%
43,303
5.01%
258,061
0.80%
$ 87,722
34,168
13,991
2,181
1,539
4.69%
11.77%
2.62%
5.04%
0.60%
$139,601
4.66%
4.72% $2,995,845
(20,690)
444,386
$3,419,541
$
470
1628
125
3,959
181
51
—
942
$
7,356
0.08% $ 560,813
645,420
0.27%
233,977
0.05%
502,089
0.65%
30,316
0.61%
49,899
0.34%
—
1.38%
23,547
4.03%
0.32% $2,046,061
949,160
32,746
391,574
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,928,523
$3,419,541
NET INTEREST SPREAD (tax equivalent
basis) (5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (tax equivalent basis) . .
$157,232
NET INTEREST MARGIN (tax equivalent
basis) (6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.40%
4.51%
$132,245
(1) Loan balances are net of deferred origination fees and costs. Non-accrual loans are included in total loan
(2)
(3)
(4)
balances.
Interest income on average loans includes loan fee recognition of $295 and $665 for the years ended
December 31, 2015 and 2014, respectively.
Includes short-term (usually overnight) Federal Home Loan Bank advances and other short term
borrowings.
Includes net amortization of origination costs and amortization of purchase accounting adjustment of $176
and $176 during year ended December 31, 2015 and 2014, respectively.
46
0.08%
0.25%
0.05%
0.79%
0.60%
0.10%
—
4.00%
0.36%
4.30%
4.41%
(5) Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing
liabilities.
(6) Represents net interest income divided by total earning assets.
(7)
Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax
rates to adjust tax exempt investment income on tax exempt investment securities and loans to a fully
taxable basis.
(8) Averages balances are average daily balances.
(9) Purchased credit-impaired (“PCI”) loans are loans accounted for under ASC Topic 310-30.
Non-accrual loans: A loan is moved to nonaccrual status in accordance with our policy typically after 90
days of non-payment, or less than 90 days of non-payment if management determines that the full timely
collection of principal and interest becomes doubtful. Past due status is based on the contractual terms of the
loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller
balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired
loans. All interest accrued but not received for loans placed on nonaccrual, is reversed against interest income.
Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually
due are brought current and future payments are reasonably assured.
Analysis of Changes in Interest Income and Expenses
Net Change Dec 31, 2015 versus
2014
Volume
Rate
Net
Change
INTEREST INCOME
Loans (tax equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,280
3,931
1,851
(470)
$
345
(1,462)
(12)
454
$20,625
2,469
1,839
(16)
TOTAL INTEREST INCOME (tax equivalent basis) . . . . . . . . . . . .
$25,592
$ (675)
$24,917
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
54
213
4
(415)
2
308
4
18
$
(4)
113
—
(641)
3
263
—
8
$
50
326
4
(1,056)
5
571
4
26
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
188
$ (258)
$
(70)
NET INTEREST INCOME (tax equivalent basis) . . . . . . . . . . . . . . .
$25,404
$ (417)
$24,987
The table above details the components of the changes in net interest income for the last two years. For each
major category of interest earning assets and interest bearing liabilities, information is provided with respect to
changes due to average volume and changes due to rates, with the changes in both volumes and rates allocated to
these two categories based on the proportionate absolute changes in each category.
47
Provision for Loan Losses
The provision for loan losses increased $3,667 to $4,493 during the year ending December 31, 2015
compared to a provision of $826 for the comparable period in 2014. The provision for loan losses for the current
year included $1,834 for the Gulfstream loans and $878 for the First Southern loans acquired in January and June
2014, respectively. Our policy is to maintain the allowance for loan losses at a level sufficient to absorb probable
incurred losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses, which
is a charge to current period earnings, and is decreased by charge-offs, net of recoveries on prior loan charge-
offs. Therefore, the provision for loan losses (Income Statement effect) is a residual of management’s
determination of allowance for loan losses (Balance Sheet approach). In determining the adequacy of the
allowance for loan losses, we consider those levels maintained by conditions of individual borrowers, the
historical loan loss experience, the general economic environment, the overall portfolio composition, and other
information. As these factors change, the level of loan loss provision changes. Our loss factors associated with
our general allowance for loan losses is the primary reason causing the decrease in our provision expense due to
our continued improvement in substantially all of our credit metrics, in particular our historical loss factors which
is a derivative of our historical charge-off rates. See “credit quality and allowance for loan losses” regarding the
allowance for loan losses for additional information.
Non-Interest Income
Non-interest income for the year ended December 31, 2015 was $37,450 compared to $26,226 for the
comparable period in 2014. This increase of $11,224 was the result of the following components listed in the
table below.
Correspondent banking capital markets revenue . . . .
Other correspondent banking related revenue . . . . . .
Wealth management related revenue . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . .
Debit, prepaid, ATM and merchant card related
fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance income . . . . . . . . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . .
2015
23,225
4,338
3,813
9,745
6,913
2,346
1,943
4
2014
$ 16,400
3,753
4,239
9,542
6,250
1,767
1,990
46
$
increase
(decrease)
$ 6,825
585
(426)
203
663
579
(47)
(42)
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset- amortization . . . . . . . . .
FDIC indemnification income . . . . . . . . . . . . . . . . . .
52,327
(16,563)
1,686
43,987
(20,743)
2,982
8,340
4,180
(1,296)
Total non-interest income . . . . . . . . . . . . . . . . . .
$ 37,450
$ 26,226
$11,224
%
increase
(decrease)
41.6%
15.6%
-10.0%
2.1%
10.6%
32.8%
-2.4%
-91.3%
19.0%
-20.2%
-43.5%
42.8%
As shown in the table above, the primary reason for the increase in non-interest income year to year is the
increase in correspondent banking capital markets revenue and the decrease in FDIC indemnification asset
amortization.
Correspondent banking capital markets revenue includes bond sales revenue and brokerage revenue from
interest rate swaps and C&I loan sales to correspondent bank clients. The increase in revenue in 2015 is mainly
due to revenue generated from the facilitation of interest rate swaps for correspondent client banks and their
customers. This line of business began in 2014 producing $1,344 of gross revenue and increased to $7,903 in
2015.
48
The FDIC indemnification asset (“IA”) was 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 were less than previously projected losses, the related projected reimbursements from the FDIC
contemplated in the IA were less, which produced a negative income accretion in non-interest income. This event
corresponded to the increase in yields in the FDIC covered loan portfolio, although there was not a perfect
correlation. Higher expected cash flows (i.e. less expected future losses) on the loan side of the equation was
accreted into interest income over the life of the related loan pool. The lower expected reimbursement from the
FDIC was amortized over the lesser of the remaining life of the related loan pool(s) or the remaining term of the
loss share period.
At December 31, 2015, the total IA on our balance sheet was $25,795. Of this amount, we estimated to
receive reimbursements from the FDIC of approximately $4,250 related to future estimated losses, and estimated
to expense approximately $21,545 for previously estimated losses that are no longer expected. The $21,545 was
estimated to be paid, or has been paid, by the borrower (or has been or is estimated to be realized upon the sale of
OREO) instead of a reimbursement from the FDIC. At December 31, 2015, the $21,545 previously estimated
reimbursements from the FDIC was expected to be amortized as expense (negative accretion) in our non-interest
income as summarized below.
Year
Year
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,230
3,875
2,876
2020 . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . .
2022 thru 2022 . . . . . . . . . . . . . . . .
$ 1,512
639
49
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,364
Total
. . . . . . . . . . . . . . . . . . . . . . . .
$21,545
On February 3, 2016, the FDIC bought out our remaining FDIC loss share agreements. As such, our IA was
written off and we recognized a pre-tax loss on the transaction of approximately $17,560 during the first quarter
of 2016, effectively accelerating the $21,545 of future IA amortization expense summarized in the table above.
Our other FDIC income related line item in the table above, FDIC indemnification income, has two
components. The first relates to losses on FDIC covered OREO. To the extent we incur a loss on the sale of
OREO, the FDIC is obligated to reimburse us at various coverage rates pursuant to the applicable loss sharing
agreements. The reimbursable amount is recognized as FDIC indemnification income in this line item during the
same period the expense or loss on OREO is recognized in our non-interest expenses. The second component
relates to provision for loan loss expenses related to impairments on any of our covered loan pools. To the extent
we incur a loan loss provision expense, we recognize FDIC indemnification income pursuant to the applicable
coverages outlined in the loss sharing agreements during the same period the expense was recognized in
provision for loan loss expense. These reimbursements have also ceased effective with our February 3, 2016,
FDIC loss share buy-out as described in the preceeding paragraph.
49
Non-Interest Expense
Non-interest expense for the year ended December 31, 2015 decreased $10,099, or 7.4%, to $126,082,
compared to $136,181 for 2014. The table below breaks down the individual components.
2015
2014
$
increase
(decrease)
%
increase
(decrease)
Employee salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee incentive/bonus compensation . . . . . . . . . . . . . . . . . . . . .
Employee stock based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Employer 401K matching contributions . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health insurance and other employee benefits . . . . . . . . . . . . . . . . .
Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other employee related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental direct cost of loan origination . . . . . . . . . . . . . . . . . . . .
$ 58,209
6,522
3,283
1,617
618
4,865
3,855
1,118
(2,689)
$ 53,939
5,036
1,577
1,398
580
5,072
3,823
1,257
(2,307)
$ 4,270
1,486
1,706
219
38
(207)
32
(139)
(382)
Total salaries, wages and employee benefits . . . . . . . . . . . . . . . . . .
Gain on sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of FDIC covered OREO . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of FDIC covered OREO . . . . . . . . . . . . . . . .
Loss on repossessed assets other than real estate . . . . . . . . . . . . . . .
Foreclosure and repossession related expenses . . . . . . . . . . . . . . . .
Foreclosure and repo expenses, FDIC (note 1) . . . . . . . . . . . . . . . . .
Total credit related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of premises and equipment
. . . . . . . . . . . . . . . . . . . . .
Supplies, stationary and printing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal, auditing and other professional fees . . . . . . . . . . . . . . . . . . .
Bank regulatory related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage and delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM and debit card related expenses . . . . . . . . . . . . . . . . . . . . . . . .
CDI amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internet and telephone banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational write-offs and losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent accounts and Federal Reserve charges . . . . . . . . . . .
Conferences/Seminars/Education/Training . . . . . . . . . . . . . . . . . . .
Director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,398
(403)
(850)
257
950
7
1,425
909
2,295
9,957
5,716
1,436
2,317
4,679
2,954
3,173
1,389
1,893
2,390
147
2,167
582
655
520
693
446
4,448
70,375
(67)
(721)
985
2,265
45
1,722
1,053
5,282
10,163
6,066
1,319
2,731
5,484
4,066
3,209
1,413
1,918
2,110
174
1,698
242
641
409
601
396
3,578
7,023
(336)
(129)
(728)
(1,315)
(38)
(297)
(144)
(2,987)
(206)
(350)
117
(414)
(805)
(1,112)
(36)
(24)
(25)
280
(27)
469
340
14
111
92
50
870
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger, acquisition and conversion related expenses . . . . . . . . . . . .
Expenses related to branch closures and efficiency initiatives . . . . .
125,255
693
134
121,875
11,542
2,764
3,380
(10,849)
(2,630)
7.9%
29.5%
108.2%
15.7%
6.6%
-4.1%
0.8%
-11.1%
16.6%
10.0%
501.5%
17.9%
-73.9%
-58.1%
-84.4%
-17.2%
-13.7%
-56.6%
-2.0%
-5.8%
8.9%
-15.2%
-14.7%
-27.3%
-1.1%
-1.7%
-1.3%
13.3%
-15.5%
27.6%
140.5%
2.2%
27.1%
15.3%
12.6%
24.3%
2.8%
-94.0%
-95.2%
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126,082
$136,181
$(10,099)
-7.4%
note 1: These are foreclosure related expenses related to FDIC covered assets, and are shown net of FDIC
reimbursable amounts pursuant to FDIC loss share agreements.
50
Excluding merger, acquisition and conversion related expenses and nonrecurring expenses related to branch
closure and efficiency initiatives, total non-interest expense increased $3,380 or 2.8% year to year as shown in
the above table. The increase is primarily due to our acquisition of FSB in June 2014.
Income Tax Provision
We recognized an income tax expense for the year ended December 31, 2015 of $22,571 (an effective tax
rate of 36.5%) compared to $7,126 (an effective tax rate of 35.5%) for the year ended December 31, 2014. The
primary reason for the increase was due to a smaller percentage of tax exempt interest income relative to total
revenue.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2014 AND
DECEMBER 31, 2013.
Net Income
Our net income for the year ended December 31, 2014 was $12,964 or $0.32 and $0.31 per share basic and
diluted, respectively, compared to $12,243 or $0.41 per share basic and diluted for the year ended December 31,
2013. Our net income, excluding merger related and efficiency initiative expenses and gain on sale of securities,
for year 2014 was $22,403 ($0.54 per share diluted), compared to $12,010 ($0.40 per share diluted) for year
2013. The increase of $10,393 was primarily due to the January 2014 acquisition of Gulfstream and the June
2014 acquisition of FSB.
Net Interest Income/Margin
Net interest income consists of interest income generated by earning assets, less interest expense.
Net interest income increased $36,378, or 38% to $130,871 during the year ended December 31, 2014
compared to $94,493 for the same period in 2013. The increase was the result of a $37,849 increase in interest
income less a $1,471 increase in interest expense.
Interest earning assets averaged $2,995,845 during the year ended December 31, 2014 as compared to
$2,034,542 for the same period in 2013, an increase of $961,303, or 47%. The yield on average interest earning
assets decreased 32 basis points (“bps”) to 4.61% (34 bps to 4.66% tax equivalent basis) during the year ended
December 31, 2014, compared to 4.93% (5.00% tax equivalent basis) for the same period in 2013. The combined
net effects of the $961,303 increase in average interest earning assets and the decrease in yields on average
interest earning assets resulted in the $37,849 ($37,851 tax equivalent basis) increase in interest income between
the two years.
51
Interest bearing liabilities averaged $2,046,061 during the year ended December 31, 2014 as compared to
$1,502,481 for the same period in 2013, an increase of $543,580, or 36%. The cost of average interest bearing
liabilities decreased 3 bps to 0.36% during the year ended December 31, 2014, compared to 0.39% for 2013. The
combined net effects of the $543,580 increase in average interest bearing liabilities and the 3 bps decrease in cost
of average interest bearing liabilities resulted in the $1,471 increase in interest expense between the two years.
See the tables “Average Balances – Yields & Rates,” and “Analysis of Changes in Interest Income and
Expenses” below.
Average Balances (8) – Yields & Rates
ASSETS:
Loans, excluding PCI (1) (2) (7)
. . . . . . . .
Purchased credit impaired loans (9) . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . .
Securities—tax exempt (7) . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . .
TOTAL INTEREST EARNING
Years Ended December 31,
2014
2013
Average
Balance
Interest
Inc / Exp
Average
Rate
Average
Balance
Interest
Inc / Exp
Average
Rate
$1,869,859
290,296
534,326
43,303
258,061
$ 87,722
34,168
13,991
2,181
1,539
4.69% $1,177,493
261,576
11.77%
413,840
2.62%
41,888
5.04%
139,745
0.60%
$ 56,177
32,725
9,889
2,174
785
4.77%
12.51%
2.39%
5.19%
0.56%
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . . . . . .
$2,995,845
(20,690)
444,386
$139,601
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . .
$3,419,541
4.66% $2,034,542
(23,985)
371,063
$2,381,620
$101,750
5.00%
LIABILITIES & STOCKHOLDERS’
EQUITY
Deposits:
Now . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . .
Other borrowed funds (3) . . . . . . . . . . . . . .
Corporate debentures (4) . . . . . . . . . . . . . .
$ 560,813
645,420
233,977
502,089
30,316
49,899
—
23,547
TOTAL INTEREST BEARING
LIABILITIES . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . .
$2,046,061
949,160
32,746
391,574
TOTAL LIABILITIES AND
$
470
1,628
125
3,959
181
51
—
942
$
7,356
0.08% $ 457,856
312,151
0.25%
238,497
0.05%
417,354
0.79%
21,693
0.60%
37,941
0.10%
5
—
16,984
4.00%
0.36% $1,502,481
584,523
20,764
273,852
$
362
476
132
4,215
78
20
—
602
0.08%
0.15%
0.06%
1.01%
0.36%
0.05%
0.00%
3.54%
$
5,885
0.39%
STOCKHOLDERS’ EQUITY . . . . . . . .
$3,419,541
$2,381,620
NET INTEREST SPREAD (tax equivalent
basis) (5) . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (tax equivalent
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST MARGIN (tax
equivalent basis) (6) . . . . . . . . . . . . . . . .
4.30%
4.61%
$132,245
$ 95,865
4.41%
4.71%
(1) Loan balances are net of deferred origination fees and costs. Non-accrual loans are included in total loan
balances.
52
(2)
(3)
(4)
Interest income on average loans includes loan fee recognition of $665 and $408 for the years ended
December 31, 2014 and 2013, respectively.
Includes short-term (usually overnight) Federal Home Loan Bank advances and other short term
borrowings.
Includes net amortization of origination costs and amortization of purchase accounting adjustment of $176
and $26 during year ended December 31, 2014 and 2013, respectively.
(5) Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing
liabilities.
(6) Represents net interest income divided by total earning assets.
(7)
Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax
rates to adjust tax exempt investment income on tax exempt investment securities and loans to a fully
taxable basis.
(8) Averages balances are average daily balances.
(9) Purchased credit-impaired (“PCI”) loans are loans accounted for under ASC Topic 310-30.
Non-accrual loans: A loan is moved to nonaccrual status in accordance with our policy typically after 90
days of non-payment, or less than 90 days of non-payment if management determines that the full timely
collection of principal and interest becomes doubtful. Past due status is based on the contractual terms of the
loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller
balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired
loans. All interest accrued but not received for loans placed on nonaccrual, is reversed against interest income.
Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually
due are brought current and future payments are reasonably assured.
Analysis of Changes in Interest Income and Expenses
INTEREST INCOME
Loans (tax equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST INCOME (tax equivalent basis) . . . . . . . . . . . .
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Change Dec 31, 2014 versus 2013
Volume
Rate
Net
Change
$41,257
3,087
72
703
$(8,269)
1,015
(65)
51
$32,988
4,102
7
754
$45,119
$(7,268)
$37,851
$
85
714
(2)
766
39
8
—
263
$
24
438
(5)
(1,022)
64
22
—
77
$
109
1,152
(7)
(256)
103
30
—
340
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,873
$ (402)
$ 1,471
NET INTEREST INCOME (tax equivalent basis) . . . . . . . . . . . . . .
$43,246
$(6,866)
$36,380
53
The table above details the components of the changes in net interest income for the last two years. For each
major category of interest earning assets and interest bearing liabilities, information is provided with respect to
changes due to average volume and changes due to rates, with the changes in both volumes and rates allocated to
these two categories based on the proportionate absolute changes in each category.
Provision for Loan Losses
The provision for loan losses increased $902 to $826 during the year ending December 31, 2014 compared
to a negative provision of $(76) for the comparable period in 2013. The provision for loan losses for the current
year included $1,682 for the Gulfstream loans acquired in 2014. Our policy is to maintain the allowance for loan
losses at a level sufficient to absorb probable incurred losses inherent in the loan portfolio. The allowance is
increased by the provision for loan losses, which is a charge to current period earnings, and is decreased by
charge-offs, net of recoveries on prior loan charge-offs. Therefore, the provision for loan losses (Income
Statement effect) is a residual of management’s determination of allowance for loan losses (Balance Sheet
approach). In determining the adequacy of the allowance for loan losses, we consider those levels maintained by
conditions of individual borrowers, the historical loan loss experience, the general economic environment, the
overall portfolio composition, and other information. As these factors change, the level of loan loss provision
changes. Our loss factors associated with our general allowance for loan losses is the primary reason causing the
decrease in our provision expense due to our continued improvement in substantially all of our credit metrics, in
particular our historical loss factors which is a derivative of our historical charge-off rates. See “credit quality
and allowance for loan losses” regarding the allowance for loan losses for additional information.
Non-Interest Income
Non-interest income for the year ended December 31, 2014 was $26,226 compared to $33,946 for the
comparable period in 2013. This decrease was the result of the following components listed in the table below.
Correspondent banking capital markets revenue . . . .
Other correspondent banking related revenue . . . . . .
Wealth management related revenue . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . .
Debit, prepaid, ATM and merchant card related
fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance income . . . . . . . . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . .
2014
2013
$ 16,400
3,753
4,239
9,542
$ 17,189
3,221
4,551
8,457
6,250
1,767
1,990
46
5,420
1,328
985
1,060
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset- amortization . . . . . . . . .
FDIC indemnification income . . . . . . . . . . . . . . . . . .
43,987
(20,743)
2,982
42,211
(13,807)
5,542
$
increase
(decrease)
$ (789)
532
(312)
1,085
830
439
1,005
(1,014)
1,776
(6,936)
(2,560)
Total non-interest income . . . . . . . . . . . . . . . . . .
$ 26,226
$ 33,946
$(7,720)
%
increase
(decrease)
-4.6%
16.5%
-6.9%
12.8%
15.3%
33.1%
102.0%
-95.7%
4.2%
50.2%
-46.2%
-22.7%
As shown in the table above, the primary reason for the decrease in non-interest income year to year is the
increase in FDIC indemnification asset amortization.
The FDIC indemnification asset (“IA”) was 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 were less than previously projected losses, the related projected reimbursements from the FDIC
contemplated in the IA were less, which produced a negative income accretion in non-interest income. This event
54
corresponded to the increase in yields in the FDIC covered loan portfolio, although there was not perfect
correlation. Higher expected cash flows (i.e. less expected future losses) on the loan side of the equation was
accreted into interest income over the life of the related loan pool. The lower expected reimbursement from the
FDIC was amortized over the lesser of the remaining life of the related loan pool(s) or the remaining term of the
loss share period.
Our other FDIC income related line item in the table above, FDIC indemnification income, had two
components. The first related to losses on FDIC covered OREO. To the extent we incurred a loss on the sale of
OREO, the FDIC was obligated to reimburse us at various coverage rates pursuant to the applicable loss sharing
agreements. The reimbursable amount was recognized as FDIC indemnification income in this line item during
the same period the expense or loss on OREO was recognized in our non-interest expenses. The second
component related to provision for loan loss expenses related to impairments on any of our covered loan pools.
To the extent we incurred a loan loss provision expense, we recognized FDIC indemnification income pursuant
to the applicable coverages outlined in the loss sharing agreements during the same period the expense was
recognized in provision for loan loss expense.
On February 3, 2016, the FDIC bought out our remaining FDIC loss share agreements. As such, our IA was
written-off effectively accelerating all future IA amortization expense as well as ending any future FDIC
indemnification income as discussed above. See discussion on page 39.
55
Non-Interest Expense
Non-interest expense for the year ended December 31, 2014 increased $25,419, or 22.9%, to $136,181,
compared to $110,762 for 2013. The table below breaks down the individual components.
Employee salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee incentive/bonus compensation . . . . . . . . . . . . . . . . . . . . .
Employee stock based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Employer 401K matching contributions . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health insurance and other employee benefits . . . . . . . . . . . . . . . . .
Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other employee related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental direct cost of loan origination . . . . . . . . . . . . . . . . . . . .
Total salaries, wages and employee benefits . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of FDIC covered OREO . . . . . . . . . . . . . . . . . . .
Valuation write down of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of FDIC covered OREO . . . . . . . . . . . . . . . .
Loss on repossessed assets other than real estate . . . . . . . . . . . . . . .
Loan put back expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosure and repossession related expenses . . . . . . . . . . . . . . . . .
Foreclosure and repo expenses, FDIC (note 1) . . . . . . . . . . . . . . . . .
Total credit related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of premises and equipment
. . . . . . . . . . . . . . . . . . . . .
Supplies, stationary and printing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal, auditing and other professional fees . . . . . . . . . . . . . . . . . . . .
Bank regulatory related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage and delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM and debit card related expenses . . . . . . . . . . . . . . . . . . . . . . . .
CDI amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internet and telephone banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational write-offs and losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent accounts and Federal Reserve charges . . . . . . . . . . .
Conferences/Seminars/Education/Training . . . . . . . . . . . . . . . . . . . .
Director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
2013
$ 53,939
5,036
1,577
1,398
580
5,072
3,823
1,257
(2,307)
$ 47,175
4,965
609
1,219
569
3,557
3,018
1,293
(2,036)
70,375
(67)
(721)
985
2,265
45
—
1,722
1,053
5,282
10,163
6,066
1,319
2,731
5,484
4,066
3,209
1,413
1,918
2,110
174
1,698
242
641
409
601
396
3,578
60,369
228
2,894
1,085
4,927
401
4
1,732
1,459
12,730
7,702
5,876
1,121
2,517
3,784
3,754
2,369
1,084
1,802
986
204
1,083
118
459
584
405
399
2,694
$
increase
(decrease)
%
increase
(decrease)
$ 6,764
71
968
179
11
1,515
805
(36)
(271)
10,006
(295)
(3,615)
(100)
(2,662)
(356)
(4)
(10)
(406)
(7,448)
2,461
190
198
214
1,700
312
840
329
116
1,124
(30)
615
124
182
(175)
196
(3)
884
14.3%
1.4%
159.0%
14.7%
1.9%
42.6%
26.7%
-2.8%
13.3%
16.6%
-129.4%
-124.9%
-9.2%
-54.0%
-88.8%
-100.0%
-0.6%
-27.8%
-58.5%
32.0%
3.2%
17.7%
8.5%
44.9%
8.3%
35.5%
30.4%
6.4%
114.0%
-14.7%
56.8%
105.1%
39.7%
-30.0%
48.4%
-0.8%
32.8%
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger, acquisition and conversion related expenses . . . . . . . . . . . .
Nonrecurring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121,875
11,542
2,764
110,040
722
—
11,835
10,820
2,764
10.8%
1498.6%
n/a
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$136,181
$110,762
$25,419
22.9%
note 1:These are foreclosure related expenses related to FDIC covered assets, and are shown net of FDIC
reimbursable amounts pursuant to FDIC loss share agreements.
56
Excluding merger, acquisition and conversion related expenses and nonrecurring expenses related to branch
closure and efficiency initiatives, total non-interest expense increased $11,835 or 10.8% year to year as shown in
the above table. The increase is primarily due to our acquisition of Gulfstream in January 2014 and of FSB in
June 2014.
Income Tax Provision
We recognized an income tax expense for the year ended December 31, 2014 of $7,126 (an effective tax
rate of 35.5%) compared to $5,510 (an effective tax rate of 31.0%) for the year ended December 31, 2013. The
primary reason for the increase was due to a smaller percentage of tax exempt interest income relative to total
revenue and higher non-deductible expenses for tax purposes, primarily related to certain merger related
expenses.
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 2015 AND DECEMBER 31, 2014
Overview
Our total assets grew by $245,848, or 6.5%, from $3,776,869 at December 31, 2014 to $4,022,717 at
December 31, 2015, primarily due to organic loan growth and investment in AFS securities. This increase was
funded by organic growth in deposits and to a lesser amount from federal funds purchased through our
correspondent division bank clients.
Investment securities available for sale
We have an available for sale securities portfolio which we account for at fair value. Unrealized holding
gains and losses are included as a separate component of shareholders’ equity, net of the effect of deferred
income taxes.
We invest primarily in direct obligations of the United States, obligations guaranteed as to the principal and
interest by the United States, mortgage backed securities, municipal securities and obligations of government
sponsored entities and agencies of the United States. The Federal Reserve Bank and the Federal Home Loan
Bank also require equity investments to be maintained by us, which are shown separately in our consolidated
balance sheet.
Our available for sale portfolio totaled $604,739 at December 31, 2015 and $517,457 at December 31, 2014,
or 15% and 14%, respectively, of total assets. See note (3) in our Consolidated Financial Statements for a
summary of security type, maturity, amortized cost basis, gross unrealized gains and gross unrealized losses.
We use our security portfolio primarily as a tool to manage our balance sheet, manage our regulatory capital
ratios, as a source of liquidity and a base from which to pledge assets for repurchase agreements and public
deposits. When our liquidity position exceeds expected loan demand, other investments are considered as a
secondary earnings alternative. Approximately 94% of investment securities available for sale are mortgage
backed securities. The cash flows from these securities are used to meet cash needs or will be reinvested to
maintain a desired liquidity position. We classify the majority of our securities as “available-for-sale” to provide
for greater flexibility to respond to changes in interest rates as well as future liquidity needs. We believe the
composition of the portfolio offers flexibility in managing our liquidity position and interest rate sensitivity,
without adversely impacting our regulatory capital levels. The available for sale portfolio is carried at fair market
value and had a net unrealized gain of approximately $2,342 (which includes gross unrealized losses of $2,916)
at December 31, 2015, compared to a net unrealized gain of approximately $6,598 at December 31, 2014.
If our management intends to sell or it is more likely than not we will be required to sell the security before
recovery of our amortized cost basis, less any current period credit loss, the other than temporary impairment
(“OTTI”) will be recognized in earnings equal to the entire difference between the investment’s amortized cost
57
basis and its fair value at the balance sheet date. If our management does not intend to sell the security and it is
not more likely than not that we will be required to sell the security before recovery of its amortized cost basis
less any current period loss, the OTTI will be separated into the amount representing the credit loss and the
amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on
the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total
OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the
investment. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and
judgment and is based on the information available to management at a point in time. Because the decline in fair
value is attributable to changes in interest rates and not credit quality, and because we do not have the intent to
sell these securities and its more likely than not we will be required to sell these securities before their anticipated
recovery, we do not consider any of our securities, that have an unrealized loss associated with them, to be other
than temporarily impaired.
Trading Securities
We also have a trading securities portfolio. For this portfolio, realized and unrealized gains and losses are
included in trading securities revenue, a component of non interest income in our Consolidated Statement of
Operations and Comprehensive Income. Securities purchased for this portfolio have primarily been municipal
securities and are held for short periods of time. This activity was initiated to take advantage of market
opportunities, when presented, for short term revenue gains. See note (2) in our Consolidated Financial
Statements for a summary of purchases, sales and revenue recognized for the year ending December 31, 2015
and 2014.
Investment securities held to maturity
During 2014, we initiated a held to maturity securities portfolio. At December 31, 2015 the portfolio had
securities of $272,840 at amortized cost. We anticipate that this portfolio will generally hold longer term
securities for the primary purpose of yield. This classification was chosen to minimize temporary effects on our
tangible equity and tangible equity ratio due to increases and decreases in general market interest rates. At
December 31, 2015, these securities had gross unrecognized gains of approximately $1,778 and $635 of gross
unrecognized losses. Similar to our available for sale portfolio, because the decline in fair value is attributable to
changes in interest rates and not credit quality, and because we do not have the intent to sell these securities and
its more likely than not we will be required to sell these securities before their anticipated recovery, we do not
consider any of our securities, that have an unrealized loss associated with them, to be other than temporarily
impaired. See note (3) in our Consolidated Financial Statements for a summary of security type, maturity,
estimated fair value, gross unrecognized gains and gross unrecognized losses.
Loans
Lending-related income is the most important component of our net interest income and is a major
contributor to profitability. The loan portfolio is the largest component of earning assets, and it therefore
generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage
of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields
than securities and other earning assets. Average loans during the year ended December 31, 2015, were
$2,518,572, or 72% of average earning assets, as compared to $2,160,155, or 72% of average earning assets, for
the year ending December 31, 2014. Total loans at December 31, 2015 and 2014 were $2,593,776 and
$2,429,525, respectively, an increase of $164,251, or 7%. This also represents a loan to total asset ratio of 64%
and 64% and a loan to deposit ratio of 81% and 79%, at December 31, 2015 and 2014, respectively.
Approximately 6.8% of our total loans, or $177,320, were covered by FDIC loss sharing agreements related
to the acquisition of three failed financial institutions during the third quarter of 2010, two during the first quarter
of 2012 and two acquired pursuant to our acquisition of FSB
58
FDIC covered loans were included in both our PCI loan portfolio and non-PCI loan portfolio.
Approximately 71% of our PCI loan portfolio were FDIC covered loans.
On February 3, 2016, the FDIC bought out our remaining FDIC loss share agreements. See Form 8-K filed
on February 4, 2016 for additional information.
In the aggregate, approximately 85% are collateralized by real estate, 12% are commercial non real estate
loans and the remaining 3% are consumer and other non real estate loans. The loans collateralized by real estate
are further delineated as follows.
Residential real estate loans: These are single family home loans primarily originated within our local
market areas by employee loan officers or acquired pursuant to an acquisition of either an FDIC assisted
transaction, a whole bank transaction or an acquisition of branches including selected performing loans (i.e. loans
purchased from TD Bank, N.A. in 2011). We do not use loan brokers to originate loans for our own portfolio, nor
do we generally acquire loans outside of our geographical markets. The aggregate size of this category is
$733,600 representing approximately 28% of our total loans. Approximately $86,104 of this total amount is
included in our PCI loan portfolio. Of the remaining $647,496 that are not PCI loans, approximately $9,540 or
1.5% are non performing (non-accrual) at December 31, 2015.
Commercial real estate loans: This is the largest category ($1,360,411) of our loan portfolio representing
approximately 52% of our total loans. This category, along with commercial non real estate lending, is our
primary business. There is no significant concentration by type of property in this category but there is a
geographical concentration such that the properties are substantially all located within Florida. The borrowers are
a mix of professionals, doctors, lawyers, and other small business owners. Approximately 37% of these loans are
owner occupied. Approximately $105,629 are included in our PCI loan portfolio. Of the remaining $1,254,782
that are not PCI loans, approximately $9,145 or 0.7% are non performing (non-accrual) at December 31, 2015.
Land, development and construction loans: We have no construction or development loans with national
builders. We do business with local builders and developers that have typically been long time customers. This
category represents approximately 4% ($120,824) of our total loan portfolio. The majority of this amount is land
development, lots, and other land loans. Approximately $15,548 of these loans are included in our PCI loan
portfolio. Of the remaining $105,276 that are not PCI loans, approximately $1,608 or 2% are non performing
(non-accrual) at December 31, 2015.
59
Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged
in similar activities, which collectively could be similarly impacted by economic or other conditions and when
the total of such amounts would exceed 25% of total capital. Due to the lack of diversified industry and the
relative proximity of markets served, we have concentrations in geographic regions as well as in types of loans
funded. The tables below provide a summary of the loan portfolio composition and maturities for the periods
provided below.
Types of Loans
at December 31:
Loans excluding PCI loans
Real estate loans:
Loan Portfolio Composition
2015
2014
2013
2012
2011
Residential . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . .
$ 647,496
1,254,782
105,276
$ 589,068
1,132,933
79,002
$ 458,331
528,710
62,503
$ 428,554
480,494
55,474
$ 405,923
447,459
89,517
Total real estate loans . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . .
Total loans—gross . . . . . . . . . . . . . . . . . . . . .
Less: unearned fees/costs . . . . . . . . . . . . . . .
2,007,554
307,321
67,500
2,382,375
873
1,801,003
294,493
56,334
2,151,830
929
1,049,544
143,263
49,547
1,242,354
404
964,522
124,225
48,547
942,899
126,064
49,999
1,137,294
(458)
1,118,962
(639)
Total loans excluding PCI loans . . . . . . . . . .
2,383,248
2,152,759
1,242,758
1,136,836
1,118,323
PCI loans
Real estate loans:
Residential . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . .
Total real estate loans . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . .
Total PCI loans . . . . . . . . . . . . . . . . . . . . . . .
86,104
105,629
15,548
207,281
2,771
476
210,528
102,009
140,977
24,032
267,018
8,953
795
276,766
120,030
100,012
6,381
226,423
3,850
1,148
231,421
142,480
134,413
13,259
290,152
6,143
2,732
299,027
99,270
54,184
8,231
161,685
2,366
1,392
165,443
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,593,776
$2,429,525
$1,474,179
$1,435,863
$1,283,766
The repayment of loans is a source of additional liquidity for us. The following table sets forth the loans
maturing within specific intervals at December 31, 2015, excluding unearned net fees and costs.
Loan Maturity Schedule
December 31, 2015
0 – 12
Months
1 – 5
Years
Over 5
Years
Total
All loans other than construction, development, land . . . . . . . .
Real estate—land, development and construction . . . . . . . . . .
$140,532
21,496
$849,794
40,942
$1,481,753
58,386
$2,472,079
120,824
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$162,028
$890,736
$1,540,139
$2,592,903
Fixed interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$122,325
39,703
$736,454
154,282
$ 400,706
1,139,433
$1,259,485
1,333,418
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$162,028
$890,736
$1,540,139
$2,592,903
60
The information presented in the above table is based upon the contractual maturities of the individual
loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification of terms upon their maturity. Consequently,
management believes this treatment presents fairly the maturity structure of the loan portfolio. See “Liquidity and
Market Risk Management” for a discussion regarding the repricing structure of the loan portfolio.
Credit Quality and Allowance for Loan Losses
We maintain an allowance for loan losses that we believe is adequate to absorb probable incurred losses
inherent in our loan portfolio. The allowance is increased by the provision for loan losses, which is a charge to
current period earnings and decreased by loan charge-offs net of recoveries of prior period loan charge-offs.
Loans are charged against the allowance when management believes collection of the principal is unlikely.
The allowance consists of three components. The first component consists of amounts reserved for impaired
loans, as defined by ASC 310. Impaired loans are those loans that management has estimated will not repay as
agreed pursuant to the loan contract. Each of these loans is required to have a written analysis supporting the
amount of specific reserve allocated to the particular loan, if any. That is to say, a loan may be impaired (i.e. not
expected to repay as agreed), but may be sufficiently collateralized such that we expect to recover all principal
and interest eventually, and therefore no specific reserve is warranted.
The second component is a general reserve on all of our loans other than those identified as impaired and is
based on historical loss experience adjusted for current factors. The historical loss experience is determined by
portfolio segment and is based on the actual loss history experienced over the most recent two years. This actual
loss experience is supplemented with other economic factors based on the risks present for each portfolio
segment. The following portfolio segments have been identified:
Residential real estate
Commercial real estate
Construction and land development
Commercial and industrial (not collateralized by real estate)
Consumer (not collateralized by real estate)
The historical loss factors for each portfolio segment is adjusted for current internal and external environmental
factors, as well as for certain loan grading factors. The environmental factors that we consider are listed below.
We consider changes in the levels of and trends in past due loans, non-accrual loans and impaired
loans, and the volume and severity of adversely classified or graded loans. Also, we consider changes
in the value of underlying collateral for collateral-dependent loans.
We consider levels of and trends in charge-offs and recoveries.
We consider changes in the nature and volume of the portfolio and in the terms of loans.
We consider changes in lending policies, procedures and practices, including changes in underwriting
standards and collection, charge-off, and recovery practices not considered elsewhere in estimating
credit losses. We also consider changes in the quality of our loan review system.
We consider changes in the experience, ability, and depth of our lending management and other
relevant staff.
We consider changes in international, national, regional, and local economic and business conditions
and developments that affect the collectibility of the portfolio, including the condition of various
market segments (national and local economic trends and conditions).
We consider the effect of other external factors such as competition and legal and regulatory
requirements on the level of estimated credit losses in our existing portfolio (industry conditions).
We consider the existence and effect of any concentrations of credit, and changes in the level of such
concentrations.
61
The third component consists of amounts reserved for purchased credit-impaired loans. On a quarterly basis,
we update the amount of loan principal and interest cash flows expected to be collected, incorporating
assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that
are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the
recognition of impairment, which is then measured as the present value of the expected principal loss plus any
related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after
the acquisition date are recognized through the provision for loan losses. Probable and significant increases in
expected principal cash flows would first reverse any previously recorded allowance for loan losses; any
remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes
in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized
prospectively as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of
payments in full by the borrower, or foreclosure, result in removal of the loan from the purchased credit impaired
portfolio. The aggregate of these three components results in our total allowance for loan losses.
In the table below we have shown the components, as discussed above, of our allowance for loan losses at
December 31, 2015 and 2014.
December 31, 2015
December 31, 2014
increase (decrease)
Loan
balance
ALLL
balance
%
Loan
balance
ALLL
balance
%
Loan
balance
ALLL
balance
$1,770,747
$18,351
1.04% $1,407,781
$16,587
1.18% $362,966
$1,764
-14 bps
223,678
1,834
0.82%
280,331
1,682
0.60% (56,653)
152
22 bps
365,648
23,175
878
1,080
0.24%
4.66%
439,397
25,250
— —
(73,749)
4.42% (2,075)
1,115
878
(35)
2,383,248
22,143 0.93% 2,152,759
19,384
0.90% 230,489
2,759
210,528
121
276,766
514
(66,238)
(393)
24 bps
24 bps
3 bps
Non impaired
loans . . . . . . . .
Gulfstream loans
(note 1) . . . . . .
FSB loans
(note 2) . . . . . .
Impaired loans . .
Non-PCI loans . .
PCI loans
(note 3) . . . . . .
Total loans . . . . .
$2,593,776
$22,264
0.86% $2,429,525
$19,898
0.82% $164,251
$2,366
4 bps
note 1: Loans acquired pursuant to the January 17, 2014 acquisition of Gulfstream that are not PCI loans. These
are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment at
the acquisition date was approximately $7,680, or approximately 2.3% of the outstanding aggregate loan
balances. This amount is accreted into interest income over the remaining lives of the related loans on a
level yield basis. At December 31, 2015, management evaluated the performance of this group of loans
over a 23 month period subsequent to the acquisition date and based on this evaluation has estimated a
probable incurred loss amount at December 31, 2015 as listed in the table above.
note 2: Loans acquired pursuant to the June 1, 2014 acquisition of FSB that are not PCI loans. These are
performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment at the
acquisition date was approximately $10,081, or approximately 2% of the outstanding aggregate loan
balances. This amount is accreted into interest income over the remaining lives of the related loans on a
level yield basis. At December 31, 2015, management evaluated the performance of this group of loans
over an 18 month period subsequent to the acquisition date and based on this evaluation has estimated a
probable incurred loss amount at December 31, 2015 as listed in the table above. Included in the $365,648
of FSB non-PCI loans are $26,982 of loans that are covered by FDIC loss sharing agreements and
$36,280 of loans that are guaranteed by the California University System.
note 3: Included in the $210,528 PCI loans at December 31, 2015 are $150,338 of loans that are covered by FDIC
loss sharing agreements. The FDIC bought out the remaining FDIC loss share agreements on February 3,
2016.
62
The general loan loss allowance (non-impaired loans, which includes Gulfstream and FSB acquired loans)
increased by a net amount of $2,794. Excluding Gulfstream and FSB loans, the general loan loss allowance
increased by $1,764 resulting primarily from growth in loan balances of approximately $362,966, offset by a
decrease in the loss factors due to the continued improvement in the local economy and real estate market, and
the continued decline in the Company’s two year charge-off history. At December 31, 2015, the Company’s
qualitative factors increased the current two year historical loss ratios that are used to estimate the general loan
loss allowance.
As of the end of the current year, the Company has a 23 month history with the performing loans acquired
from Gulfstream as discussed in note 1 above. The Company estimated the probable incurred losses in this group
of loans and this estimate exceeded the fair value discount at December 31, 2015. As a result, a general loan loss
allowance of $1,834 was recorded at December 31, 2015. Management considered the levels of and trends in
non-performing loans, past-due loans, adverse loan grade classification changes and impaired loans in arriving at
its estimate. There was $120 of charge-offs in this group of loans during 2015.
Performing loans acquired in our June 2014 acquisition of FSB were recorded at estimated fair value at the
acquisition date. The fair value adjustment at the acquisition date was approximately $10,081, or approximately
2% of the outstanding aggregate loan balances. As described in note 2 above, this amount is accreted into interest
income over the remaining lives of the related loans on a level yield basis. As of the end of the current year, the
Company has an 18 month history with the performing loans acquired from FSB as discussed in note 2 above.
The Company estimated the probable incurred losses in this group of loans and this estimate exceeded the fair
value discount at December 31, 2015. As a result, a general loan loss allowance of $878 was recorded at
December 31, 2015. Management considered the levels of and trends in non-performing loans, past-due loans,
adverse loan grade classification changes and impaired loans in arriving at its estimate. There were no charge-
offs in the group of loans during 2015.
The specific loan loss allowance (impaired loans) is the aggregate of the results of individual analyses
prepared for each one of the impaired loans, excluding PCI loans. The Company recorded partial charge offs in
lieu of specific allowance for a number of the impaired loans. The Company’s impaired loans have been written
down by $1,715 to $23,175 ($22,095 when the $1,080 specific allowance is considered) from their legal unpaid
principal balance outstanding of $24,890. In the aggregate, total impaired loans have been written down to
approximately 89% of their legal unpaid principal balance when the related specific allowance is considered and
non-performing impaired loans have been written down to approximately 81% of their legal unpaid principal
balance when the related specific allowance is considered. The Company’s total non-performing loans (non-
accrual loans plus loans past due greater than 90 days and still accruing, $20,833 at December 31, 2015) have
been written down to approximately 80% of their legal unpaid principal balance, when the related specific
allowance is also considered.
Approximately $13,718 of the Company’s impaired loans (59%) are accruing performing loans. This group
of impaired loans is not included in the Company’s non-performing loans or non-performing assets categories.
PCI loans are accounted for pursuant to ASC Topic 310-30. PCI loan pools are evaluated for impairment
each quarter. If a pool is impaired, an allowance for loan loss is recorded.
63
The allowance is increased by the provision for loan losses, which is a charge to current period earnings and
decreased by loan charge-offs net of recoveries of prior period loan charge-offs. Loans are charged against the
allowance when management believes collection of the principal is unlikely. We believe our allowance for loan
losses was adequate at December 31, 2015. However, we recognize that many factors can adversely impact
various segments of the Company’s markets and customers, and therefore there is no assurance as to the amount
of losses or probable losses which may develop in the future. The tables below summarize the changes in
allowance for loan losses during the periods presented.
December 31,
2015
2014
2013
2012
2011
Activity in Allowance for Loan Losses
Loans excluding PCI loans
Balance, beginning of year . . . . . . . . . . . . . .
Loans charged-off:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Construction & land development
. . . .
Commercial & industrial . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total loans charged-off . . . . . . . . . . . . . . . . .
Loans charged-off—loan sales:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Construction & land development
. . . .
Commercial & industrial . . . . . . . . . . . .
Total loans charged-off—loan sales . . . . . . .
Recoveries on loans previously charged-off:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Construction & land development
. . . .
Commercial & industrial . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total loan recoveries . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses charged to
expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses for loans that are
not PCI loans . . . . . . . . . . . . . . . . . . . . . . .
PCI loans
Balance, beginning of year . . . . . . . . . . . . . .
Loans charged-off:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
. . . .
Construction & land development
Commercial & industrial . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total loans charged-off . . . . . . . . . . . . . . . . .
Recoveries on loans previously charged-off:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Construction & land development
. . . .
Commercial & industrial . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total loan recoveries . . . . . . . . . . . . . . . . . . .
$
19,384
$
19,694
$
24,033
$
27,559
$
26,267
(1,283)
(173)
(461)
(1,121)
(853)
(3,891)
—
—
—
—
—
901
485
5
344
156
1,891
(2,000)
(1,382)
(353)
(124)
(699)
(879)
(3,437)
—
—
—
—
—
1018
763
106
85
184
2,156
(1,281)
(3,701)
(1,144)
(310)
(120)
(903)
(6,178)
(3,968)
(2,862)
(4,646)
(231)
(807)
(12,514)
—
—
—
—
—
432
417
193
51
181
1,274
(4,904)
—
—
—
—
—
378
871
604
22
157
2,032
(10,482)
(9,306)
(11,179)
(7,717)
(1,971)
(1,091)
(31,264)
(3,019)
(11,153)
(456)
(220)
(14,848)
542
665
251
82
258
1,798
(44,314)
4,759
971
565
6,956
45,606
$
$
$
$
22,143
514
—
(77)
—
—
(50)
(127)
—
—
—
—
—
—
64
$
$
19,384
760
—
—
—
(101)
—
(101)
—
—
—
—
—
—
19,694
2,649
—
(1,248)
—
—
—
(1,248)
—
—
—
—
—
—
$
$
24,033
385
$
$
—
—
—
—
—
—
—
—
—
—
—
—
27,559
—
—
—
(293)
—
—
(293)
—
—
293
—
—
293
Activity in Allowance for Loan Losses—continued
December 31,
2015
2014
2013
2012
2011
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses charged to
expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses on PCI loans . . . .
Total allowance at end of period . . . . . . . . . .
(127)
(266)
121
22,264
$
$
(101)
(1,248)
—
(145)
514
19,898
$
$
(641)
760
20,454
$
$
2,264
2,649
26,682
$
$
$
$
—
385
385
27,944
Loans at year end (note 1) . . . . . . . . . . . . . . .
Average loans outstanding (note 1) . . . . . . . .
Net charge-offs (note 1)
. . . . . . . . . . . . . . . .
Allowance for loan losses as percentage of
$2,383,248
$2,270,525
2,000
$
$2,152,759
$1,869,859
1,281
$
$1,242,758
$1,177,493
4,904
$
$1,136,836
$1,124,251
10,482
$
$1,118,323
$1,032,959
44,314
$
year end loans (note 1)
. . . . . . . . . . . . . . .
0.93%
0.90%
1.58%
2.11%
2.46%
Net charge-offs as a percentage of average
loans outstanding (note 1) . . . . . . . . . . . . .
0.09%
0.07%
0.42%
0.93%
4.28%
Note 1: Excludes PCI loans.
Non-performing loans consist of non-accrual loans and loans past due 90 days or more and still accruing interest,
excluding loans that were covered by FDIC loss share agreements. Non-performing assets consist of non-performing
loans plus (a) OREO (i.e. real estate acquired through foreclosure or deed in lieu of foreclosure); (b) other repossessed
assets that are not real estate; and (c) were not covered by FDIC loss share agreements. We place loans on non-accrual
status when they are past due 90 days and management believes the borrower’s financial condition, after giving
consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. When we
place a loan on non-accrual status, interest accruals cease and uncollected interest is reversed and charged against
current income. Subsequent collections reduce the principal balance of the loan until the loan is returned to accrual
status or interest is recognized only to extent received in cash.
The largest component of non-performing loans is non-accrual loans, which as of December 31, 2015
totaled $20,833 (168 loans). This amount is further delineated by loan category as follows:
Non-accrual loans at 12/31/15
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
aggregate
loan
amounts
$ 9,540
9,145
1,608
187
353
% of
non-accrual
by category
number
of loans
46%
44%
8%
1%
1%
89
35
11
8
25
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,833
100%
168
The other component of non-performing loans are loans past due greater than 90 days and still accruing
interest. Loans which are past due greater than 90 days are placed on non-accrual status, unless they are both well
secured and in the process of collection.
At December 31, 2015, total OREO was $11,196. Of this amount, $9,629 was covered by FDIC loss share
agreements.
65
OREO not covered by FDIC loss share agreements was $1,567 at December 31, 2015, and is included in our
non-performing assets (“NPA”). 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 our Consolidated Statement of Operations and
Comprehensive Income. OREO is further delineated in the following table.
Description of repossessed real estate (OREO)
carrying amount
at Dec 31, 2015
5 single family homes . . . . . . . . . . . . . . . . . . . . . . . . . .
1 residential building lot . . . . . . . . . . . . . . . . . . . . . . . . .
6 commercial buildings . . . . . . . . . . . . . . . . . . . . . . . . .
Land / various acreages . . . . . . . . . . . . . . . . . . . . . . . . .
$ 436
18
708
405
Total, excluding OREO covered by FDIC loss share
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,567
At December 31, 2015 we also had repossessed assets other than real estate with an aggregate estimated fair
value of approximately $145. Interest income not recognized on non-accrual loans was approximately $835,
$982 and $827 for the years ended December 31, 2015, 2014 and 2013, respectively. The table below
summarizes non performing loans and assets for the periods provided.
Non Performing Loans and Non Performing Assets
Non-accrual loans (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past due loans 90 days or more and still accruing interest
(note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-performing loans (note 1) . . . . . . . . . . . . . . . . . .
Repossessed real estate (“OREO”) (note 1) . . . . . . . . . . . . . .
Repossessed assets other than real estate (note 1) . . . . . . . . .
Total non-performing assets (note 1) . . . . . . . . . . . . . . . . .
OREO covered by FDIC loss share agreements:
December 31,
2015
$20,833
2014
$25,595
2013
$27,077
2012
$25,448
2011
$38,858
—
20,833
1,567
145
$22,545
—
25,595
8,896
87
$34,578
—
27,077
6,409
150
$33,636
293
25,741
6,875
770
$33,386
120
38,978
8,712
1,619
$49,309
80% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,828
—
—
4,742
59
7,264
606
1,755
9,779
—
19,111
—
—
26,783
—
—
9,469
—
—
—
—
—
Total non-performing assets including FDIC covered
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,174
$53,982
$52,747
$60,169
$58,778
Non-performing loans as percentage of total loans excluding
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-performing assets as percentage of total assets
Excluding FDIC covered OREO . . . . . . . . . . . . . . . . . .
Including FDIC covered OREO . . . . . . . . . . . . . . . . . . .
Non-performing assets as percentage of loans and OREO
plus other repossessed assets (note 1)
Excluding FDIC covered OREO . . . . . . . . . . . . . . . . . .
Including FDIC covered OREO . . . . . . . . . . . . . . . . . . .
Loans past due 30 thru 89 days and accruing interest as a
0.87%
1.19%
2.18%
2.26%
3.48%
0.56%
0.80%
0.92%
1.43%
1.39%
2.18%
1.41%
2.55%
2.16%
2.57%
0.95%
1.34%
1.60%
2.47%
2.69%
4.16%
2.92%
5.14%
4.37%
5.16%
percentage of total loans (note 1) . . . . . . . . . . . . . . . . . . . .
0.62%
0.61%
0.85%
0.65%
1.45%
Allowance for loan losses as a percentage of non-
performing loans (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . .
106%
76%
73%
93%
71%
66
note 1: Excludes PCI loans.
note 2: Excludes OREO that were covered by FDIC loss share agreements.
Management considers a loan to be impaired when it is probable that we will not be repaid as agreed
pursuant to the contractual terms of the loan agreement. Once the loan has been identified as impaired, a written
analysis is performed to determine if there is a potential for a loss. If it is probable that a loss may occur, a
specific allowance, or a partial charge down, for that particular loan is then recognized. The loan is then placed
on non-accrual status and included in non-performing loans. If the analysis indicates that a loss is not probable,
then no specific allowance, or partial charge down, is recognized. If the loan is still accruing, it is not included in
non-performing loans.
Loans that are monitored for impairment pursuant to ASC 310 generally include commercial, commercial
real estate, land, acquisition & development of land, and construction loans greater than $500,000. Smaller
homogeneous loans, such as single family first and second mortgages, consumer loans, and small business and
commercial related loans are not generally subject to impairment monitoring pursuant to ASC 310, but are
analyzed for potential losses based on historical loss factors, current environmental factors and to some extent
loan grading.
Interest income recognized on impaired loans was approximately $584, $579 and $1,223 for the years ended
December 31, 2015, 2014 and 2013, respectively. The average recorded investment in impaired loans during
2015, 2014 and 2013 were $22,770, $26,301 and $38,674, respectively.
We may restructure or modify the terms of certain loans under certain conditions. In certain circumstances it
may be more beneficial to restructure the terms of a loan and work with the borrower for the benefit of both
parties, versus forcing the property into foreclosure and having to dispose of it in a distressed sale. When we
have modified the terms of a loan, we usually reduce the monthly payment and/or interest rate for generally
twelve to 24 months. At December 31, 2015, we had approximately $15,127 of troubled debt restructures
(“TDRs”). Of this amount $10,254 were performing pursuant to their modified terms, and $4,873 were not
performing and have been placed on non-accrual status and included in our non performing loans (“NPLs”).
TDRs are included in our impaired loans, whether they are performing or not performing. Only non performing
TDRs are included in our NPLs. The table below summarizes our impaired loans and TDRs for the periods
provided.
Impaired Loans and Troubled Debt Restructure (“TDRs”)
2015
2014
2013
2012
2011
December 31,
Performing TDRs . . . . . . . . . . . . . . . . . . . . .
Non performing TDRs . . . . . . . . . . . . . . . . .
$10,254
4,873
$11,418
3,648
$10,763
4,684
$ 8,841
5,819
$ 6,554
5,807
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,127
$15,066
$15,447
$14,660
$12,361
Impaired loans that are not TDRs . . . . . . . .
Impaired loans that are TDRs . . . . . . . . . . . .
8,048
15,127
$10,184
15,066
$ 8,663
15,447
$33,519
14,660
$41,307
12,361
Recorded investment in impaired loans . . . .
$23,175
$25,250
$24,110
$48,179
$53,668
Allowance for loan losses related to
impaired loans . . . . . . . . . . . . . . . . . . . . .
$ 1,080
$ 1,115
$ 1,811
$ 1,022
$ 3,304
67
TDRs as of December 31, 2015 quantified by loan type classified separately as accrual (performing loans)
and non-accrual (non-performing loans) are presented in the table below.
TDRs
Real estate loans:
Accruing
Non-Accrual
Total
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction, development, land . . . . . . . . . . . . . .
$ 5,987
2,458
593
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,038
991
225
$2,108
2,558
93
4,759
66
48
$ 8,095
5,016
686
13,797
1057
273
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,254
$4,873
$15,127
Our policy is to return non-accrual TDR loans to accrual status when all the principal and interest amounts
contractually due, pursuant to its modified terms, are brought current and future payments are reasonably
assured. Our policy also considers the payment history of the borrower, but is not dependent upon a specific
number of payments.
Loans are modified to minimize loan losses when we believe the modification will improve the borrower’s
financial condition and ability to repay the loan. We typically do not forgive principal. We generally either
reduce interest rates or decrease monthly payments for a temporary period of time and those reductions of cash
flows are capitalized into the loan balance. We may also extend maturities, convert balloon loans to longer term
amortizing loans, or vice versa, or change interest rates between variable and fixed rate. Each borrower and
situation is unique and we try to accommodate the borrower and minimize the Company’s potential losses.
Approximately 68% of our TDRs at December 31, 2015 were current pursuant to their modified terms, and about
$4,873, or approximately 32% of our total TDRs are not performing pursuant to their modified terms. There does
not appear to be any significant difference in success rates with one type of concession versus another.
We are continually analyzing our loan portfolio in an effort to recognize and resolve our problem assets as
quickly and efficiently as possible. While we believe we use the best information available at the time to make a
determination with respect to the allowance for loan losses, we recognize that many factors can adversely impact
various segments of our markets, and subsequent adjustments in the allowance may be necessary if future
economic indications or other factors differ from the assumptions used in making the initial determination or if
regulatory policies change. We continuously focus our attention on promptly identifying and providing for
potential problem loans, as they arise.
The table below summarizes our accruing loans past due greater than 30 days and less than 90 days for the
periods presented, excluding loans that were covered by FDIC loss share agreements.
past due loans 30-89 days . . . . . . . .
as percentage of total loans . . . . . .
$14,723
$13,108
$10,516
$7,422
$16,257
0.62%
0.61%
0.85%
0.65%
1.45%
2015
2014
2013
2012
2011
December 31,
Although the total allowance for loan losses is available to absorb losses from all loans, management
allocates the allowance among loan portfolio categories for informational and regulatory reporting purposes.
Regulatory examiners may require us to recognize additions to the allowance based upon the regulators’
judgments about the information available to them at the time of their examination, which may differ from our
judgments about the allowance for loan losses.
68
While no portion of the allowance is in any way restricted to any individual loan or group of loans, and the
entire allowance is available to absorb losses from any and all loans, the following table summarizes our
allocation of allowance for loan losses by loan category and loans in each category as a percentage of total loans,
for the periods presented, excluding PCI loans.
Real estate loans:
Residential
Commercial
Land, development,
. . . . . . . . . .
. . . . . . . . .
2015
2014
2013
2012
2011
December 31,
$ 6,015
10,662
27% $ 6,743
53% 8,269
27% $ 8,785
53% 6,441
37% $ 6,831
42% 8,272
28% $ 6,700
35% 8,825
construction . . . . . . .
937
4%
752
4% 3,069
5% 6,211
26% 9,098
Total real estate loans . . . . . .
Commercial loans . . . . . . . . .
Consumer and other loans . .
Unallocated . . . . . . . . . . . . . .
17,614
3,215
1,435
—
84% 15,764
13% 2,330
3% 1,290
—
84% 18,295
510
14%
889
2%
—
84% 21,314
12% 1,745
974
4%
—
89% 24,623
7% 1,984
952
4%
—
24%
32%
33%
89%
7%
4%
Total . . . . . . . . . . . . . . . . . . .
$22,264
100% $19,384
100% $19,694
100% $24,033
100% $27,559
100%
Bank Premises and Equipment
Bank premises and equipment was $101,821 at December 31, 2015 compared to $98,848 at December 31,
2014, an increase of $2,973 or 3%. The primary components of the increase was leasehold improvement cost of
$2,895 mostly relating to renovations to our new operations center location, the purchase of land of $921 for the
site of an existing branch and the purchase of land of $341 for a future branch site. In addition, the purchase of a
new branch building and land for $1,950 from SouthBank, F.S.B. in Palm Beach Gardens, Florida in which we
consolidated two other leased branch offices in the newly acquired office. See “Executive Summary” for
additional information regarding this transaction. Finally, other purchases net of disposals of $2,582 less
depreciation expense of $5,716. A summary of the activity for 2015 is presented in the table below.
$
98,848
1,950
6,739
(5,716)
balance at 12/31/14
acquisition of SouthBank real estate
net additions
depreciation
$
101,821
balance at 12/31/15
At December 31, 2015, we operated from 57 full service banking offices in 20 counties in central, southeast
and northeast Florida. We own 42 and lease 15 of these offices. We also have four loan production offices of
which we own 1 and lease 3. In addition to our banking locations, we lease non-banking office space in Winter
Haven, Florida for IT and operations purposes. We also lease office space for our Correspondent banking
division, primarily in Birmingham, Alabama, Atlanta, Georgia and Walnut Creek, California.
At December 31, 2015 we have 4 pieces of bank property (3 closed branches and 1 residential property)
included in our bank property held for sale with an aggregate carrying balance of $1,665.
Deposits
Total deposits increased $123,138, or 4%, to $3,215,178 as of December 31, 2015, compared to $3,092,040
at December 31, 2014. We assumed deposits of approximately $15,000 pursuant to the acquisition of SouthBank,
F.S.B on July 24, 2015. Our strategy has been to attract and grow relationships in our core deposit accounts,
which we define as non-time deposits, and not aggressively seek deposits based on pricing. Our time deposits
69
represent only 13% of our total deposits at December 31, 2015 compared to 16% at December 31, 2014. In
addition, our total checking accounts represent approximately 56% of our total deposits at December 31, 2015.
Our cost of deposits, including non-interest bearing checking accounts, was approximately 0.16% during the
fourth quarter of 2015. The tables below summarize selected deposit information for the periods indicated.
2015
December 31,
2014
2013
Non time deposits . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . .
$2,792,758
422,420
87% $2,604,228
487,812
13%
84% $1,671,356
384,875
16%
81%
19%
Total deposits . . . . . . . . . . . . . . . . .
$3,215,178
100% $3,092,040
100% $2,056,231
100%
Average deposit balance by type and average interest rates
2015
2014
2013
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Non interest bearing
demand deposits . . . . .
NOW accounts . . . . . . . .
Money market
accounts . . . . . . . . . . . .
Savings accounts . . . . . . .
Time deposits . . . . . . . . .
$1,139,614
625,274
— % $ 949,160
560,813
0.08%
— % $ 584,523
457,856
0.08%
726,159
241,921
445,601
0.27%
0.05%
0.65%
645,420
233,977
502,089
0.25%
0.05%
0.79%
312,151
238,496
417,354
Total
. . . . . . . . . . . . . . . .
$3,178,569
0.17% $2,891,459
0.21% $2,010,380
— %
0.08%
0.15%
0.06%
1.01%
0.26%
Maturity of time deposits of $100,000 or more
December 31,
2015
2014
2013
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six through twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 38,365
53,893
64,623
88,251
$ 56,062
51,270
63,011
98,448
$ 29,092
34,617
54,265
85,266
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$245,132
$268,791
$203,240
Repurchase Agreements
We enter into borrowing arrangements with retail business customers by agreements to repurchase
(“repurchase agreements”) under which we pledge investment securities owned and under our control as
collateral against the one-day borrowing arrangement. These arrangements are not transactions with investment
bankers or brokerage firms, but rather, with several of our larger commercial customers who periodically have
excess cash balances and do not want to keep those balances in non-interest bearing checking accounts. We offer
an arrangement through a repurchase agreement whereby balances are transferred from a checking account into a
repurchase agreement arrangement on which we will pay a negotiated daily adjustable interest rate generally tied
to the federal funds rate.
The daily average balance of these short-term borrowing agreements for the years ended December 31,
2015, 2014 and 2013, was approximately $30,737, $30,289 and $21,693, respectively. Interest expense for the
same periods was approximately $186, $181 and $78, respectively, resulting in an average rate paid of 0.61%,
0.60% and 0.36% for the years ended December 31, 2015, 2014, and 2013, respectively. The following table
summarizes our repurchase agreements for the periods presented.
70
Schedule of short-term borrowing (1)
Maximum
Outstanding
at any
month end
Year ended December 31,
2015 . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . .
$40,198
$34,681
$24,483
Average
interest rate
during the
year
Ending
Balance
Weighted
Average
interest rate
at year end
0.61%
0.60%
0.36%
$27,472
$27,022
$20,457
0.36%
0.72%
0.40%
Average
balance
$30,727
$30,289
$21,693
(1) Consist of securities sold under agreements to repurchase
Other borrowed funds
From time to time we borrow on a short-term basis, usually overnight, either through Federal Home Loan
Bank advances, Federal Reserve Bank discount window or Federal Funds Purchased. Included in Federal Funds
Purchased are overnight deposits from correspondent banks. We began accepting correspondent bank deposits
(classified as Federal Funds Purchased) in September 2008 pursuant to the initiation of our new correspondent
banking division. At December 31, 2015 we had $200,250 overnight Federal Funds Purchased correspondent
bank deposits and $25,000 in a discount window overnight borrowing at the Federal Reserve Bank. During the
year, these deposits had a daily average balance of approximately $184,740. These accounts are included with
other Federal Funds Purchased, Federal Home Loan Bank advances and other borrowings in the table below,
which summarizes our other borrowings for the periods presented. For additional information refer to Notes 12
and 13 in our Notes to Consolidated Financial Statements.
Schedule of short-term borrowing (1)
Maximum
outstanding
at any
month end
Average
balance
Average
interest rate
during the
year
Ending
Balance
Weighted
Average
interest rate
at year end
Year ended December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$225,250
$151,992
$ 53,274
$184,740
$ 49,899
$ 37,941
0.33% $225,250
0.10% $151,992
0.06% $ 29,909
0.40%
0.29%
0.05%
(1) Consist of Federal Home Loan Bank advances, Federal Reserve Bank advances and Federal Funds
Purchased
Corporate debentures
We have formed and assumed through various acquisitions five statutory trust entities and the related
corporate debentures as listed in the table below. See Note 14 of our 2015 Audited Consolidated Financial
Statements for further information describing these securities. Interest rates are adjusted on a quarterly basis as
described below. LIBOR, in the table below, means three-month LIBOR.
CenterState Banks of Florida Statutory Trust I . . . . . . . . . .
Valrico Capital Statutory Trust
. . . . . . . . . . . . . . . . . . . . . .
Federal Trust Statutory Trust I . . . . . . . . . . . . . . . . . . . . . . .
Gulfstream Bancshares Capital Trust II . . . . . . . . . . . . . . . .
Gulfstream Bancshares Capital Trust I (note 1) . . . . . . . . . .
$10,000
$ 2,500
$ 5,000
$ 3,000
$ 7,000
LIBOR + 3.05% Sep. 2033
LIBOR + 2.70% Sep. 2034
LIBOR + 2.95% Sep. 2033
LIBOR + 1.70% Mar. 2037
LIBOR + 1.90% Jan. 2035
Amount
Interest Rate
Maturity
note (1) On January 22, 2016, the Company purchased, redeemed and terminated this agreement and recognized
a gain on extinguishment of debt of approximately $308.
71
Liquidity and Market Risk Management
Market and public confidence in our financial strength and financial institutions in general will largely
determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability
to maintain sound asset quality and appropriate levels of capital reserves.
Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments
and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving
consideration to both on- and off-balance sheet sources of and demands for funds on a daily and weekly basis.
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based
liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and
management are necessary to ensure the ability to fund operations cost-effectively and to meet current and future
potential obligations such as loan commitments, lease obligations, and unexpected deposit outflows. In this
process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate
liquidity to meet our needs.
Interest rate sensitivity refers to the responsiveness of interest-earning assets and interest-bearing liabilities
to changes in market interest rates. The rate sensitive position, or gap, is the difference in the volume of rate-
sensitive assets and liabilities, at a given time interval, including both floating rate instruments and instruments
which are approaching maturity. The measurement of our interest rate sensitivity, or gap, is one of the principal
techniques we use in our asset/liability management effort. Our bank generally attempts to maintain a range set
by policy between rate-sensitive assets and liabilities by repricing periods. The range set by the bank has been
approved by its board of directors. If our bank falls outside their pre-approved range, it requires board action and
board approval, by the bank’s board of directors. The asset mix of our balance sheet is evaluated continually in
terms of several variables: yield, credit quality, and appropriate funding sources and liquidity. Management of
the liability mix of the balance sheet focuses on expanding the various funding sources.
Our gap and liquidity positions are reviewed periodically to determine whether or not changes in policies
and procedures are necessary to achieve financial goals. At December 31, 2015, approximately 51% of total
gross loans were adjustable rate. Approximately 82% of our investment securities ($723,864 fair value) are
invested in U.S. Government Agency mortgage backed securities. Although most of these have maturities in
excess of five years, these are amortizing instruments that generate cash flows each month. The duration (average
life of expected cash flows) of our securities at December 31, 2015 was approximately 3.6 years. Deposit
liabilities, at that date, consisted of approximately $679,714 (21%) in NOW accounts, $979,906 (31%) in money
market accounts and savings, $422,420 (13%) in time deposits and $1,133,138 (35%) in non-interest bearing
demand accounts.
72
The table below presents the market risk associated with our financial instruments. In the “Rate Sensitivity
Analysis” table, rate sensitive assets and liabilities are shown by repricing periods.
RATE SENSITIVITY ANALYSIS
December 31, 2015
0-1Yr
1-2Yrs
2-3Yrs
3-4Yrs
4-5Yrs
5Yrs+
Total
Interest earning assets
Fixed rate loans (1) . . . . . . . . . . $
Variable rate loans (1)
Investment securities (2)
Federal funds sold and
. . . . . . .
. . . . .
122,325 $
804,364
674
122,701 $ 183,534 $ 177,326 $252,893 $ 400,706 $1,259,485
33,792 1,333,418
102,818 180,691
88,035
875,237
867,374
4,054
1,628
123,718
910
597
other (3)
. . . . . . . . . . . . . . . .
Other earning assets (4) . . . . . .
101,580
16,148
—
—
—
—
—
—
—
—
—
—
101,580
16,148
Total interest earning assets . . . $ 1,045,091 $
212,364 $ 308,162 $ 280,741 $437,638 $1,301,872 $3,585,868
Interest bearing liabilities
NOW accounts . . . . . . . . . . . . . $
Money market accounts . . . . . .
Savings accounts . . . . . . . . . . .
Time deposits (5) . . . . . . . . . . .
Repurchase agreements (6) . . . .
Federal funds purchased . . . . . .
Corporate debentures . . . . . . . .
Total interest bearing
679,714 $
241,605
738,301
270,473
27,472
200,250
27,500
— $
—
—
76,295
—
—
—
— $
—
—
29,038
—
—
—
— $ — $
—
—
21,314
—
—
—
—
—
25,035
—
—
—
— $ 679,714
241,605
—
738,301
—
422,420
265
27,472
—
200,250
—
27,500
—
liabilities . . . . . . . . . . . . . . . . $ 2,185,315 $
76,295 $ 29,038 $ 21,314 $ 25,035 $
265 $2,337,262
Interest sensitivity gap . . . . . . .
Cumulative gap . . . . . . . . . . . . .
Cumulative gap
RSA/RSL (7)
. . . . . . . . . . . .
(1,140,224)
259,427 412,603 1,301,607
(1,140,224) (1,004,155) (725,031) (465,604) (53,001) 1,248,606
279,124
136,069
0.48
0.56
0.68
0.80
0.98
1.53
(1) Loans are shown at gross values and do not include $873 of net deferred origination fees and costs.
Estimated fair value of fixed loans and variable rate loans combined at December 31, 2015 is approximately
$2,574,516.
(2) Securities are shown at amortized cost. Includes $723,864 (amortized cost basis) of mortgage backed
securities of which the majority are fixed rate. Although most have maturities greater than five years, these
are amortizing instruments which generate cash flows on a monthly basis. Estimated fair value of securities
at December 31, 2015 is approximately $878,722.
Includes Federal Funds sold and interest bearing deposits at the Federal Reserve Bank.
Includes Federal Home Loan Bank stock and Federal Reserve Bank Stock.
(3)
(4)
(5) Time deposits are shown at carrying value. Estimated fair value at December 31, 2015 is approximately
(6)
$423,391.
Includes securities sold under agreements to repurchase. These are short-term borrowings, generally
overnight, from our retail business customers.
(7) Rate sensitive assets (RSA) divided by rate sensitive liabilities (RSL), cumulative basis.
As stated earlier, the rate sensitivity table above summarizes our interest earning assets and interest bearing
liabilities by repricing periods at a point in time. It does not include assumptions about sensitivity to changes in
various interest rates by asset or liability type, correlation between macro environment market rates and specific
product types, lag periods, cash flows or other assumptions and projections. However, in addition to static gap
analysis, our Bank also uses simulation models to estimate the sensitivity of its net interest income to changes in
73
interest rates. Simulation is a better technique than gap analysis because variables are changed for the various
rate conditions. Each category’s interest change is calculated as rates ramp up and down. In addition, the
repayment speeds and repricing speeds are changed. Rate Shock is a method for stress testing the net interest
margin over the next four quarters under several rate change levels. These levels span in 100bps increments up
and down from the current interest rates. In order to simulate activity, maturing balances are replaced with the
new balances at the new rate level, and repricing balances are adjusted to the new rate shock level. The interest is
recalculated for each level along with the new average yield. Net interest margin is then calculated and a margin
risk profile is developed. The result of these calculations, as of December 31, 2015 looking four quarters into the
future, for our combined Bank, is summarized in the table below.
change in interest rates . . . . . . .
resulting effect on net interest
-300 bps
-200 bps
-100 bps
0 bps
+100 bps
+200 bps
+300 bps
income (a) . . . . . . . . . . . . . . .
-8.96% -7.40% -3.60% current
+1.07% +1.14% +0.84%
(a) The percentage change in each of these boxes represents a percentage change from the net interest income
(dollars) that the model projected for the next four quarters. To put this in perspective, as an example, our
net interest income for 2015 was $155,034. Assuming a 100bps decrease in rates, our model is suggesting
that our net interest income would decrease by 3.60%, or approximately $5,581. Likewise, assuming a
100bps increase in rates, our model is suggesting that our net interest income would increase by 1.07%, or
approximately $1,659. It is important to reiterate again, that these models are built on a multitude of
assumptions and predictions. This is not an exact science. The benefit that we see is measuring our overall
interest rate risk profile. Although we are by no means suggesting the exactness of the numbers above, what
we see as a take away is that in general, it appears that if market interest rates increase, it would suggest a
benefit to our net interest income. If market interest rates decrease, it would suggest a negative effect on our
net interest income. We believe that our interest rate risk is manageable as of December 31, 2015.
Simulation and rate shock stress testing our net interest income (“NIM”) is a forward looking analysis. That
is, it estimates, based on various assumptions, what the effect on our NIM might be given various changes in
future interest rates. Another way of analyzing our interest rate risk profile is looking at history. The tables below
measures the correlation between our NIM and market interest rates over a 15 year period starting at the
beginning of 2000 and ending on December 31, 2015. We used the one and ten year U.S. Treasury rates as
surrogates for market interest rates. This simple correlation is not perfect because we ignore changes in duration
of our asset/liability portfolio over time and changes in the slope of the yield curve over time, as well as other
significant environmental changes that may occur, such as the recent banking crisis. However, it will demonstrate
that over time our asset/liability portfolio generally tended to be asset sensitive. That is, in general, over this
historical period, when market interest rates increased, our NIM increased, and when market interest rates
decreased, our NIM decreased. In the following tables, the U.S. Treasury rates are measured by the vertical bars,
and their scale is on the left hand side of the graph. Each bar represents a quarterly average. Our NIM is
represented by the line graph and its scale is on the right hand side of the graph. The line graph is connecting a
series of dots, which represents our NIM for a given quarter.
74
Net Interest Margin vs. U.S. Treasury Rates (1)
(1) US Treasury rates obtained from Statistical Releases and Historical Data as provided by the Federal Reserve
Bank.
Managing interest rate risk is a dynamic process. Our philosophy is to not try to guess the market in either
direction. We do not want to be excessively assets sensitive or excessively liability sensitive. We try to manage
our asset/liability portfolio with the goal of optimizing our yield without taking on excessive interest rate risk.
Contractual Obligations
While our liquidity monitoring and management considers both present and future demands for and sources
of liquidity, the following table of contractual commitments focuses only on our future obligations. In the table,
all deposits with indeterminate maturities, such as demand deposits, checking accounts, savings accounts and
money market accounts, are presented as having a maturity of one year or less.
December 31, 2015
Total
Due in
one year
or less
Due
over one
year and
less than
three years
Due
over three
years and
less than
five years
Due
over five
Years
Contractual commitments:
Deposit maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . .
Corporate debenture . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . .
$3,215,178
27,472
24,093
200,250
25,000
27,487
13,054
$3,063,231
27,472
—
200,250
25,000
11,205
2,411
$105,333
—
—
—
$46,614
—
—
—
—
—
24,093
—
744
3,902
912
2,285
14,626
4,456
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,532,534
$3,329,569
$109,979
$49,811
$43,175
75
Primary Sources and Uses of Funds
Our primary sources and uses of funds during the year ended December 31, 2015 are summarized in the
table below.
Sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities pay-downs . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of bank property held for sale . . . . . . . . . . . . . . . . .
Cash received from FDIC loss share agreements . . . . . . . . . . . . . . . . .
Calls and maturities of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equipment and property . . . . . . . . . . . . . . . . . . .
$ 16,513
12,537
48,258
129,107
31,941
25,000
5,931
1,518
4,662
57,830
43,003
109,202
784
450
389
Total sources of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$487,125
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in loans, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in payable to shareholders for acquisitions . . . . . . . . . . . .
Purchase equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$339,331
135,984
466
7,147
3,181
1,016
Total uses of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$487,125
Capital Resources
Total stockholders’ equity at December 31, 2015 was $490,514, or 12.0% of total assets compared to $452,477,
or 12.0% of total assets at December 31, 2014. The $38,037 increase was the result of the following items: net income
of $39,338, plus $5,511 stock based compensation, less $2,615 net change in unrealized losses in securities available
for sale, less $1,016 in stock repurchases and less $3,181 cash dividends paid on our common stock.
The bank regulatory agencies have established risk-based capital requirements for banks. These guidelines
are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk
to asset categories. Banks are also required to systematically maintain capital against such “off- balance sheet”
activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These
guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and
restricting the amount of loan loss reserves and other forms of equity such as preferred stock that may be
included in capital. Our subsidiary Bank’s objective is to maintain its current status as a “well-capitalized
institution” as that term is defined by its regulators.
Under the terms of the guidelines, banks must meet minimum capital adequacy based upon both total assets
and risk-adjusted assets. All banks are required to maintain a minimum ratio of total capital to risk-weighted
assets of 8%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6%, a minimum common equity Tier 1
to risk-weighted assets of 4.5% and a minimum ratio of Tier 1 capital to average assets of 4% (“leverage ratio”).
Adherence to these guidelines has not had an adverse impact on our Company. In addition, our bank has an
agreement with its primary regulator to maintain a Tier 1 leverage ratio (Tier 1 Capital divided by average assets)
of at least 8%.
76
Selected consolidated capital ratios at December 31, 2015, and 2014 were as follows:
As of December 31, 2015:
Total capital (to risk weighted assets) . . . . . . . . . . . . . . . . . . . .
Tier 1 capital (to risk weighted assets)
. . . . . . . . . . . . . . . . . . .
Common equity Tier 1 (to risk weighted assets) . . . . . . . . . . . .
Tier 1 capital (to average assets) . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2014:
Total capital (to risk weighted assets) . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets) . . . . . . . . . . . . . . . . . . . . . . . .
Effects of Inflation and Changing Prices
Actual
For capital
adequacy purposes
Excess
Amount
Ratio
Amount
Ratio
Amount
$438,748
$416,484
$399,876
$416,484
15.8% $222,322
15.0% $166,742
14.4% $125,056
10.5% $158,206
8.0% $216,426
6.0% $249,743
4.5% $274,820
4.0% $258,278
$384,162
$364,264
$364,264
15.1% $202,946
14.4% $101,473
10.1% $144,051
8.0% $181,216
4.0% $262,791
4.0% $220,213
The accompanying consolidated financial statements have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative purchasing power of money over time
due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a more significant impact on the
performance of a financial institution than the effects of general levels of inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of goods and services, increases in
inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’
increased cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the market value of investments and
loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Commercial and other loan
originations and refinancings tend to slow as interest rates increase, and can reduce our earnings from such
activities.
Off-Balance Sheet Arrangements
We generally do not have any off-balance sheet arrangements, other than approved and unfunded loans and
letters and lines of credit to our customers in the ordinary course of business.
Our correspondent and capital markets division arranges interest rate swaps between client financial
institutions for a fee. Our subsidiary bank also enters into interest rate swaps with certain commercial loan
clients. Under these arrangements, the Company enters into a fixed rate loan with a client in addition to a swap
agreement. The swap agreement effectively converts the client’s fixed rate loan into a variable rate loan. The
Company then enters into a matching swap agreement with a third party dealer in order to offset its exposure on
the customer swap. For additional information on these derivatives refer to Note 27 in our Notes to Consolidated
Financial Statements.
Accounting Pronouncements
Refer to Note 1(ai) in our Notes to Consolidated Financial Statements for a discussion on the effects of new
accounting pronouncements.
77
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of economic loss from adverse changes in the fair value of financial instruments due
to changes in (a) interest rates, (b) foreign exchange rates, or (c) other factors that relate to market volatility of
the rate, index, or price underlying the financial instrument. Our market risk is composed primarily of interest
rate risk. Our Asset/Liability Committee (“ALCO”) is responsible for reviewing the interest rate sensitivity
position, and establishing policies to monitor and limit the exposure to interest rate risk. Substantially all of our
interest rate risk exposure relates to the financial instrument activity of our subsidiary Bank. As such, the board
of directors of our subsidiary Bank is responsible to review and approve the policies and guidelines established
by their Bank’s ALCO.
The primary objective of asset/liability management is to provide an optimum and stable net interest margin,
after-tax return on assets and return on equity capital, as well as adequate liquidity and capital. Interest rate risk is
measured and monitored through gap analysis and simulation analysis, which measures the amount of repricing
risk associated with the balance sheet at specific points in time. See “Liquidity and Market Risk Management”
presented in Item 7 above for quantitative disclosures in tabular format, as well as additional qualitative
disclosures.
Item 8. Financial Statements and Supplementary Data
The financial statements of our Company as of December 31, 2015 and 2014 and for the years ended
December 31, 2015, 2014 and 2013 are set forth in this Form 10-K beginning at page 68.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. As of December 31, 2015, the end of the period
covered by this Annual Report on Form 10-K, our management, including our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer each concluded that as of December 31, 2015, the
end of the period covered by this Annual Report on Form 10-K, we maintained effective disclosure
controls and procedures and there have been no significant changes in our internal control during our
most recently completed fiscal quarter that materially affected, or is likely to materially affect, our
internal control over financial reporting.
(b) Management’s report on internal control over financial reporting. Management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations in 2013, also
referred to as the Treadway Commission. Based upon our evaluation under the framework in Internal
Control – Integrated Framework, management concluded that our internal control over financial
reporting was effective as of December 31, 2015. The effectiveness of the Company’s internal control
over financial reporting as of December 31, 2015 has been audited by Crowe Horwath LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
Item 9B. Other Information.
Not applicable.
78
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our Company has a Code of Ethics that applies to our principal executive officer and principal financial
officer (who is also our principal accounting officer), a copy of which is included on the Company’s website,
www.centerstatebanks.com, at Investor Relations / Governance Documents. The website also includes a copy of
the Company’s Audit Committee Charter, Compensation Committee Charter and Nominating Committee
Charter. The information contained under the sections captioned “Directors” and “Senior Executive Officers”
under “Proposal One – Election of Directors,” and in the sections captioned “Nominating Committee,” “Audit
Committee Report” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in the registrant’s
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2016, to be filed with
the SEC pursuant to Regulation 14A within 120 days of our fiscal year end (the “Proxy Statement”), is
incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the sections captioned “Information About the Board of Directors and Its
Committees” under “Proposal One – Election of Directors,” and the sections captioned “Executive
Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and
“Compensation Committee Report,” in the Proxy Statement, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information contained in the section captioned “Management and Principal Stock Ownership” under
“Election of Directors,” and under the table captioned “Equity Compensation Plan Information” under
“Executive Compensation” in the Proxy Statement, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information contained in the section entitled “Certain Related Transactions” and the section entitled
“Director Independence” under “Election of Directors” in the Proxy Statement is incorporated herein by
reference.
Item 14. Principal Accountant Fees and Services
The information contained in the section captioned “Ratification of Appointment of Independent Registered
Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1.
Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31,
2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2015,
2014 and 2013
Notes to Consolidated Financial Statements
79
2.
Financial Statement Schedules
All schedules have been omitted as the required information is either inapplicable or included in the Notes
to Consolidated Financial Statements.
3.
–
–
–
–
–
–
–
–
–
–
–
–
–
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
10.1
10.3
10.4
10.5
10.6
–
10.7
–
10.8
–
Exhibits
Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Registration
Statement on Form S-4, File No. 333-95087, dated January 20, 2000 (the “Initial Registration
Statement”)
Articles of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 99.1 to the
Company’s Form 8-K dated April 25, 2006)
Articles of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K dated December 16, 2009)
Articles of Amendment to the Articles of Incorporation (Incorporated by reference to Exhibit 3.6 to
the Company’s Form 10-K dated March 4, 2010)
Bylaws (Incorporated by reference to Exhibit 3.2 to the Initial Registration Statement)
Amendment to Bylaws (Incorporated by reference to Exhibit 3.4 to the Company’s Form 10-K dated
March 7, 2008.)
Articles of Amendment to the Articles of Incorporation authorizing the Preferred Shares
(Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated November 24, 2008.)
Articles of Amendment to the Articles of Incorporation increasing the number of authorized
common shares from 40,000,000 to 100,000,000 (Incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K dated December 16, 2009.)
Specimen Stock Certificate of CenterState Banks, Inc. (Incorporated by reference to Exhibit 4.2 to
the Registration Statement)
CenterState Banks, Inc. Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
Registration Statement)*
Form of CenterState Banks, Inc. Split Dollar Agreement (Incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K dated January 11, 2006)*
CenterState Banks, Inc. 2007 Equity Incentive Plan (Incorporated by reference to Appendix D to the
Company’s Proxy Statement dated March 30, 2007)*
Executive Deferred Compensation Agreement between the Company and Ernest S. Pinner, its
Chairman of the Board, Chief Executive Officer and President (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K dated December 31, 2008.)*
Supplemental Executive Retirement Agreements (“SERP”) between the Company and John C.
Corbett and James J. Antal (Incorporated by reference to Exhibits 10.1 and 10.2 to the Company’s
Form 8-K dated July 14, 2010.)*
Employment Agreements between the Company and John C. Corbett and James J. Antal
(Incorporated by reference to Exhibits 10.4 and 10.5 to the Company’s Form 8-K dated July 14,
2010.)*
Supplemental Executive Retirement Agreement (“SERP”) between the Company and Stephen D.
Young, its Treasurer and Executive Vice President of the Company’s subsidiary bank, CenterState
Bank of Florida, N.A. (Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-K dated
March 16, 2011.)*
80
10.9
10.10
10.11
10.12
10.13
10.14
14.1
21.1
23.1
31.1
31.2
32.1
32.2
–
–
–
–
–
–
–
–
–
–
–
–
–
Employment Agreement between the Company and Stephen D. Young, its Treasurer and
Executive Vice President of the Company’s subsidiary bank, CenterState Bank of Florida, N.A.
(Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K dated March 16,
2011.)*
Employment Agreement between the Company and Ernest S. Pinner, its President, Chief
Executive Officer and Chairman of the Board of Directors (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K dated February 14, 2011.)*
CenterState Banks, Inc. 2013 Equity Incentive Plan, as amended September 17, 2015
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q dated November 3,
2015)*
Employment Agreement between the Company and Daniel E. Bockhorst, its Chief Risk Officer
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated September 22,
2014.)*
Employment Agreement between the Company and John E. Tranter, its Chief Banking Officer*
Split Dollar Agreement between the Company and John E. Tranter, its Chief Banking Officer*
Code of Ethics (Incorporated by reference to Exhibit 14.1 to the Company’s December 31,
2003 Form 10-K dated March 26, 2004)
List of Subsidiaries of CenterState Banks, Inc.
Consent of Crowe Horwath LLP
Certification of President and Chief Executive Officer under Section 302 of the Sarbanes –
Oxley Act of 2002
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
Certification of President and Chief Executive Officer under Section 906 of the Sarbanes –
Oxley Act of 2002
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Schema Document
XBRL Calculation Linkbase Document
XBRL Definition Linkbase Document
XBRL Label Linkbase Document
XBRL Presentation Linkbase Document
*
Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit.
81
CENTERSTATE BANKS, INC. and SUBSIDIARIES
Index to consolidated financial statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
85
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31,
2015, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2015, 2014
and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88
89
91
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CenterState Banks, Inc.
Davenport, Florida
We have audited the accompanying consolidated balance sheets of CenterState Banks, Inc. as of December 31,
2015 and 2014, and the related consolidated statements of operations and comprehensive income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. We
also have audited the Company’s internal control over financial reporting as of December 31, 2015, based on
criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements, for maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in Management’s report on internal control
over financial reporting contained in Item 9A. of the accompanying Form 10-K. Our responsibility is to express
an opinion on these financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A Company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of authorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of CenterState Banks, Inc. as of December 31, 2015 and 2014, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2015, in
conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
83
of December 31, 2015, based on criteria established in the 2013 Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Fort Lauderdale, Florida
March 3, 2016
/s/ Crowe Horwath LLP
Crowe Horwath LLP
84
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2015 and 2014
(in thousands of dollars, except per share data)
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and Federal Reserve Bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity (fair value of $273,983 and $238,431 at December 31, 2015
and December 31, 2014, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding purchased credit impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
. . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible, net
Trust intangible, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned covered by FDIC loss share agreements . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset
Deferred income tax asset, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expense and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
50,902
101,580
152,482
2,107
604,739
$
52,067
106,346
158,413
3,420
517,457
272,840
1,529
2,383,248
210,528
(22,264)
237,362
1,251
2,152,759
276,766
(19,898)
2,571,512
101,821
10,286
14,041
76,739
12,164
837
85,890
9,629
1,567
25,795
46,220
1,665
30,854
2,409,627
98,848
8,999
14,219
76,739
14,417
984
83,544
19,404
8,896
49,054
49,587
2,675
21,973
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,022,717
$3,776,869
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,082,040
1,133,138
$2,043,166
1,048,874
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payables and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,215,178
27,472
200,250
25,000
24,093
218
39,992
3,092,040
27,022
151,992
—
23,917
336
29,085
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,532,203
3,324,392
Stockholders’ equity:
Common stock, $.01 par value: 100,000,000 shares authorized; 45,459,195 and 45,323,553 shares
issued and outstanding at December 31, 2015 and December 31, 2014, respectively . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
455
393,191
95,430
1,438
490,514
453
388,698
59,273
4,053
452,477
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,022,717
$3,776,869
See accompanying notes to the consolidated financial statements
85
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 2015, 2014 and 2013
(in thousands of dollars, except per share data)
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities available for sale:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances and other borrowings . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
$141,696
$121,262
$ 88,274
16,460
2,641
1,523
13,991
1,435
1,539
9,889
1,430
785
162,320
138,227
100,378
5,506
186
622
4
968
7,286
6,182
181
51
—
942
7,356
5,184
78
21
—
602
5,885
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155,034
130,871
94,493
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,493
826
(76)
Net interest income after loan loss provision . . . . . . . . . . . . . . .
150,541
130,045
94,569
Non interest income:
Correspondent banking capital markets revenue . . . . . . . . . . . . . . . . . . . .
Other correspondent banking related revenue . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit, prepaid, ATM and merchant card related fees . . . . . . . . . . . . . . . .
Wealth management related revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of securities available for sale . . . . . . . . . . . . . . . . . . . . .
23,225
4,338
9,745
6,913
3,813
1,686
(16,563)
2,346
1,943
4
16,400
3,753
9,542
6,250
4,239
2,982
(20,743)
1,767
1,990
46
17,023
3,387
8,457
5,420
4,551
5,542
(13,807)
1,328
985
1,060
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,450
26,226
33,946
Non interest expense:
Salaries, wages and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies, stationary and printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,398
9,957
5,716
1,436
2,317
4,679
70,375
10,163
6,066
1,319
2,731
5,484
60,369
7,702
5,876
1,121
2,517
3,784
86
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 2015, 2014 and 2013
(in thousands of dollars, except per share data)
2015
2014
2013
Legal, audit and other professional fees . . . . . . . . . . . . . . . . . . .
Core deposit intangible (“CDI”) amortization . . . . . . . . . . . . . .
Postage and delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM and debit card related expenses . . . . . . . . . . . . . . . . . . . . .
Bank regulatory expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss on sale of repossessed real estate (“OREO”) . . . . . .
Valuation write down of repossessed real estate (“OREO”)
. . .
Loss on repossessed assets other than real estate . . . . . . . . . . . .
Foreclosure related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger and acquisition related expenses . . . . . . . . . . . . . . . . . .
Branch closure and efficiency initiatives . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,954
2,390
1,389
1,893
3,173
(1,253)
1,207
7
2,334
693
—
9,792
4,066
2,110
1,413
1,892
3,209
(788)
3,250
45
2,775
11,542
2,764
7,765
3,754
986
1,084
1,788
2,369
3,122
6,012
401
3,191
722
—
5,964
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,082
136,181
110,762
Income before provision for income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,909
22,571
20,090
7,126
17,753
5,510
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
39,338
$
12,964
$
12,243
Other comprehensive income, net of tax:
Unrealized securities holding (loss) gain, net of income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2,613) $
8,565
$
(11,132)
Less: reclassified adjustments for gain included in net income,
net of income taxes, of $2, $18 and $409, respectively . . . . .
(2)
(28)
(651)
Net unrealized (loss) gain on available for sale securities,
net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,615)
8,537
(11,783)
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . .
$
36,723
$
21,501
$
460
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.87
0.85
$
$
0.32
0.31
$
$
0.41
0.41
Common shares used in the calculation of earnings per share:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic (1)
Diluted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,182,224
45,788,632
40,852,002
41,235,552
30,102,777
30,220,127
(1) Excludes participating securities.
See accompanying notes to the consolidated financial statements
87
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2015 2014, and 2013
(in thousands of dollars, except per share data)
Balances at January 1, 2013 . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding loss on available for sale
securities, net of deferred income tax of
$7,220 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . .
Dividends paid – common ($0.04 per share)
. . . . .
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . .
. . . .
Stock options exercised, including tax benefit
Balances at December 31, 2013 . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gain on available for sale
securities, net of deferred income tax of
$5,361 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . .
. . . . .
Dividends paid – common ($0.04 per share)
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . .
Stock options exercised, including tax benefit
. . . .
Stock issued pursuant to Gulfstream acquisition . .
Stock options acquired and converted pursuant to
Gulfstream acquisition . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to First Southern
Number
of
common
shares
Common
stock
Additional
paid in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
stockholders’
equity
30,079,767
$301
$228,952
$36,979
$ 7,299
$273,531
12,243
12,243
(11,783)
(11,783)
30,994
1,714
(1,204)
300
292
460
(1,204)
300
292
—
30,112,475
$301
$229,544
$48,018
$ (4,484)
$273,379
12,964
(1,709)
8,537
305,730
233,762
5,195,541
3
2
52
678
238
982
53,098
3,617
acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,476,045
95
100,541
Balances at December 31, 2014 . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding loss on available for sale
securities, net of deferred income tax of
$1,642 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . .
Dividends paid – common ($0.07 per share)
. . . . .
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . .
Stock options exercised, including tax benefit
. . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,323,553
$453
$388,698
$59,273
$ 4,053
39,338
(3,181)
(2,615)
73,821
142,476
(80,655)
1
2
(1)
1,361
3,365
782
(1,015)
Balances at December 31, 2015 . . . . . . . . . . . . . . .
45,459,195
$455
$393,191
$95,430
$ 1,438
$490,514
See accompanying notes to the consolidated financial statements
88
12,964
8,537
21,501
(1,709)
681
238
984
53,150
3,617
100,636
$452,477
39,338
(2,615)
36,723
(3,181)
1,362
3,365
784
(1,016)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
(in thousands of dollars)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
$ 39,338
$ 12,964
$ 12,243
2015
2014
2013
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of premises and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of purchase accounting adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred loan origination fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repossessed real estate owned valuation write down . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of repossessed real estate owned . . . . . . . . . . . . . . . . . . . .
Repossessed assets other than real estate valuation write down . . . . . . . . . . . .
Loss on sale of repossessed assets other than real estate . . . . . . . . . . . . . . . . .
Gain on sale of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated and held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposal of and or sale of fixed assets . . . . . . . . . . . . . . . . . . . .
Gain on disposal of bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from changes in:
Net changes in accrued interest receivable, prepaid expenses, and other
4,493
5,716
(42,852)
9,047
(295)
(4)
(403)
(147,693)
149,409
1,207
(1,253)
7
—
(566)
(29,930)
30,218
19
(41)
772
5,012
3,283
(2,346)
16,563
826
6,066
(36,198)
6,397
(525)
(46)
(169)
(171,089)
167,838
3,250
(788)
32
13
(511)
(26,056)
26,573
(19)
(174)
2,256
1,733
1,577
(1,767)
20,743
(76)
5,876
(32,571)
6,473
(862)
(1,060)
(255)
(198,186)
203,489
6,012
3,122
70
331
(333)
(20,824)
22,856
(12)
—
—
32
609
(1,328)
13,807
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,372)
(12,276)
(7,841)
Net change in accrued interest payable, accrued expense, and other
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . .
12,674
43,003
727
1,377
2,687
14,259
Cash flows from investing activities:
Available for sale securities:
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of investment securities . . . . . . . . . . . . . . . . . .
Proceeds from called investment securities . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from pay-downs of mortgage backed securities . . . . . . . . . . . .
Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of mortgage backed securities . . . . . . . . . . . . . . . . .
—
—
(215,262)
(195,943)
—
5,905
94,258
—
16,305
—
2,050
82,929
62,111
261,426
(31,132)
(205,005)
165
9,400
101,333
31,804
37,691
89
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
(in thousands of dollars)
2015
2014
2013
Held to maturity securities:
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from called investment securities . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from pay-downs of mortgage backed securities . . . . . . . . . . . . .
Purchases of FRB and FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of FHLB and FRB stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from FDIC loss sharing agreements . . . . . . . . . . . . . . . . . . . . . .
Purchase of bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of repossessed real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of bank property held for sale . . . . . . . . . . . . . . . . . . . . . . .
Net cash from bank acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(93,263)
(30,776)
51,925
34,849
(30)
208
(135,984)
4,662
—
(7,147)
31,941
389
1,518
12,537
(75,654)
(162,377)
—
581
(3,580)
4,011
24,191
10,014
(25,000)
(1,987)
36,995
19
10,783
130,494
—
—
—
—
—
1,560
(39,813)
42,004
—
(4,665)
28,585
136
931
—
Net cash (used in) / provided by investing activities . . . . . . . . . . . . .
(227,965)
161,063
(27,006)
Cash flows from financing activities:
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in securities sold under agreement to repurchase . . . . .
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in payable to shareholders for acquisitions . . . . . . . . .
Stock options exercised, including tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,202
—
450
48,258
25,000
(466)
784
(1,016)
(3,181)
(125,063)
(169,748)
(1,011)
122,083
(5,708)
1,256
984
—
(1,709)
59,450
—
1,665
(9,023)
—
—
—
—
(1,204)
Net cash provided by / (used in) financing activities . . . . . . . . . . . . .
179,031
(178,916)
50,888
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,931)
158,413
(16,476)
174,889
38,141
136,748
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 152,482
$ 158,413
$174,889
Transfer of loans to other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,791
$ 16,359
$ 29,581
Transfers of bank property to held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,239
$
4,647
$ —
Cash paid during the period for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,255
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,602
$
$
8,543
$ 6,607
8,447
$ 3,473
See accompanying notes to the consolidated financial statements
90
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(1) Summary of significant accounting policies
(a) Nature of operations and principles of consolidation
The consolidated financial statements of CenterState Banks, Inc. (the “Company”) include the accounts
of CenterState Banks, Inc. (the “Parent Company”), and its wholly owned subsidiaries CenterState
Bank of Florida, N.A., R4ALL, Inc. and CSFL Insurance Corp. All significant intercompany accounts
and transactions have been eliminated in consolidation.
At December 31, 2015, the Company, through its subsidiary bank, operates through 57 full service
banking locations in 20 counties throughout Central, Northeast and Southeast Florida, providing
traditional deposit and lending products and services to its commercial and retail customers. The
Company’s primary deposit products are checking, savings and term certificate accounts, and its
primary lending products include commercial real estate loans, residential real estate loans, commercial
loans and consumer loans. Substantially all loans are secured by commercial real estate, residential real
estate, business assets or consumer assets. There are no significant concentrations of loans to any one
industry or customer. However, the customers’ ability to repay their loans is dependent on the real
estate and general economic conditions in the area. The Company also provides correspondent banking
and capital markets services to approximately 600 community banks nationwide.
R4ALL, Inc. is a non bank subsidiary incorporated during the third quarter of 2009. The primary
purpose of this subsidiary is to purchase, hold, and dispose of troubled assets acquired from the
Company’s subsidiary bank.
CSFL Insurance Corp. is a non bank subsidiary incorporated during the fourth quarter of 2015. The
primary purpose of this subsidiary is to function as a captive insurance subsidiary pursuant to
Section 831(b) of the U.S. Tax Code.
The following is a description of the basis of presentation and the significant accounting and reporting
policies, which the Company follows in preparing and presenting its consolidated financial statements.
(b) Use of estimates
To prepare financial statements in conformity with U.S. generally accepted accounting principles,
management makes estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the disclosures provided.
Significant items subject to estimates and assumptions include allowance for loan losses, FDIC
indemnification asset, fair values of financial instruments, useful life of intangibles and valuation of
goodwill, fair value estimates of stock-based compensation, fair value estimates of OREO, and
deferred tax assets. Actual results could differ from these estimates.
(c) Cash flow reporting
For purposes of the statement of cash flows, the Company considers cash and due from banks, federal
funds sold, money market and non interest bearing deposits in other banks with a purchased maturity of
three months or less to be cash equivalents. Net cash flows are reported for customer loan and deposit
transactions, interest bearing deposits in other financial institutions, federal funds purchased,
repurchase agreements, proceeds from capital offering and other borrowed funds.
91
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(d)
Interest bearing deposits in other financial institutions
Interest bearing deposits in other financial institutions mature within one year and are carried at cost
and are included in cash and due from banks in the Consolidated Balance Sheets.
(e) Trading securities
The Company engages in trading activities for its own account. Securities that are held principally for
resale in the near term are recorded at fair value with changes in fair value included in earnings.
Interest is included in net interest income.
(f) Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has
the positive intent and ability to hold them to maturity. Debt securities not classified as held to maturity
or trading are classified as available for sale. Securities available for sale are carried at fair value, with
unrealized holding gains and losses reported in other comprehensive income, net of tax.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on
securities are amortized on the level-yield method without anticipating prepayments, except for
mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded
on the trade date and determined using the specific identification method.
Securities are evaluated for other-than-temporary impairment (“OTTI”) on at least a quarterly basis,
and more frequently when economic or market conditions warrant such an evaluation. For securities in
an unrealized loss position, management considers the extent and duration of the unrealized loss, and
the financial condition and near-term prospects of the issuer. Management also assesses whether it
intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized
loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the entire difference between amortized cost and fair value is recognized as
impairment through earnings. For debt securities that do not meet the aforementioned criteria, the
amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which
must be recognized in the income statement and 2) other-than-temporary impairment related to other
factors, which is recognized in other comprehensive income. The credit loss is defined as the difference
between the present value of the cash flows expected to be collected and the amortized cost basis.
(g) Bond commissions revenue recognition
Bond sales transactions and related revenue and expenses are recorded on a settlement date basis. The
effect on the financial statements of using the settlement date basis rather than the trade date basis is
not material.
(h) Loans held for sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of
aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized
losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for
92
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
sale are generally sold with servicing rights released. Gains and losses on sales of mortgage loans are
based on the difference between the selling price and the carrying value of the related loan sold.
(i) Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are reported at their outstanding unpaid principal balance net of purchase premiums and
discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on
the unpaid principal balance. The recorded investment in a loan excludes accrued interest receivable,
deferred fees, and deferred costs because they are not considered material.
A loan is considered a troubled debt restructured loan based on individual facts and circumstances. A
modification may include either an increase or reduction in interest rate or deferral of principal
payments or both. Loans for which the terms have been modified resulting in a concession, and for
which the borrower is experiencing financial difficulties, are considered troubled debt restructurings.
The Company classifies troubled debt restructured loans as impaired and evaluates the need for an
allowance for loan losses on a loan-by-loan basis. An allowance for loan losses is based on either the
present value of estimated future cash flows or the estimated fair value of the underlying collateral.
Loans retain their interest accrual status at the time of modification.
Loan origination fees and the incremental direct cost of loan origination, are deferred and recognized in
interest income without anticipating prepayments over the contractual life of the loans. If the loan is
prepaid, the remaining unamortized fees and costs are charged or credited to interest income.
Amortization ceases for nonaccrual loans.
A loan is moved to nonaccrual status in accordance with the Company’s policy typically after 90 days
of non-payment, or less than 90 days of non-payment if management determines that the full timely
collection of principal and interest becomes doubtful. Past due status is based on the contractual terms
of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual
include both smaller balance homogeneous loans that are collectively evaluated for impairment and
individually classified impaired loans. Single family home loans, consumer loans and smaller
commercial, land, development and construction loans (less than $500) are monitored by payment
history, and as such, past due payments is generally the triggering mechanism to determine nonaccrual
status. Larger (greater than $500) commercial, land, development and construction loans are monitored
on a loan level basis, and therefore in these cases it is more likely that a loan may be placed on
nonaccrual status before it becomes 90 days past due.
All interest accrued but not received for loans placed on nonaccrual, is reversed against interest
income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are reasonably assured.
Non real estate consumer loans are typically charged off no later than 120 days past due.
The Company, considering current information and events regarding the borrower’s ability to repay
their obligations, considers a loan to be impaired when it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan agreement. When a loan is
93
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
considered to be impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan’s effective interest rate, the secondary market value
of the loan, or the fair value of the collateral for collateral dependent loans. Interest income on
impaired loans is recognized in accordance with the Company’s non-accrual policy. Impaired loans are
written down to the extent that principal is judged to be uncollectible and, in the case of impaired
collateral dependent loans where repayment is expected to be provided solely by the underlying
collateral and there is no other available and reliable sources of repayment, are written down to the
lower of cost or collateral value less estimated selling costs. Impairment losses are included in the
allowance for loan losses. Large groups of smaller balance homogeneous loans, such as consumer and
residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not
separately identified for impairment disclosures.
(j) Purchased credit-impaired loans
As a part of business acquisitions, the Company acquires loans, some of which have shown evidence of
credit deterioration since origination. These purchased credit-impaired (“PCI”) loans were determined
to be credit impaired based on specific risk characteristics of the loan, including product type, domicile
of the borrower, past due status, owner occupancy status, geographic location of the collateral, and loan
to value ratios. Purchasers are permitted to aggregate credit impaired loans acquired in the same fiscal
quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then
accounted for as a single asset with a single composite interest rate and an aggregate expectation of
cash flows. For the loan portfolios acquired through failed bank acquisitions, the Company aggregated
the commercial, consumer, and residential loans into ten pools of loans with common risk
characteristics for each FDIC failed institution acquired. These acquired loans were recorded at the
acquisition date fair value, and after acquisition, losses are recognized through the allowance for loan
losses. The Company estimates the amount and timing of expected cash flows for each acquired loan
pool and the expected cash flows in excess of the amount paid is recorded as interest income over the
remaining life of the loan pools.
On a quarterly basis, the Company updates the amount of loan principal and interest cash flows
expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts
and timing of prepayments and other factors that are reflective of current market conditions. Probable
decreases in expected loan principal cash flows trigger the recognition of impairment, which is then
measured as the present value of the expected principal loss plus any related foregone interest cash
flows discounted at the pool’s effective interest rate. Impairments that occur after the acquisition date
are recognized through the provision for loan losses. Probable and significant increases in expected
principal cash flows would first reverse any previously recorded allowance for loan losses; any
remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments,
(ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows
are recognized prospectively as adjustments to interest income. Disposals of loans, which may include
sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan
from the purchased credit impaired portfolio.
94
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(k) Concentration of credit risk
Most of the Company’s business activity is with customers located within Florida. Therefore, the
Company’s exposure to credit risk is significantly affected by changes in the economy and the real
estate market within Florida, primarily central, southeastern and northeastern Florida.
(l) Allowance for loan losses
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses
are charged against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the
allowance balance required using past loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values, economic conditions,
and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance
is available for any loan that, in management’s judgment, should be charged-off.
The allowance consists of specific and general components. The specific component relates to loans
that are individually classified as impaired. The general component covers loans that are not
individually classified as impaired and is based on historical loss experience adjusted for current
factors.
A loan is impaired when, based on current information and events, it is probable that the Company will
be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans,
for which the terms have been modified resulting in a concession, and for which the borrower is
experiencing financial difficulties, are considered troubled debt restructurings and classified as
impaired.
Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on case-
by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and
the amount of the shortfall in relation to the principal and interest owed.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan’s existing rate or at the fair value of
collateral if repayment is expected solely from the collateral. Commercial, commercial real estate, land,
acquisition and development, and construction loans over $500 are individually evaluated for
impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential
real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately
identified for impairment disclosures. Troubled debt restructurings are separately identified for
impairment disclosures and are measured at the present value of estimated future cash flows using the
loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral
dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt
restructurings that subsequently default, the Company determines the amount of reserve in accordance
with the accounting policy for the allowance for loan losses. The general component covers non-
95
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
impaired loans and is based on historical loss experience adjusted for current factors. The historical
loss experience is determined by portfolio segment and is based on the actual loss history experienced
by the Company over the most recent two years. The portfolio segments identified by the Company are
residential loans, commercial real estate loans, construction and land development loans, commercial
and industrial and consumer and other. This actual loss experience is supplemented with other
economic factors based on the risks present for each portfolio segment. These economic factors include
consideration of the following: levels of and trends in delinquencies and impaired loans; volume and
severity of adversely classified or graded loans; levels of and trends in charge-offs and recoveries;
trends in volume and terms of loans; effects of any changes in risk selection and underwriting
standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of
lending management and other relevant staff; national and local economic trends and conditions;
industry conditions; and effects of changes in credit concentrations.
The Company segregates and evaluates its loan portfolio through the five portfolio segments:
residential real estate, commercial real estate, land/ land development/construction, commercial and
consumer/other.
Residential real estate loans are a mixture of fixed rate and adjustable rate residential mortgage loans,
including first mortgages, second mortgages or home equity lines of credit. As a policy, the Company
holds adjustable rate loans and sells a portion of its fixed rate loan originations into the secondary
market. Changes in interest rates or market conditions may impact a borrower’s ability to meet
contractual principal and interest payments. Residential real estate loans are secured by real property.
Commercial real estate loans include loans secured by office buildings, warehouses, retail stores and
other property located in or near our markets. These loans are originated based on the borrower’s
ability to service the debt and secondarily based on the fair value of the underlying collateral.
Land/land development/construction loans include residential and commercial real estate loans and
include a mixture of owner occupied and non-owner occupied. The majority of the loans in this
category are land related, either undeveloped land, land held for development, residential building lots
and commercial building lots. Generally the terms are three to five years, with a potential for renewal
at maturity.
Commercial loans consist of small-to medium-sized businesses including professional associations,
medical services, retail trade, transportation, wholesale trade, manufacturing and tourism. Commercial
loans are derived from our market areas and underwritten based on the borrower’s ability to service
debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as
inventory, accounts receivable, equipment or other assets although such loans may be uncollateralized
but guaranteed.
Consumer and other loans include automobiles, boats, mobile homes without land, or uncollateralized
but personally guaranteed loans. These loans are originated based primarily on credit scores, debt-to-
income ratios and loan-to-value ratios.
The Company evaluates the loans acquired from the Gulfstream Business Bank (“GSB”) acquisition
that were not PCI loans as a sixth loan portfolio segment. The Company considered the levels of and
trends in non-performing loans, past-due loans, adverse loan grade classification changes, historical
96
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
loss rates, environmental factors and impaired loans in arriving at its estimate. The general loan loss
allowance recorded for these performing loans acquired from GSB is allocated between the five
portfolio segments described above in Note 4.
The Company evaluates the loans acquired from the First Southern Bank (“FSB”) acquisition that were
not PCI loans as a seventh loan portfolio segment. The Company considered the levels of and trends in
non-performing loans, past-due loans, adverse loan grade classification changes, historical loss rates,
environmental factors, impaired loans and those loans that were covered by FDIC loss share
agreements and those loans guaranteed by the California State University System in arriving at its
estimate. The general loan loss allowance recorded for these performing loans acquired from FSB is
allocated between the five portfolio segments described above in Note 4.
(m) Transfer of financial assets
Transfers of financial assets are accounted for as sales, when control over the assets has been
relinquished. Control over transferred assets is deemed to be surrendered when the assets have been
isolated from the Company, the transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not
maintain effective control over the transferred assets through an agreement to repurchase them before
their maturity.
(n) Other repossessed real estate owned
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to
sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower
of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
Repossessed real estate is included in other repossessed real estate owned and other repossessed assets
other than real estate is included in prepaid expenses and other assets in the Consolidated Balance
Sheets.
(o) Premises and equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets.
Buildings are depreciated over a 39 year period, and furniture, fixtures and equipment are depreciated
over their related useful life (3 to 15 years). Leasehold improvements are depreciated over the shorter
of their useful lives or the term of the lease. Major renewals and betterments of property are
capitalized; maintenance, repairs, and minor renewals and betterments are expensed in the period
incurred. Upon retirement or other disposition of the asset, the asset cost and related accumulated
depreciation are removed from the accounts, and gains or losses are included in income.
97
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(p) Software costs
Costs of software developed for internal use, such as those related to software licenses, programming,
testing, configuration, direct materials and integration, are capitalized and included in premises and
equipment. Included in the capitalized costs are those costs related to both our personnel and third
party consultants involved in the software development and installation. Once placed in service, the
capitalized asset is amortized on a straight-line basis over its estimated useful life, generally three to
five years. Capitalized costs of software developed for internal use are reviewed periodically for
impairment.
(q) Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock
The Company’s subsidiary bank is a member of the FHLB and FRB system. Members are required to
own a certain amount of stock based on the level of borrowings and other factors, and may invest in
additional amounts. FHLB and FRB stock is carried at cost, classified as a restricted security, and
periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock
dividends are reported as income.
(r) Bank owned life insurance (BOLI)
The Company, through its subsidiary bank, has purchased life insurance policies on certain key
executives. Bank owned life insurance is recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
(s) Goodwill and other intangible assets
Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the
purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from
business combinations after January 1, 2009, is generally determined as the excess of the fair value of
the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over
the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and
intangible assets acquired in a purchase business combination and determined to have an indefinite
useful life are not amortized, but tested for impairment at least annually. The Company has selected
November 30 as the date to perform the annual impairment test. Intangible assets with definite useful
lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the
only intangible asset with an indefinite life on the Company’s balance sheet.
The core deposit intangibles are intangible assets arising from either whole bank acquisitions or branch
acquisitions. They are initially measured at fair value and then amortized over a ten-year period on an
accelerated basis using the projected decay rates of the underlying core deposits.
The trust intangible represents the value of the Trust business (“Trust”) acquired pursuant to the
Company’s January 27, 2012 acquisition of First Guaranty Bank and Trust of Jacksonville (“FGB”) in
Jacksonville, Florida. The intangible was initially measured at fair value and then amortized over a ten-
year period on an accelerated basis.
98
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(t) FDIC Indemnification Asset
The FDIC Indemnification Asset represents the estimated amounts due from the FDIC pursuant to the
Loss Share Agreements related to the acquisitions of the three failed banks acquired in 2010, two in
2012 and assumed two additional pursuant to the Company’s 2014 acquisition of First Southern Bank.
At acquisition, the FDIC Indemnification Asset represented the discounted value of the FDIC’s
reimbursed portion of the estimated losses the Company expects to realize on the loans and other real
estate (“Covered Assets”) acquired as a result of the acquisitions. The range of discount rates used on
the FDIC Indemnification Asset was 1.21% to 4.53%. As losses were realized on Covered Assets, the
portion that the FDIC paid the Company in cash for principal and up to 90 days of interest reduced the
FDIC Indemnification Asset. On a quarterly basis, the Company evaluated the FDIC Indemnification
Asset to determine if the estimated losses on Covered Assets supported the amount recorded as the
FDIC Indemnification Asset. Income accretion was recognized during the loss share period. If the
expectation of future losses declined, the income accretion was reduced prospectively over the lesser of
the term of the loss share agreement and the estimated remaining life of the Covered Asset. On
February 3, 2016, the FDIC bought out the remaining FDIC loss share agreements. As such, the FDIC
indemnification asset was written-off effectively accelerating all future FDIC indemnification asset
amortization expense as well as ending any future FDIC indemnification income.
(u) Loan commitments and related financial instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The face amount for these
items represents the exposure to loss, before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
(v) Stock-based compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees,
based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to
estimate the fair value of stock options, while the market price of the Company’s common stock at the
date of grant is used for restricted stock awards. During 2014 the Company initiated a Long-Term
Incentive Plan which included Performance Share Units (“PSUs”). The Monte-Carlo Simulation model
was used to estimate fair value of the PSUs at the grant date. Compensation cost is recognized over the
required service period, generally defined as the vesting period.
(w) Income taxes
Income tax expense is the total of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts
for the temporary differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount
99
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income tax matters in other expenses.
(x) Retirement plans
Employee 401(k) plan expense is the amount of matching contributions. Deferred compensation and
supplemental retirement plan expense allocates the benefits over years of service.
(y) Marketing and advertising costs
Marketing and advertising costs are expensed as incurred.
(z) Earnings per common share
Basic earnings per common share is net income divided by the weighted average number of common
shares outstanding during the period. All outstanding unvested share-based payment awards that
contain rights to nonforfeitable dividends are considered participating securities for this calculation.
Diluted earnings per common share includes the dilutive effect of additional potential common shares
issuable under stock options and unvested restricted stock awards where shares are not issued until
vested. Earnings and dividends per share are restated for all stock splits and stock dividends through
the date of issuance of the financial statements.
(aa) Comprehensive income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities available for sale, which are also recognized
as separate components of shareholders’ equity.
(ab) Loss contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are
recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there now are such matters that will have a
material effect on the financial statements.
(ac) Restrictions on cash
Cash on hand or on deposit with the Federal Reserve Bank is generally required to meet regulatory
reserve and clearing requirements.
(ad) Dividend restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the
banks to the holding company or by the holding company to stockholders.
100
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(ae) Fair value of financial instruments
Fair values of financial instruments are estimated using relevant market information and other
assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates.
(af) Segment reporting
The Company’s correspondent banking and capital markets division represents a distinct reportable
segment which differs from the Company’s primary business of commercial and retail banking in
Florida. Accordingly, a reconciliation of reportable segment revenues, expenses and profit to the
Company’s consolidated total has been presented in note 25.
(ag) Derivatives
The Company enters into interest rate swaps in order to provide commercial loan clients the ability to
swap from fixed to variable interest rates. Under these agreements, the Company enters into a fixed-
rate loan with a client in addition to a swap agreement. This swap agreement effectively converts the
client’s fixed rate loan into a variable rate. The Company then enters into a matching swap agreement
with a third party dealer in order to offset its exposure on the customer swap. The Company does not
use derivatives for trading purposes. The derivative transactions are considered instruments with no
hedging designation, otherwise known as stand-alone derivatives. Changes in the fair value of the
derivatives are reported currently in earnings.
(ah) Reclassifications
Some items in the prior year financial statements were reclassified to conform to the current
presentation. Reclassifications had no effect on prior years’ net income or shareholders’ equity.
(ai) Effect of new pronouncements
In January 2014, the FASB amended existing guidance to clarify when a creditor should be considered
to have received physical possession of residential real estate property collateralizing a consumer
mortgage loan such that the loan should be derecognized and the real estate recognized. These
amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is
considered to have received physical possession of residential real estate property collateralizing a
consumer mortgage loan, upon either: (1) the creditor obtaining legal title to the residential real estate
property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential
real estate property to the creditor to satisfy that loan through completion of a deed in lieu of
foreclosure or through a similar legal agreement. Additional disclosures are required. These
amendments are effective for public business entities for annual periods and interim periods within
those annual periods beginning after December 15, 2014. Amendments in this standard can be applied
using a modified retrospective or prospective transition method. The adoption of this standard did not
have a material effect on the Company’s operating results or financial condition.
101
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
In May 2014, the FASB amended existing guidance related to revenue from contracts with customers.
This amendment supersedes and replaces nearly all existing revenue recognition guidance, including
industry-specific guidance, establishes a new control-based revenue recognition model, changes the
basis for deciding when revenue is recognized over time or at a point in time, provides new and more
detailed guidance on specific topics and expands and improves disclosures about revenue. In addition,
this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer.
These amendments are effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. Early application is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim periods within that period.
These amendments should be applied retrospectively to all periods presented or retrospectively with
the cumulative effect recognized at the date of initial application. The Company is currently evaluating
the impact of this new accounting standard on the consolidated financial statements.
In June 2014, the FASB amended existing guidance related to repurchase-to-maturity transactions, repurchase
financings, and disclosures. These amendments align the accounting for repurchase-to-maturity transactions
and repurchase agreements executed as a repurchase financing with the accounting for other typical
repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings.
The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance
under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted
for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-
sheet accounting. These amendments require a new disclosure for transactions economically similar to
repurchase agreements in which the transferor retains substantially all of the exposure to the economic return
on the transferred financial assets throughout the term of the transaction. These amendments also require
expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions
accounted for as secured borrowings. These amendments are effective for the first interim or annual period
beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions
accounted for as a sale is effective for the first interim or annual period beginning on or after December 15,
2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods
beginning after December 15, 2014, and interim periods beginning after March 15, 2015. An entity is
required to present changes in accounting for transactions outstanding on the effective date as a cumulative-
effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of this
standard did not have a material effect on the Company’s operating results or financial condition.
In June 2014, the FASB amended existing guidance related to the accounting for share-based payments
when the terms of an award provide that a performance target could be achieved after the requisite
service period. These amendments require that a performance target that affects vesting and that could
be achieved after the requisite service period be treated as a performance condition. A reporting entity
should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to
awards with performance conditions that affect vesting to account for such awards. The total amount of
compensation cost recognized during and after the requisite service period should reflect the number of
awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The
requisite service period ends when the employee can cease rendering service and still be eligible to vest
in the award if the performance target is achieved. These amendments are effective for annual periods
and interim periods within those annual periods beginning after December 15, 2015. Early adoption is
permitted. Entities may apply the amendments in this amendment either: (a) prospectively to all awards
102
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
granted or modified after the effective date; or (b) retrospectively to all awards with performance
targets that are outstanding as of the beginning of the earliest annual period presented in the financial
statements and to all new or modified awards thereafter. The adoption of this standard is not expected
to have a material effect on the Company’s operating results or financial condition.
In August 2014, the FASB amended existing guidance related to the classification of certain
government-guaranteed mortgage loans, including those guaranteed by the FHA and the VA, upon
foreclosure. It requires that a mortgage loan be derecognized and a separate other receivable be
recognized upon foreclosure if the following conditions are met: 1) The loan has a government
guarantee that is not separable from the loan before foreclosure; 2) At the time of foreclosure, the
creditor has the intent to convey the real estate property to the guarantor and make a claim on the
guarantee, and the creditor has the ability to recover under that claim; and 3) At the time of foreclosure,
any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon
foreclosure, the separate other receivable should be measured based on the amount of the loan balance
(principal and interest) expected to be recovered from the guarantor. These amendments are effective
for annual periods, and interim periods within those annual periods, beginning after December 15,
2014. Early adoption is permitted if the amendments under ASU 2014-04 Receivables – Troubled Debt
Restructurings by Creditors – Reclassification of Residential Real Estate Collateralized Consumer
Mortgage Loans Upon Foreclosure has been adopted. The amendments may be applied using a
prospective transition method in which a reporting entity applies the guidance to foreclosures that
occur after the date of adoption, or a modified retrospective transition using a cumulative-effect
adjustment (through a reclassification to a separate other receivable) as of the beginning of the annual
period of adoption. Prior periods should not be adjusted. A reporting entity must apply the same
method of transition as elected under ASU 2014-04. The adoption of this standard did not have a
material effect on the Company’s operating results or financial condition.
In September 2015, the FASB amended existing guidance related to accounting for measurement-
period adjustments for business combinations. The amendments require that an acquirer recognize
adjustments to estimated amounts that are identified during the measurement period in the reporting
period in which the adjustment amounts are determined. The amendments require that the acquirer
record, in the same period’s financial statements, the effect on earnings of changes in depreciation,
amortization, or other income effects, if any, as a result of the change in the estimated amounts,
calculated as if the accounting had been completed at the acquisition date. The amendments also
require an entity to present separately on the face of the income statement or disclose in the notes the
portion of the amount recorded in current-period earnings by line item that would have been recorded
in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the
acquisition date. These amendments are effective for public business entities for fiscal years beginning
after December 15, 2015, including interim periods within those fiscal years. These amendments
should be applied prospectively to adjustments to provisional amounts that occur after the effective
date with earlier application permitted for financial statements that have not been issued. The adoption
of this standard did not have a material effect on the Company’s operating results or financial
condition.
In January 2016, the FASB amended existing guidance related to the recognition and measurement of
financial assets and financial liabilities. The amendments in this update impact public business entities
as follows: 1) Require equity investments (except those accounted for under the equity method of
103
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
accounting or those that result in consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income. 2) Simplify the impairment assessment of equity
investments without readily determinable fair values by requiring a qualitative assessment to identify
impairment. When a qualitative assessment indicates that impairment exists, an entity is required to
measure the investment at fair value. 3) Eliminate the requirement to disclose the methods and
significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet. 4) Require entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes. 5) Require an
entity to present separately in other comprehensive income the portion of the total change in fair value
of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to
measure the liability at fair value in accordance with the fair value option for financial instruments. 6)
Require separate presentation of financial assets and financial liabilities by measurement category and
form of financial asset (that is, securities or loans and receivables) on the balance sheet or the
accompanying notes to the financial statements. 7) Clarify that an entity should evaluate the need for a
valuation allowance on a deferred tax asset related to available-for-sale securities in combination with
the entity’s other deferred tax assets. The amendments are effective for public business entities for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
These amendments should be applied by means of a cumulative-effect adjustment to the balance sheet
as of the beginning of the fiscal year of adoption. The amendments related to equity securities without
readily determinable fair values (including disclosure requirements) should be applied prospectively to
equity investments that exist as of the date of adoption. The Company is currently evaluating the
impact of adopting the new guidance on the consolidated financial statements.
(2) Trading Securities
Realized and unrealized gains and losses are included in trading securities revenue, a component of non
interest income. Securities purchased for this portfolio have primarily been municipal securities. A list of
the activity in this portfolio for 2015 and 2014 is summarized below.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark-to- market adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,420
147,693
(149,409)
379
24
$
—
171,089
(167,838)
156
13
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,107
$
3,420
2015
2014
104
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(3)
Investment Securities
Available for Sale
All of the mortgage backed securities (“MBS”) listed below are residential FNMA, FHLMC, and GNMA
MBSs. The fair value of available for sale securities and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income (loss) were as follows:
U.S. Treasury securities . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . .
Amortized
Cost
$
1,002
567,264
34,131
Total available-for-sale . . . . . . . . . . . . . .
$602,397
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$ —
4,102
1,156
$5,258
$
2
2,914
—
$2,916
December 31, 2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Obligations of U.S. government
sponsored entities and agencies . . . . . .
Mortgage backed securities . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . .
$
3
473,396
37,460
Total available-for-sale . . . . . . . . . . . . . .
$510,859
$ —
6,897
1,412
$8,309
$ —
1,660
51
$1,711
Fair Value
$
1,000
568,452
35,287
$604,739
Fair Value
$
3
478,633
38,821
$517,457
Sales of available for sale securities were as follows:
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,305
303
$
299
$
$323,537
1,175
$
1,129
$
$69,495
$ 1,060
$ —
2015
2014
2013
The tax provisions related to these net realized gains were $2, $18 and $409, respectively.
Available for sale securities pledged at December 31, 2015 and 2014 had a carrying amount (estimated fair
value) of $195,753 and $139,297, respectively. These securities were pledged primarily to secure public
deposits and repurchase agreements.
At year-end 2015 and 2014, there were no holdings of available for sale securities of any one issuer, other
than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
105
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The fair value and amortized cost of available for sale securities at year end 2015 by contractual maturity
were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.
Investment securities available for sale:
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years through thirty years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
634
6,013
13,397
16,243
568,452
$
617
5,875
13,046
15,595
567,264
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$604,739
$602,397
Fair
Value
Amortized
Cost
The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated
by investment category and length of time the individual securities have been in a continuous unrealized
loss position, at December 31, 2015 and 2014.
December 31, 2015
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . .
$
1,000
282,299
$
2
1,599
$ —
32,892
$ —
1,315
1,000
$
315,191
2
$
2,914
Total temporarily impaired available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$283,299
$1,601
$ 32,892
$1,315
$316,191
$2,916
December 31, 2014
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Mortgage backed securities . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,876
—
$
41
—
$ 99,010
3,194
$1,619
51
$114,886
3,194
$1,660
51
Total temporarily impaired available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,876
$
41
$102,204
$1,670
$118,080
$1,711
Mortgage-backed securities: At December 31, 2015, 100% of the mortgage-backed securities held by the
Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie
Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because
the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and
because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it
will not be required to sell the securities before their anticipated recovery, the Company does not consider
these securities to be other-than-temporarily impaired at December 31, 2015.
Municipal securities: Unrealized losses on municipal securities have not been recognized into income
because the issuers bonds are of high quality, and because management does not intend to sell these
investments or more likely than not will not be required to sell these investments before their anticipated
recovery. The fair value is expected to recover as the securities approach maturity.
106
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Held to Maturity
The following reflects the fair value of held to maturity securities and the related gross unrecognized gains
and losses as of December 31, 2015 and 2014.
December 31, 2015
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Obligations of U.S. government sponsored entities and
agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,610
155,942
59,288
Total held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$272,840
$ 141
71
1,566
$1,778
$ 23
601
11
$635
December 31, 2014
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Obligations of U.S. government sponsored entities and
agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,793
161,727
25,842
Total held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$237,362
$ 122
654
305
$1,081
$—
—
12
$ 12
Fair Value
$ 57,728
155,412
60,843
$273,983
Fair Value
$ 49,915
162,381
26,135
$238,431
Held to maturity securities pledged at December 31, 2015 and 2014 had a carrying amount of $48,246 and
$51,531. These securities were pledged primarily to secure public deposits and repurchase agreements.
At year-end 2015 and 2014, there were no holdings of held to maturity securities of any one issuer, other
than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
The fair value and amortized cost of held to maturity securities at year end 2015 by contractual maturity
were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.
Investment securities held to maturity
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years through thirty years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,266
78,305
155,412
$ 40,233
76,665
155,942
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$273,983
$272,840
Fair Value
Amortized
Cost
107
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following tables show the Company’s held to maturity investments’ gross unrecognized losses and fair
value, aggregated by investment category and length of time the individual securities have been in a
continuous unrecognized loss position, at December 31, 2015 and 2014.
December 31, 2015
Less than 12 months
12 months or more
Total
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
Obligations of U.S. government sponsored
entities and agencies . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . .
Total temporarily impaired available-for-
$
9,958
119,546
1,735
$ 23
601
11
sale securities . . . . . . . . . . . . . . . . . . . . .
$131,239
$635
$—
—
—
$—
$—
—
—
$—
$
9,958
119,546
1,735
$ 23
601
11
$131,239
$635
Municipal securities . . . . . . . . . . . . . . . . . .
Total temporarily impaired available-for-
sale securities . . . . . . . . . . . . . . . . . . . . .
$
$
December 31, 2014
Fair
Value
2,475
Unrecognized
Losses
$ 12
Fair
Value
$—
Unrecognized
Losses
$—
2,475
$ 12
$—
$—
Fair
Value
2,475
Unrecognized
Losses
$ 12
2,475
$ 12
$
$
Mortgage-backed securities: At December 31, 2015, 100% of the mortgage-backed securities held by the
Company were issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae, Freddie
Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support. Because
the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and
because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it
will not be required to sell the securities before their anticipated recovery, the Company does not consider
these securities to be other-than-temporarily impaired at December 31, 2015.
Municipal securities: Unrecognized losses on municipal securities have not been recognized into income
because the issuers bonds are of high quality, and because management does not intend to sell these
investments or more likely than not will not be required to sell these investments before their anticipated
recovery. The fair value is expected to recover as the securities approach maturity.
108
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(4) Loans
Major categories of loans included in the loan portfolio as of December 31, 2015 and 2014 are:
December 31,
2015
2014
Loans excluding PCI loans
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . . . . . . . . .
$ 647,496
1,254,782
105,276
$ 589,068
1,132,933
79,002
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans before unearned fees and deferred cost
. . . . . . . . . . . . . . . . . . . . . .
Net unearned fees and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,007,554
307,321
67,500
2,382,375
873
1,801,003
294,493
56,334
2,151,830
929
Total loans excluding PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,383,248
2,152,759
PCI loans (note 1)
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,104
105,629
15,548
207,281
2,771
476
210,528
102,009
140,977
24,032
267,018
8,953
795
276,766
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses for loans that are not PCI loans . . . . . . . . . . . . .
Allowance for loan losses for PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,593,776
(22,143)
(121)
2,429,525
(19,384)
(514)
Total loans, net of allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . .
$2,571,512
$2,409,627
note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.
109
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following sets forth the covered FDIC loans included in the table above.
FDIC covered loans that are not PCI loans
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC covered loans, excluding PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2015
2014
3,126
22,401
627
26,154
828
26,982
$
3,895
33,606
866
38,367
1,253
39,620
FDIC covered PCI loans (note 1)
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,398
58,692
10,161
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,251
2,087
98,075
116,457
15,395
229,927
4,974
Total FDIC covered PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,338
234,901
Total FDIC covered loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses for FDIC covered loans that are not PCI loans . . . . . . . . . . . . . .
Allowance for loans losses for FDIC covered PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
177,320
(72)
(107)
274,521
—
(514)
Total covered loans, net of allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$177,141
$274,007
note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.
110
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company acquired FDIC covered loans that are not PCI loans pursuant to the acquisition of FSB on
June 1, 2014. Prior to the FSB acquisition, the Company’s FDIC covered loans were all PCI loans.
Changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2015, 2014
and 2013, are below.
Real Estate Loans
Residential Commercial
Land, develop.,
constr.
Comm. &
industrial
Consumer
& other
Total
Allowance for loan losses for loans that are
not PCI loans:
Twelve months ended December 31, 2015
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
Twelve months ended December 31, 2014
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
Twelve months ended December 31, 2013
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
Allowance for loan losses for loans that are
PCI loans:
Twelve months ended December 31, 2015
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
Twelve months ended December 31, 2014
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
Twelve months ended December 31, 2013
Beginning of the period . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . .
$ 6,743
(1,283)
901
(346)
$ 6,015
$ 8,785
(1,382)
1,018
(1,678)
$ 6,743
$ 6,831
(3,701)
432
5,223
$ 8,785
$ —
—
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
—
$ —
$ 8,269
(173)
485
1,978
$10,559
$ 6,441
(353)
763
1,418
$ 8,269
$ 8,272
(1,144)
417
(1,104)
$ 6,441
$
$
$
$
372
(77)
—
(192)
103
138
—
—
234
372
$ 2,335
(1,248)
—
(949)
138
$
111
$
$
752
(461)
5
640
936
$ 3,069
(124)
106
(2,299)
752
$
$ 6,211
(310)
193
(3,025)
$ 3,069
$
$
$
$
6
—
—
(5)
1
89
—
—
(83)
6
$ —
—
—
89
89
$
$ 2,330
(1,121)
344
1,659
$ 3,212
$
510
(699)
85
2,434
$ 2,330
$ 1,745
(120)
51
(1,166)
510
$
$
$
$
$
$
$
136
—
—
(133)
3
533
(101)
—
(296)
136
314
—
—
219
533
$1,290
(853)
156
828
$1,421
$ 889
(879)
184
1,096
$1,290
$ 974
(903)
181
637
$ 889
$ —
(50)
—
64
14
$
$ —
—
—
—
$ —
$ —
—
—
—
$ —
$19,384
(3,891)
1,891
4,759
$22,143
$19,694
(3,437)
2,156
971
$19,384
$24,033
(6,178)
1,274
565
$19,694
$
$
$
$
514
(127)
—
(266)
121
760
(101)
—
(145)
514
$ 2,649
(1,248)
—
(641)
760
$
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following table presents the balance in the allowance for loan losses and the recorded investment in
loans by portfolio segment and based on impairment method as of December 31, 2015 and 2014. Accrued
interest receivable and unearned fees/costs are not included in the recorded investment because they are not
material.
As of December 31, 2015
Residential Commercial
Land,
develop.,
constr.
Comm. &
industrial
Consumer
& other
Total
Real Estate Loans
Allowance for loan losses:
Ending allowance balance attributable
to loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . .
$
402
$
478
$
164
$
7
$
29
$
1,080
Collectively evaluated for
impairment . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . .
Total ending allowance balance . . . . . .
5,613
—
6,015
$
$
10,081
103
10,662
$
772
1
937
3,205
3
3,215
1,392
14
$ 1,435
$
$
21,063
121
22,264
Loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . .
$ 8,096
$
11,482
$
2,267
$
1,057
$
273
$
23,175
Collectively evaluated for
impairment . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . .
Total ending loan balances . . . . . . . . .
639,400
86,104
$733,600
1,243,300
105,629
$1,360,411
103,009
15,548
$120,824
306,264
2,771
$310,092
67,227
476
$67,976
2,359,200
210,528
$2,592,903
As of December 31, 2014
Residential Commercial
Land,
develop.,
constr.
Comm. &
industrial
Consumer
& other
Total
Real Estate Loans
Allowance for loan losses:
Ending allowance balance attributable
to loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . .
$
419
$
403
$
272
$
4
$
17
$
1,115
Collectively evaluated for
impairment . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . .
Total ending allowance balance . . . . . .
6,324
—
6,743
$
$
7,866
372
8,641
$
480
6
758
2,326
136
2,466
$
1,273
—
$ 1,290
$
18,269
514
19,898
Loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . .
$ 9,980
$
10,902
$
2,748
$
1,365
$
255
$
25,250
Collectively evaluated for
impairment . . . . . . . . . . . . . . . .
Purchased credit impaired . . . . . .
Total ending loan balance . . . . . . . . . .
579,088
102,009
$691,077
1,122,031
140,977
$1,273,910
76,254
24,032
$103,034
293,128
8,953
$303,446
56,079
795
$57,129
2,126,580
276,766
$2,428,596
112
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Loans collectively evaluated for impairment reported at December 31, 2015 include loans acquired from
FSB on June 1, 2014 and from GSB on January 17, 2014 that are not PCI loans. These loans were
performing loans recorded at estimated fair value at the acquisition date. The aggregate fair value
adjustment for these loans at their respective acquisition dates was approximately $17,761, or approximately
2.1% of the aggregate acquisition date balances. The amount is accreted into interest income over the
remaining lives of the related loans on a level yield basis. The aggregate unamortized acquisition date fair
value adjustment was approximately $9,354 and $13,074, which represents approximately 1.59% and 1.82%
of the remaining outstanding balance of these acquired loans at December 31, 2015 and 2014, respectively.
Management has also estimated probable incurred losses based on performance since the respective
acquisition dates, and based on these estimates, has included $2,712 in the Company’s general loan
allowance with respect to these acquired loans. Management believes the Company’s allowance for loan
losses is adequate at December 31, 2015.
The following is a summary of information regarding impaired loans at December 31, 2015 and 2014:
Performing TDRs (these are not included in nonperforming loans (“NPLs”))
. .
Nonperforming TDRs (these are included in NPLs) . . . . . . . . . . . . . . . . . . . . . . .
Total TDRs (these are included in impaired loans)
. . . . . . . . . . . . . . . . . . . . . . .
Impaired loans that are not TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2015
2014
$10,254
4,873
15,127
8,048
$11,418
3,648
15,066
10,184
Total impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,175
$25,250
Troubled Debt Restructurings:
In certain circumstances it may be beneficial to modify or restructure the terms of a loan (i.e. troubled debt
restructure or “TDR”) and work with the borrower for the benefit of both parties, versus forcing the property
into foreclosure and having to dispose of it in an unfavorable real estate market. When the Company
modifies the terms of a loan, it usually either reduces the monthly payment and/or interest rate for generally
twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan
modifications to date. The Company has $15,127 of TDRs. Of this amount $10,254 are performing pursuant
to their modified terms, and $4,873 are not performing and have been placed on non-accrual status and
included in our nonperforming loans (“NPLs”).
113
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
TDRs as of December 31, 2015 and 2014 quantified by loan type classified separately as accrual
(performing loans) and non-accrual (nonperforming loans) are presented in the table below.
As of December 31, 2015
Real estate loans:
Accruing
Non
Accrual
Total
Residential
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,987
2,458
593
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,038
991
225
$2,108
2,558
93
4,759
66
48
$ 8,095
5,016
686
13,797
1,057
273
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,254
$4,873
$15,127
As of December 31, 2014
Real estate loans:
Accruing
Non-Accrual
Total
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,201
2,762
547
10,510
706
202
$1,523
1,794
241
3,558
37
53
$ 8,724
4,556
788
14,068
743
255
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,418
$3,648
$15,066
The Company’s policy is to return non-accrual TDR loans to accrual status when all the principal and
interest amounts contractually due, pursuant to its modified terms, are brought current and future payments
are reasonably assured. The Company’s policy also considers the payment history of the borrower, but is not
dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of
$350, $422 and $890 and partial charge offs of $272, $251 and $449 on TDR loans during the periods
ending December 31, 2015, 2014 and 2013, respectively.
Loans are modified to minimize loan losses when management believes the modification will improve the
borrower’s financial condition and ability to repay the loan. The Company typically does not forgive
principal. The Company generally either reduces interest rates or decreases monthly payments for a
temporary period of time and those reductions of cash flows are capitalized into the loan balance. The
Company may also extend maturities, convert balloon loans to longer term amortizing loans, or vice versa,
or change interest rates between variable and fixed rate. Each borrower and situation is unique and
management tries to accommodate the borrower and minimize the Company’s potential losses.
Approximately 68% of the Company’s TDRs are current pursuant to their modified terms, and $4,873, or
approximately 32% of the Company’s total TDRs are not performing pursuant to their modified terms.
There does not appear to be any significant difference in success rates with one type of concession versus
another.
114
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Loans modified as TDRs during the twelve month periods ending December 31, 2015, 2014 and 2013 were
$4,442, $3,518 and $5,864. The Company recorded a loan loss provision of $221, $200 and $656 for loans
modified during the twelve month periods ending December 31, 2015, 2014 and 2013.
The following table presents loans by class modified as TDRs for which there was a payment default within
twelve months following the modification during the years ending December 31, 2015, 2014 and 2013.
Year Ending
December 31, 2015
Year Ending
December 31, 2014
Year Ending
December 31, 2013
Number
of loans
Recorded
investment
Number
of loans
Recorded
investment
Number
of loans
Recorded
investment
Residential
. . . . . . . . . . . . . . . .
Commercial real estate . . . . . . .
Land, development,
construction . . . . . . . . . . . . .
Commercial and Industrial . . . .
Consumer and other . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
3
3
1
—
—
7
$ 588
1,341
—
66
—
1
5
2
2
—
$ 188
747
241
—
36
$1,995
10
1,212
3
5
—
1
1
10
$ 562
1,662
—
25
18
$2,267
The Company recorded $152, $97 and $574 in provision for loan loss expense and $153, $65 and $197 in
partial charge offs on TDR loans that subsequently defaulted as described above during the years ending
December 31, 2015, 2014 and 2013, respectively.
The Company has allocated $720 and $779 of specific reserves to customers whose loan terms have been
modified in troubled debt restructurings as of December 31, 2015 and 2014. The Company has not
committed to lend additional amounts to customers with outstanding loans that are classified as troubled
debt restructurings.
115
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following tables present loans individually evaluated for impairment by class of loans as of
December 31, 2015 and 2014 excluding purchased credit impaired loans accounted for pursuant to ASC
Topic 310-30. The recorded investment is less than the unpaid principal balance primarily due to partial
charge-offs.
As of December 31, 2015
With no related allowance recorded:
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
With an allowance recorded:
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid
principal
balance
$ 5,784
9,595
1,869
585
109
2,682
2,538
1,065
484
179
Recorded
investment
$ 5,465
9,202
1,229
577
103
2,631
2,280
1,038
480
170
Allowance
for loan
losses
allocated
$ —
—
—
—
—
402
478
164
7
29
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,890
$23,175
$1,080
As of December 31, 2014
With no related allowance recorded:
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
With an allowance recorded:
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid
principal
balance
$ 6,797
8,208
2,234
1,132
—
3,451
3,024
1,187
283
267
Recorded
investment
$ 6,672
8,059
1,606
1,129
3,308
2,843
1,142
236
255
Allowance
for loan
losses
allocated
$ —
—
—
—
—
419
403
272
4
17
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,583
$25,250
$1,115
116
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
December 31, 2015
Real estate loans:
Average of
impaired
loans
Interest income
recognized during
impairment
Cash basis
interest income
recognized
Residential
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . .
$ 8,623
10,874
1,998
21,495
946
329
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,770
$241
259
31
531
39
14
$584
$—
—
—
—
—
—
$—
December 31, 2014
Real estate loans:
Average of
impaired
loans
Interest income
recognized during
impairment
Cash basis
interest income
recognized
Residential
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . .
$ 9,584
12,282
2,138
24,004
2,001
296
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,301
$318
145
37
500
67
12
$579
$—
—
—
—
—
—
$—
December 31, 2013
Real estate loans:
Average of
impaired
loans
Interest income
recognized during
impairment
Cash basis
interest income
recognized
Residential
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial
. . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . .
$ 8,968
26,060
1,405
36,433
1,878
363
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,674
$ 290
870
17
1,177
35
11
$1,223
$—
—
—
—
—
—
$—
117
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days
still on accrual by class of loans as of December 31, 2015 and 2014 excluding purchased credit impaired
loans accounted for pursuant to ASC Topic 310-30:
As of December 31, 2015
Nonaccrual
Loans past due over
90 days still accruing
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 9,540
9,145
1,608
187
353
$20,833
$—
—
—
—
—
$—
As of December 31, 2014
Nonaccrual
Loans past due over
90 days still accruing
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$11,901
8,470
2,374
2,475
375
$25,595
$—
—
—
—
—
$—
The following tables present the aging of the recorded investment in past due loans as of December 31, 2015
and 2014, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30:
As of December 31, 2015
Total
Accruing Loans
30-59
days
past due
60-89
days
past due
Greater than
90 days past
due
Total
Past
Due
Loans Not
Past Due
Nonaccrual
Loans
Residential real estate . . . . . $ 647,496 $2,118 $3,089
2,170
Commercial real estate . . . .
595
Land/dev/construction . . . . .
348
Commercial . . . . . . . . . . . . .
90
Consumer . . . . . . . . . . . . . . .
$2,382,375 $8,431 $6,292
1,254,782
105,276
307,321
67,500
4,647
280
1,101
285
$—
—
—
—
—
$—
6,817
875
1,449
375
$ 5,207 $ 632,749 $ 9,540
9,145
1,238,820
1,608
102,793
187
305,685
353
66,772
$14,723 $2,346,819 $20,833
As of December 31, 2014
Total
Accruing Loans
30-59
days
past due
60-89
days
past due
Greater than
90 days past
due
Total
Past
Due
Loans Not
Past Due
Nonaccrual
Loans
Residential real estate . . . . . $ 589,068 $2,162 $1,451
3,394
Commercial real estate . . . .
404
Land/dev/construction . . . . .
1,492
Commercial . . . . . . . . . . . . .
149
Consumer . . . . . . . . . . . . . . .
$2,151,830 $6,218 $6,890
1,132,933
79,002
294,493
56,334
1,840
378
1,427
411
$—
—
—
—
—
$—
5,234
782
2,919
560
$ 3,613 $ 573,554 $11,901
8,470
1,119,229
2,374
75,846
2,475
289,099
375
55,399
$13,108 $2,113,127 $25,595
(Continued)
118
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of
borrowers to service their debt such as: current financial information, historical payment experience, credit
documentation, public information, and current economic trends, among other factors. The Company
analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least
an annual basis. The Company uses the following definitions for risk ratings:
Special Mention: Loans classified as special mention have a potential weakness that deserves
management’s close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or of the institution’s credit position at some
future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-
defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by
the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as
substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described
process are considered to be pass rated loans. As of December 31, 2015 and 2014, and based on the
most recent analysis performed, the risk category of loans by class of loans, excluding purchased credit
impaired loans accounted for pursuant to ASC Topic 310-30, is as follows:
As of December 31, 2015
Loan Category
Residential real estate . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . .
Land/dev/construction . . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$ 620,735
1,194,368
96,629
301,838
66,798
Special
Mention
$ 9,585
47,885
5,896
4,077
297
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,280,368
$67,740
Substandard
Doubtful
$17,598
31,907
3,495
3,502
520
$57,022
$—
—
—
—
—
$—
As of December 31, 2014
Loan Category
Residential real estate . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . .
Land/dev/construction . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$ 558,312
1,063,979
65,216
285,549
55,590
Special
Mention
$ 7,053
34,953
9,731
4,419
278
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,028,646
$56,434
Substandard
Doubtful
$23,703
34,001
4,055
4,525
466
$66,750
$—
—
—
—
—
$—
119
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company considers the performance of the loan portfolio and its impact on the allowance for loan
losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the
aging status of the loan, which was previously presented, and by payment activity. The following table
presents the recorded investment in residential and consumer loans, excluding purchased credit impaired
loans accounted for pursuant to ASC Topic 310-30, based on payment activity as of December 31, 2015 and
2014:
As of December 31, 2015
Residential
Consumer
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$637,956
9,540
$67,147
353
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$647,496
$67,500
As of December 31, 2014
Residential
Consumer
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$577,167
11,901
$55,959
375
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$589,068
$56,334
Purchased Credit Impaired (“PCI”) Loans:
Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has
been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of
the loans. The remaining non-accretable difference represents cash flows not expected to be collected.
The table below summarizes the total contractually required principal and interest cash payments,
management’s estimate of expected total cash payments and carrying value of the loans as of December 31,
2015, 2014 and 2013. Contractually required principal and interest payments have been adjusted for
estimated prepayments.
December 31,
2015
2014
2013
Contractually required principal and interest . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 332,570
(19,452)
$ 460,836
(68,757)
$ 389,537
(55,304)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value of acquired loans . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
313,118
(102,590)
210,528
(121)
392,079
(115,313)
276,766
(514)
334,233
(102,812)
231,421
(760)
Carrying value less allowance for loan losses . . . . . . . . . . . . .
$ 210,407
$ 276,252
$ 230,661
The Company recorded $(266), $(145) and $(641) in loan loss provision expense on PCI loans during the
years ending December 31, 2015, 2014 and 2013, respectively. There were no reversals in the loan loss
allowance for recoveries in 2015, 2014 and 2013, respectively. The Company adjusted its estimates of
future expected losses, cash flows and renewal assumptions during the current year. These adjustments
120
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable
difference. The Company reclassified approximately $28,394, $14,892 and $41,454 from non-accretable
difference to accretable yield during the twelve month periods ending December 31, 2015, 2014 and 2013,
respectively, to reflect the adjusted estimates of future expected cash flows.
The Company recognized approximately $40,645 of accretion income during the twelve month period
ending December 31, 2015. The table below summarizes the changes in total contractually required
principal and interest cash payments, management’s estimate of expected total cash payments and carrying
value of the loans during the periods ending December 31, 2015, 2014 and 2013.
December 31,
2014
income
accretion
all other
adjustments
December 31,
2015
Contractually required principal and interest . . . . . . . . . $ 460,836 $ — $(128,266) $ 332,570
(19,452)
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . .
(68,757)
49,305
—
Cash flows expected to be collected . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392,079
(115,313)
—
40,645
(78,961)
(27,922)
313,118
(102,590)
Carry value of acquired loans . . . . . . . . . . . . . . . . . . . . . $ 276,766 $40,645 $(106,883) $ 210,528
Contractually required principal and
December 31,
2013
Effect of
acquisitions
income
accretion
all other
adjustments
December 31,
2014
interest
Non-accretable difference . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 389,537
(55,304)
$229,249 $ — $(157,950) $ 460,836
(68,757)
(45,293)
31,840
—
Cash flows expected to be collected . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . .
334,233
(102,812)
183,956
(32,204) 34,168
— (126,110)
(14,465)
392,079
(115,313)
Carry value of acquired loans . . . . . . . . . . . $ 231,421
$151,752 $34,168 $(140,575) $ 276,766
December 31,
2012
income
accretion
all other
adjustments
December 31,
2013
Contractually required principal and interest . . . . . . . . . $ 534,989 $ — $(145,452) $ 389,537
(55,304)
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . .
(142,855)
87,551
—
Cash flows expected to be collected . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392,134
(93,107)
—
32,725
(57,901)
(42,430)
334,233
(102,812)
Carry value of acquired loans . . . . . . . . . . . . . . . . . . . . . $ 299,027 $32,725 $(100,331) $ 231,421
121
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(5) FDIC indemnification asset
The FDIC indemnification asset represents the estimated amounts due from the FDIC pursuant to the Loss
Share Agreements related to the acquisition of the three failed banks acquired in 2010, the acquisition of
two failed banks in 2012 and the assumption of Loss Share Agreements of two failed banks assumed by the
Company pursuant to its acquisition of First Southern Bank in June 2014. On February 3, 2016, the FDIC
bought out the remaining FDIC loss share agreements. As such, the FDIC indemnification asset was written-
off effectively accelerating all future FDIC indemnification asset amortization expense as well as ending
any future FDIC indemnification income. The activity in the FDIC loss share indemnification asset for
periods presented was as follows:
Beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification of foreclosure expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment (recovery) of loan pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
$ 49,054
—
(16,282)
1,900
(4,001)
(4,662)
(214)
$ 73,877
2,636
(20,664)
3,098
237
(10,014)
(116)
Period end balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,795
$ 49,054
The FDIC agreements allowed for the recovery of some payments made for loss share reimbursements
under certain conditions based on the actual performance of the portfolios acquired. This true-up payment
was estimated and accrued for as part of the overall FDIC indemnification asset analysis and was reflected
as a separate liability. The accrual for this liability was reflected as additional amortization income or
expense in noninterest income. The activity in the true-up payment liability was as follows:
Beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
True-up liability accrual
$1,205
—
281
$ 444
682
79
Period end balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,486
$1,205
2015
2014
Impairment of loan pools
When a loan pool (with loss share) was impaired, the impairment expense was included in provision for
loan losses, and the percentage of that loss to be reimbursed by the FDIC was recognized as income from
FDIC reimbursement, and included in this line item. During the twelve month period ended December 31,
2015, the estimated amount of impairment decreased, which resulted in a reduction of $(214) of
indemnification income.
122
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Indemnification revenue
Indemnification revenue represents the percentage of the cost incurred that was reimbursable by the FDIC
pursuant to the related Loss Share Agreement for expenses related to the repossession process and losses
incurred on the sale of OREO, or writedown of OREO values to current fair value.
Amortization, net
On the date of an FDIC acquisition, the Company estimated the amount and the timing of expected future
losses that would be covered by the FDIC loss sharing agreements. The FDIC indemnification asset was
initially recorded as the discounted value of the reimbursement of losses from the FDIC. Discount accretion
was recognized over the estimated period of losses. The Company also updated its estimate of future losses
and the timing of the losses each quarter. To the extent management estimated that future losses were less
than initial estimate of future losses, management adjusted its estimates of future expected reimbursements
and any decrease in the expected future reimbursements was amortized over the shorter of the loss share
period or the life of the related loan by amortization in this line item. Based upon the most recent estimate of
future losses, the Company expected less reimbursements from the FDIC and was amortizing the estimated
reduction as described in the previous sentence.
Indemnification of foreclosure expense
Indemnification of foreclosure expense represents the percentage of foreclosure related expenses incurred
and reimbursable from the FDIC. Foreclosure expense was included in non interest expense. The amount of
the reimbursable portion of the expense reduced foreclosure expense included in non interest expense.
(6) Other real estate owned
Other real estate owned means real estate acquired through or instead of loan foreclosure. Activity in the
valuation allowance was as follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of repossessed real estate . . . . . . . . . . . . . . . . .
Sales and/or dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,103
1,207
(3,013)
$ 5,887
3,250
(6,034)
$ 5,407
6,012
(5,532)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,297
$ 3,103
$ 5,887
2015
2014
2013
Expenses related to foreclosed real estate include:
(Gain) loss on sale of repossessed real estate . . . . . . . . . . . . . . . . . . . .
Valuation write down of repossessed real estate . . . . . . . . . . . . . . . . .
Operating expenses, net of rental income . . . . . . . . . . . . . . . . . . . . . . .
$(1,253)
1,207
2,334
$ (788)
3,250
2,775
$ 3,122
6,012
3,191
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,288
$5,237
$12,325
2015
2014
2013
123
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(7) Fair value
Generally accepted accounting principles establish a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the
ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are determined by obtaining quoted prices on nationally
recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique
widely used in the industry to value debt securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities
(Level 2 inputs).
The fair values of trading securities are determined as follows: (1) for those securities that have traded prior
to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the sales
price is used as the fair value; and, (2) for those securities which have not traded as of the date of the
consolidated balance sheet, the fair value was determined by broker price indications of similar or same
securities.
The mortgage backed securities held by the Company were issued by U. S. government sponsored entities
and agencies. Assets and liabilities measured at fair value on a recurring basis are summarized below.
The fair value of impaired loans with specific valuation allowance for loan losses and other real estate
owned is based on recent real estate appraisals less estimated costs of sale. For residential real estate
impaired loans and other real estate owned, appraised values are based on the comparative sales approach.
For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use
either a single valuation approach or a combination of approaches such as comparative sales, cost or the
income approach. A significant unobservable input in the income approach is the estimated income
capitalization rate for a given piece of collateral. At December 31, 2015, the range of capitalization rates
utilized to determine the fair value of the underlying collateral ranged from 7% to 10%. Adjustments to
comparable sales may be made by the appraiser to reflect local market conditions or other economic factors
and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired
loans and other real estate owned are considered a Level 3 in the fair value hierarchy.
124
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The fair value of derivatives is based on valuation models using observable market data as of the
measurement date (Level 2).
at December 31, 2015
Assets:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale securities
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap derivatives . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Interest rate swap derivatives . . . . . . . . . . . . . . . . . . . . . . .
at December 31, 2014
Assets:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale securities
U.S. government sponsored entities and agencies . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap derivatives . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Interest rate swap derivatives . . . . . . . . . . . . . . . . . . . . . . .
Carrying
value
$
2,107
1,000
568,452
35,287
18,619
19,822
$
3,420
3
478,633
38,821
6,800
7,575
Fair value measurements using
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
—
—
—
—
—
—
$
2,107
1,000
568,452
35,287
18,619
19,822
$
3,420
3
478,633
38,821
6,800
7,575
—
—
—
—
—
—
—
—
—
—
—
—
125
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Assets and liabilities measured at fair value on a non-recurring basis are summarized below.
Fair value measurements using
Quoted prices in
active markets for
identical assets
(Level 1)
Carrying
value
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
at December 31, 2015
Assets:
Impaired loans
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Land, land development and
construction . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Land, land development and
construction . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . .
at December 31, 2014
Assets:
Impaired loans
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Land, land development and
construction . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Land, land development and
construction . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . .
$3,288
7,061
1,767
280
90
85
1,506
2,002
1,665
$2,971
4,854
1,731
167
102
448
2,363
2,240
2,675
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$3,288
7,061
1,767
280
90
85
1,506
2,002
1,665
$2,971
4,854
1,731
167
102
448
2,363
2,240
2,675
Impaired loans measured at fair value had a recorded investment of $13,293 with a valuation allowance of
$807 at December 31, 2015, and a recorded investment of $10,677, with a valuation allowance of $852, at
December 31, 2014. The Company recorded a provision for loan loss expense of $600 and $554 on these
loans during the years ending 2015 and 2014, respectively.
Other real estate owned had a decline in fair value of $1,207 and $3,250 during the twelve month periods
ending December 31, 2015 and 2014, respectively. Changes in fair value were recorded directly as an
adjustment to current earnings through non interest expense.
126
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Bank property held for sale represents certain branch office buildings which the Company has closed and
consolidated with other existing branches. The real estate was transferred out of the Bank Premises and
Equipment category into bank property held for sale. The real estate was transferred at the lower of
amortized cost or fair value less estimated costs to sell. The fair values were based upon comparative sales
data provided by real estate brokers. The real estate was transferred at the lower of amortized cost or fair
value less estimated costs to sell. The Company closed eight bank branch offices during the year 2014,
seven owned by the Company and one leased. Five of the properties owned by the Company were
transferred to held for sale, the remaining two are being used as loan production offices, back office support
staff offices and a portion of the second floor of one of the buildings is leased to an existing tenant. Six of
the properties transferred to held for sale were sold in 2014 resulting in a recovery of $649 from a previous
impairment charge of $1,753 recorded during the same year. Excluding the properties sold in 2014, the
Company recognized an impairment charge of $1,152 during the twelve month period ending December 31,
2014 related to the transfer to held for sale. The Company recorded an impairment charge of $731 during
the twelve month period ending December 31, 2015 related to bank properties held for sale.
Fair Value of Financial Instruments
The methods and assumptions, not previously presented, used to estimate fair value are described as
follows:
Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values and
are classified as Level 1.
FHLB and FRB Stock: It is not practical to determine the fair value of FHLB and FRB stock due to
restrictions placed on their transferability.
Investment securities held to maturity: The fair values of securities held to maturity are determined by
obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing,
which is a mathematical technique widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to
other benchmark quoted securities (Level 2 inputs).
Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts from
third party investors resulting in a Level 2 classification.
Loans, net: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate
loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying
values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of
similar credit quality resulting in a Level 3 classification. Impaired loans are valued as described previously.
The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
FDIC Indemnification Asset: It is not practical to determine the fair value of the FDIC indemnification asset
due to restrictions placed on its transferability.
Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value
and is classified as Level 3.
127
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings,
and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amount) resulting in Level 1 classification. Fair values for fixed rate certificates of
deposit are estimated using a discounted cash flows calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in
a Level 2 classification.
Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase
agreements, and other short-term borrowings (note payable), generally maturing within ninety days,
approximate their fair values resulting in a Level 2 classification.
Corporate Debentures: The fair values of the Company’s corporate debentures are estimated using
discounted cash flow analyses based on the current borrowing rates for similar types of borrowing
arrangements resulting in a Level 3 classification.
Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting
in a Level 2 classification.
Off-balance Sheet Instruments: The fair value of off-balance-sheet items is not considered material.
128
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following table presents the carry amounts and estimated fair values of the Company’s financial
instruments:
at December 31, 2015
Financial assets:
Cash and cash equivalents . . .
Trading securities . . . . . . . . . .
Investment securities
Fair value measurements
Carrying
amount
Level 1
Level 2
Level 3
Total
$ 152,482
2,107
$ 152,482
—
$ —
2,107
$
available for sale . . . . . . . . .
604,739
Investment securities held to
maturity . . . . . . . . . . . . . . .
FHLB and FRB stock . . . . . . .
Loans held for sale . . . . . . . . .
Loans, less allowance for loan
losses of $22,264 . . . . . . . .
FDIC indemnification asset . .
Interest rate swap
derivatives . . . . . . . . . . . . .
Accrued interest receivable . .
Financial liabilities:
Deposits- without stated
272,840
14,041
1,529
2,571,512
25,795
18,619
10,286
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 152,482
2,107
604,739
273,983
n/a
1,529
604,739
273,983
—
1,529
—
—
2,574,516
—
2,574,516
n/a
18,619
—
—
10,286
18,619
10,286
maturities . . . . . . . . . . . . . .
$2,792,758
$2,792,758
$ —
$
Deposits- with stated
maturities . . . . . . . . . . . . . .
422,420
Securities sold under
agreement to repurchase . . .
Federal funds purchased . . . . .
Other borrowed funds . . . . . . .
Corporate debentures . . . . . . .
Interest rate swap
derivatives . . . . . . . . . . . . .
Accrued interest payable . . . .
27,472
200,250
25,000
24,093
19,822
218
—
—
—
—
—
—
—
423,391
27,472
200,250
25,000
—
19,822
218
—
—
—
—
—
19,734
—
—
$2,792,758
423,391
27,472
200,250
25,000
19,734
19,822
218
129
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Fair value measurements
Carrying
amount
Level 1
Level 2
Level 3
Total
$ 158,413
3,420
$ 158,413
—
$ —
3,420
$
517,457
237,362
14,219
1,251
2,409,627
49,054
6,800
8,999
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 158,413
3,420
517,457
238,431
n/a
1,251
517,457
238,431
—
1,251
—
—
2,418,405
—
2,418,405
n/a
6,800
—
—
8,999
6,800
8,999
at December 31, 2014
Financial assets:
Cash and cash equivalents . . .
Trading securities . . . . . . . . . .
Investment securities
available for sale . . . . . . . . .
Investment securities held to
maturity . . . . . . . . . . . . . . .
FHLB and FRB stock . . . . . . .
Loans held for sale . . . . . . . . .
Loans, less allowance for loan
losses of $19,898 . . . . . . . .
FDIC indemnification asset . .
Interest rate swap
derivatives . . . . . . . . . . . . .
Accrued interest receivable . .
Financial liabilities:
Deposits- without stated
maturities . . . . . . . . . . . . . .
$2,604,228
$2,604,228
$ —
$
Deposits- with stated
maturities . . . . . . . . . . . . . .
487,812
Securities sold under
agreement to repurchase . . .
Federal funds purchased . . . . .
Corporate debentures . . . . . . .
Interest rate swap
derivatives . . . . . . . . . . . . .
Accrued interest payable . . . .
27,022
151,992
23,917
7,575
336
—
—
—
—
—
—
491,999
27,022
151,992
—
7,575
336
—
—
—
—
19,722
—
—
$2,604,228
491,999
27,022
151,992
19,722
7,575
336
(8) Bank Premises and Equipment
A summary of bank premises and equipment as of December 31, 2015 and 2014 is as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130
December 31,
2015
2014
$ 35,941
995
62,109
5,917
31,666
1,263
137,891
36,070
$ 34,387
949
60,168
3,520
30,906
1,587
131,517
32,669
$101,821
$ 98,848
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company leases land and certain facilities under noncancellable operating leases. The following is a
schedule of future minimum annual rentals under the noncancellable operating leases:
Year ending December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,411
2,085
1,817
1,313
972
4,456
$13,054
Rent expense, net of rental income, for the years ended December 31, 2015, 2014 and 2013, was $2,117,
$2,309 and $1,099, respectively, and is included in occupancy expense in the accompanying Consolidated
Statements of Operations. Rental income for the years ended December 31, 2015, 2014 and 2013, was $650,
$632, and $540, respectively, and is included in occupancy expense.
(9) Goodwill and Intangible Assets
Goodwill was a result of whole bank acquisitions, all within the Company’s commercial and retail banking
segment. The change in balance for goodwill during the years 2015, 2014 and 2013 is as follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$76,739
—
—
$44,924
31,815
—
$44,924
—
—
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$76,739
$76,739
$44,924
2015
2014
2013
The Company performed a step 1 annual impairment analysis of the goodwill recorded at the commercial
and retail banking (“Bank”) reporting unit as of November 30, 2015. Step 1 includes the determination of
the carrying value of the reporting unit, including the existing goodwill and intangible assets, and estimating
the fair value of the reporting unit. The carrying amount of the reporting unit did not exceed its fair value
resulting in no impairment.
131
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Acquired intangible assets consists of core deposit intangibles (“CDI”) and Trust intangible (“Trust”) which
are intangible assets arising from either whole bank or branch acquisitions. They are initially measured at
fair value and then amortized over a ten-year period on an accelerated basis using the projected decay rates
of the underlying core deposits in the case of CDI and an accelerated method in the case of the Trust
intangible. The change in balance for CDI and the Trust during the years 2015, 2014 and 2013 is as follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired CDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,401
137
(2,537)
—
$ 6,116
11,569
(2,284)
—
$ 7,307
—
(1,191)
—
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,001
$15,401
$ 6,116
2015
2014
2013
Acquired intangible assets were as follows for years ended December 31, 2015 and 2014:
December 31, 2015
December 31, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Core deposit intangibles . . . . . . . . . . . . . . . .
Trust intangible . . . . . . . . . . . . . . . . . . . . . . .
$23,313
1,580
Total acquired intangibles . . . . . . . . . . . . . . . . . .
$24,893
$11,149
743
$11,892
Estimated amortization expense for each of the next five years:
Gross
Carrying
Amount
$23,176
1,580
$24,756
Accumulated
Amortization
$8,760
595
$9,355
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,289
1,892
1,738
1,682
1,608
132
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(10) Deposits
A detail of deposits at December 31, 2015 and 2014 is as follows:
Non-interest bearing deposits . . . . . . . . . . . . . . . .
Interest bearing deposits:
Interest bearing demand deposits . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . .
Time deposits less than $100 . . . . . . . . . . . .
. . . . . . . . .
Time deposits of $100 or greater
December 31,
Weighted
Average
Interest
Rate
2014
Weighted
Average
Interest
Rate
2015
$1,133,138
— % $1,048,874
— %
679,714
241,605
738,301
177,288
245,132
0.1%
0.1%
0.3%
0.6%
0.8%
607,359
231,039
716,956
219,021
268,791
$3,215,178
0.2% $3,092,040
0.1%
0.1%
0.3%
0.8%
1.1%
0.2%
The following table presents the amount of certificate accounts at December 31, 2015, maturing during the
periods reflected below:
Year
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$270,473
76,295
29,038
21,314
25,035
265
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$422,420
Time deposits that meet or exceed the FDIC insurance limit of $250 at year end 2015 and 2014 were
$123,994 and $116,861.
(11) Securities Sold Under Agreements to Repurchase
The Company’s subsidiary bank enters into borrowing arrangements with its retail business customers by
agreements to repurchase (“repurchase agreements”) under which the bank pledges investment securities
owned and under its control as collateral against the one-day borrowing arrangement.
At December 31, 2015 and 2014, the Company had $27,472 and $27,022 in repurchase agreements.
Repurchase agreements are secured by obligations of U.S. government agencies and municipal securities
with fair values of $47,398 and $52,714 at December 31, 2015 and 2014, respectively. Any risk related to
these arrangements, primarily market value changes, is minimized due to the overnight (one-day) maturity
and the additional collateral pledged over the borrowed amounts.
133
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following tables provide additional details as of December 31, 2015 and 2014.
As of December 31, 2015
Market value of securities pledged . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings related to pledged amounts . . . . . . . . . . . . . . . . . . . . . .
Market value pledged as a % of borrowings . . . . . . . . . . . . . . . . . . .
As of December 31, 2014
Market value of securities pledged . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings related to pledged amounts . . . . . . . . . . . . . . . . . . . . . .
Market value pledged as a % of borrowings . . . . . . . . . . . . . . . . . . .
MBS
Securities
$45,745
27,179
168%
Municipal
Securities
$1,653
293
564%
Total
$47,398
27,472
173%
MBS
Securities
$49,380
26,003
Municipal
Securities
$3,334
1,019
Total
$52,714
27,022
190%
327%
195%
Information concerning repurchase agreements is summarized as follows:
Average daily balance during the year . . . . . . . . . . . . . . . . . . . . . . . .
Average interest rate during the year . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year
. . . . . . . . . . . . . . . . .
Weighted average interest rate at year end . . . . . . . . . . . . . . . . . . . .
$30,727
$30,289
$21,693
0.61%
0.60%
0.36%
$40,198
$34,681
$24,483
0.36%
0.72%
0.40%
2015
2014
2013
(12) Federal Funds Purchased
Federal funds purchased, as listed below, are overnight deposits from correspondent banks. Information
concerning these deposits is summarized as follows:
Average daily balance during the year . . . . . . . . . . . . . . . . . . . . . .
Average interest rate during the period . . . . . . . . . . . . . . . . . . . . .
Maximum month-end balance during the year
. . . . . . . . . . . . . . .
Weighted average interest rate at year end . . . . . . . . . . . . . . . . . .
$184,451
$ 49,899
$37,958
0.34%
0.10%
0.05%
$223,151
$151,992
$53,274
0.33%
0.29%
0.05%
2015
2014
2013
(13) Federal Home Loan Bank advances and other borrowed funds
From time to time, the Company borrows either through Federal Home Loan Bank advances or one-day
borrowings, other than correspondent bank deposits listed in note 12 above. The Company had $25,000 in
overnight borrowings with the Federal Reserve Bank during the period ending December 31, 2015. The
Company had no advances from the Federal Home Loan Bank during the periods ending December 31,
2015 and 2014.
Federal Home Loan Bank advances are collateralized by residential and commercial loans under a blanket
lien arrangement and based on this collateral, and the Company’s holdings of FHLB stock, the Company is
eligible to borrow up to $202,402 at year end 2015.
134
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(14) Corporate Debentures
In September 2003, the Company formed CenterState Banks of Florida Statutory Trust I (the “Trust”) for
the purpose of issuing trust preferred securities. On September 22, 2003, the Company issued a floating rate
corporate debenture in the amount of $10,000. The Trust used the proceeds from the issuance of a trust
preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors the
corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on
the corporate debenture (three month LIBOR plus 305 basis points). The corporate debenture and the trust
preferred security each have 30-year lives. The trust preferred security and the corporate debenture are
callable by the Company or the Trust, at their respective option after five years, and sooner in specific
events, subject to prior approval by the Federal Reserve, if then required. The Company has treated the
corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve
guidelines for federal regulatory purposes. The Company is not considered the primary beneficiary of this
Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements,
but rather the subordinated debentures are shown as a liability. The Company’s investment in the common
stock of the trust was $310 and is included in other assets.
In September 2004, Valrico Bancorp Inc. (“VBI”) formed Valrico Capital Statutory Trust (“Valrico Trust”)
for the purpose of issuing trust preferred securities. On September 9, 2004, VBI issued a floating rate
corporate debenture in the amount of $2,500. The Trust used the proceeds from the issuance of a trust
preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets
and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI’s corporate
debenture and related trust preferred security discussed above. The trust preferred security essentially
mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the
interest rate on the corporate debenture (three month LIBOR plus 270 basis points). The corporate debenture
and the trust preferred security each have 30-year lives. The trust preferred security and the corporate
debenture are callable by the Company or the Valrico Trust, at their respective option after five years, and
sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company
has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal
Reserve guidelines for federal regulatory purposes. The Company is not considered the primary beneficiary
of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial
statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in
the common stock of the trust was $77 and is included in other assets.
In September 2003, Federal Trust Corporation (“FTC”) formed Federal Trust Statutory I (“FTC Trust”) for
the purpose of issuing trust preferred securities. On September 17, 2003, FTC issued a floating rate
corporate debenture in the amount of $5,000. The Trust used the proceeds from the issuance of a trust
preferred security to acquire the corporate debenture. In November 2011, the Company acquired certain
assets and assumed certain liabilities of FTC from The Hartford Financial Services Group, Inc. (“Hartford”)
pursuant to an acquisition agreement, including FTC’s corporate debenture and related trust preferred
security issued through FTC’s finance subsidiary FTC Trust. The trust preferred security essentially mirrors
the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate
on the corporate debenture (three month LIBOR plus 295 basis points). The corporate debenture and the
trust preferred security each have 30-year lives maturing in 2033. The trust preferred security and the
corporate debenture are callable by the Company or the FTC Trust, at their respective option after five
years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The
135
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Company has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the
Federal Reserve guidelines for federal regulatory purposes. The Company is not considered the primary
beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s
financial statements, but rather the subordinated debentures are shown as a liability. The Company’s
investment in the common stock of the trust was $155 and is included in other assets.
In December 2004, Gulfstream Bancshares, Inc. (“GBI”) formed Gulfstream Bancshares Capital Trust I
(“GBI Trust I”) for the purpose of issuing trust preferred securities. On December 1, 2004, GBI issued a
floating rate corporate debenture in the amount of $7,000. The Trust used the proceeds from the issuance of
a trust preferred security to acquire the corporate debenture. The trust preferred security essentially mirrors
the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate
on the corporate debenture (three month LIBOR plus 190 bps). The rate is subject to change quarterly. The
corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and
the corporate debenture are callable by the Company or the GBI Trust I, at their respective option, subject to
prior approval by the Federal Reserve, if then required. On January 17, 2014, the Company acquired all the
assets and assumed all the liabilities of GBI by merger, including GBI’s corporate debenture and related
trust preferred security discussed above. The Company has treated the corporate debenture as Tier 1 capital
up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
On January 22, 2016, the Company cancelled, dissolved and terminated GBI Trust I. The Company will
recognize a pre-tax gain on extinguishment of debt of approximately $308 in the first quarter of 2016.
In December 2006, GBI formed Gulfstream Bancshares Capital Trust II (“GBI Trust II”) for the purpose of
issuing trust preferred securities. On December 28, 2006, GBI issued a floating rate corporate debenture in
the amount of $3,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire
the corporate debenture. The trust preferred security essentially mirrors the corporate debenture, carrying a
cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three
month LIBOR plus 170 bps). The rate is subject to change quarterly. The corporate debenture and the trust
preferred security each have 30-year lives. The trust preferred security and the corporate debenture are
callable by the Company or the GBI Trust II, at their respective option, subject to prior approval by the
Federal Reserve, if then required. On January 17, 2014, the Company acquired all the assets and assumed all
the liabilities of GBI by merger, including GBI’s corporate debenture and related trust preferred security
discussed above. The Company has treated the corporate debenture as Tier 1 capital up to the maximum
amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
136
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(15) Income Taxes
Allocation of federal and state income tax expense between current and deferred portions for the years
ended December 31, 2015, 2014 and 2013, is as follows:
December 31, 2015:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2013:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$14,639
2,920
$17,559
$ 4,384
1,009
$ 5,393
$ 4,423
1,055
$ 5,478
$4,297
715
$5,012
$1,486
247
$1,733
$
$
27
5
32
$18,936
3,635
$22,571
$ 5,870
1,256
$ 7,126
$ 4,450
1,060
$ 5,510
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2015 and 2014, are presented below:
December 31,
2015
2014
Deferred tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,588
1,377
2,186
959
18,153
742
16,751
2,040
99
50,895
$ 7,675
771
2,425
463
20,308
2,391
18,386
2,579
75
55,073
Deferred tax liabilities:
Premises and equipment, due to differences in depreciation methods and
useful lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Like kind exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on investment securities available for sale . . . . . . . . . . . . .
Accretion of discounts on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset
(2,685)
(337)
(432)
(300)
(903)
(18)
(4,675)
$46,220
(2,264)
(358)
0
(300)
(2,548)
(16)
(5,486)
$49,587
137
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
As a result of the acquisition of FSB on June 1, 2014, the Company obtained net operating loss
carryforwards of approximately $57,375 which are subject to Internal Revenue Code Section 382 limitation
of approximately $6,487 per year. At December 31, 2015, the Company had net operating carryforwards of
approximately $47,059 which will begin to expire as follows.
2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2033 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2034 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,408
10,463
2,028
4,027
6,133
$47,059
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In performing this analysis, the
Company considers all evidence currently available, both positive and negative, in determining whether
based on the weight of that evidence, it is more likely than not the deferred tax asset will be realized. Based
on management’s analysis, it was determined that it is more likely than not that the deferred tax asset will be
realized as of December 31, 2015 and 2014.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states
of Florida, Georgia, Alabama, California, Colorado, North Carolina and Tennessee. CSFL Insurance Corp.
will file a tax return in South Carolina. The Company is currently in the early stages of an Internal Revenue
Service examination of FSB’s 2014 tax return, and has not been informed of any material findings. The
Company is no longer subject to examination by taxing authorities for the years before 2012. The Company
was not subject to any material interest or penalties on its income tax liabilities for the years 2013, 2014 and
2015.
A reconciliation between the actual tax expense and the “expected” tax expense, computed by applying the
U.S. federal corporate rate of 35 percent is as follows:
“Expected” tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax exempt interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefits . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger and acquisition related expenses . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
December 31,
2015
2014
2013
$21,668
(851)
(753)
2,363
76
10
58
$7,032
(910)
(549)
817
83
536
117
$6,214
(907)
(391)
689
100
68
(263)
$22,571
$7,126
$5,510
138
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(16) Related-Party Transactions
Loans to principal officers, directors, and their affiliates during 2015 and 2014 were as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,580
14,654
(259)
$ 3,261
4,135
(1,816)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,975
$ 5,580
2015
2014
At December 31, 2015 and 2014 principal officers, directors, and their affiliates had $6,303 and $2,671,
respectively, of available lines of credit. Deposits from principal officers, directors, and their affiliates at
year-end 2015 and 2014 were approximately $29,614 and $29,746, respectively.
(17) Regulatory Capital Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company’s consolidated financial statements. The final rules
implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules)
became effective for the Company on January 1, 2015 with full compliance with all of the requirements
being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain
or loss on available for sale securities is not included in computing regulatory capital. Capital amounts and
ratios for December 31, 2014 are calculated using Basel I rules.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier I capital
and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets. Management
believes, as of December 31, 2015, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 2015 and 2014, the most recent notifications from the Office of Comptroller of the
Currency (“OCC”) and the FDIC categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank must maintain total risk-based,
Tier I risk-based, common equity Tier 1 risk-based and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes have changed the institution’s
category. The Company’s subsidiary bank has agreed with its primary regulator, OCC, to maintain a Tier 1
leverage ratio of at least 8%.
139
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
A summary of actual, required, and capital levels necessary for capital adequacy purposes for the Company
as of December 31, 2015 and 2014, are presented in the table below. There is no threshold for “well-
capitalized” status for bank holding companies.
Actual
For capital
Adequacy purposes
To be well
capitalized under
Prompt corrective
action provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015
Total capital (to risk weighted
assets)
. . . . . . . . . . . . . . . . . . . . .
$438,748
15.8% $222,322
>8.0% n/a
Tier 1 capital (to risk weighted
assets)
. . . . . . . . . . . . . . . . . . . . .
416,484
15.0% 166,742
>6.0% n/a
Common equity tier 1 capital (to
risk weighted assets) . . . . . . . . . .
Tier 1 capital (to average assets) . . .
December 31, 2014
Total capital (to risk weighted
399,876
416,484
14.4% 125,056
10.5% 158,206
>4.5% n/a
>4.0% n/a
assets)
. . . . . . . . . . . . . . . . . . . . .
$384,162
15.1% $202,946
>8% n/a
Tier 1 capital (to risk weighted
assets)
. . . . . . . . . . . . . . . . . . . . .
Tier 1 capital (to average assets) . . .
364,264
364,264
14.4% 101,473
10.1% 144,051
>4% n/a
>4% n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
A summary of actual, required, and capital levels necessary for capital adequacy purposes in the case of the
Company’s subsidiary bank as of December 31, 2015 and 2014, are presented in the table below.
Actual
For capital
Adequacy purposes
To be well
capitalized under
Prompt corrective
action provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2015
Total capital (to risk weighted
assets) . . . . . . . . . . . . . . . . . . .
$411,627
14.7% $223,613
>8.0% $279,517
>10.0%
Tier 1 capital (to risk weighted
assets) . . . . . . . . . . . . . . . . . . .
Common equity tier 1 capital (to
. . . . . . .
risk weighted assets)
Tier 1 capital (to average
389,371
13.9% 167,710
>6.0% 223,613
>8.0%
389,371
13.9% 125,783
>4.5% 181,686
>6.5%
assets) . . . . . . . . . . . . . . . . . . .
389,371
9.9% 158,011
>4.0% 197,514
>5.0%
December 31, 2014
Total capital (to risk weighted
assets) . . . . . . . . . . . . . . . . . . .
$360,278
14.2% $203,268
>8% $254,085
>10%
Tier 1 capital (to risk weighted
assets) . . . . . . . . . . . . . . . . . . .
340,389
13.4% 101,634
>4% 152,451
Tier 1 capital (to average
assets) . . . . . . . . . . . . . . . . . . .
340,389
9.4% 144,185
>4% 180,231
>6%
>5%
(Continued)
140
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(18) Dividends
The Company declared and paid cash dividends on its common stock of $3,181, $1,709 and $1,204 during
the years ended December 31, 2015, 2014 and 2013, respectively. Banking regulations limit the amount of
dividends that may be paid by the subsidiary banks to the Company without prior approval of the Bank’s
regulatory agency. In November 2013, the Company received a $34,000 dividend from its subsidiary bank.
At December 31, 2015, dividends from the subsidiary bank available to be paid to the Company, without
prior approval of the Bank’s regulatory agency, was $38,948, subject to the Bank meeting or exceeding
regulatory capital requirements.
(19) Stock-Based Compensation
The Company assumed the obligations of GBI under the Gulfstream 2009 Stock Option Plan, the
Gulfstream Officers’ and Employees’ Stock Option Plan and the Gulfstream Directors’ Stock Option Plan
(collectively, the “Gulfstream Plans”) pursuant to the closing on January 17, 2014 by CenterState of the
merger of Gulfstream with and into CenterState. All of the Gulfstream stock options awarded pursuant to
the Gulfstream Plans outstanding at the merger closing date were converted to stock options for 774,104 of
the Company’s common shares with an average exercise price of $6.99 per share. At December 31, 2015
there were options outstanding for 263,584 shares of the Company’s common stock with an average
exercise price of $7.30 per share and an average remaining contractual life of approximately 4.4 years.
On April 25, 2013, the Company’s shareholders approved the CenterState Banks, Inc. 2013 Equity Incentive
Plan (the “2013 Plan”). The 2013 Plan replaces the 2007 Plan discussed below. The 2013 Plan authorizes
the issuance of up to 1,600,000 shares through the 2023 expiration of the plan. Of this amount 1,525,000
shares are allocated to employees, all of which may be issued as incentive stock options, and 75,000 shares
are allocated to directors. The Company’s Board of Directors froze the Company’s 2007 Equity Incentive
Plan whereby no additional future grants and/or awards will be awarded pursuant to that plan effective with
the shareholder approval of the 2013 Plan. During 2015 the Company did not grant any incentive stock
options to its employees. The Company awarded 208,082 shares of Restricted Stock (“RSAs”) during 2015
with an average fair value of $11.96 per share at the date of grant. These restricted stock awards vest over
periods ranging from two to seven years. The Company also awarded Performance Share Units (“PSUs”)
during 2015. These PSUs will cliff vest on January 1, 2019. The units may be converted into common
shares based upon the Company’s Total Shareholder Return compared to its peer group and the Company’s
absolute earnings per share growth rate over a three year period ending January 1, 2019 pursuant to the
Company’s Long-Term Incentive Plan as described in the Company’s 2016 Proxy Statement. The range of
the units that may vest in the future is a minimum of 0 and a maximum of 46,258 with an expected target of
30,837 shares. In addition, the Company also awarded 29,092 Restricted Share Units (“RSUs”) during 2015
with an average fair value of $12.22 per unit at the date of grant. The RSUs will vest at a rate of one third
each January 1, 2017, 2018 and 2019. At December 31, 2015, there were a total of 614,079 shares available
for future grants pursuant to the 2013 Plan, assuming maximum future vesting of PSUs outstanding.
On April 24, 2007, the Company’s shareholders approved the CenterState 2007 Equity Incentive Plan (the
“2007 Plan”) and approved an amendment to the 2007 Plan on April 28, 2009. The 2007 Plan, as amended,
replaced the 1999 Plan. The 2007 Plan, as amended, authorize the issuance of up to 1,350,000 shares of the
Company stock. In 2013, the 2007 Plan was frozen whereby no additional grants and/or awards were
awarded pursuant to this plan subsequent to April 2013.
141
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company’s stock-based compensation consists of stock options, RSAs, RSUs and PSUs. During the
twelve month period ended December 31, 2015, 2014 and 2013, the Company recognized total stock-based
compensation expense as listed in the table below.
Stock option expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSA expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSU expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PSU expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 216
2,712
27
328
$ 238
1,264
—
75
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,283
$1,577
2015
2014
2013
$292
317
—
—
$609
There is no income tax benefit provided for in the Company’s tax provision for qualified incentive stock
options. The Company receives a tax benefit when a non qualified stock option is exercised. The total
income tax benefit related to the exercise of non qualified stock options was approximately $113, $350 and
$0 during the twelve month periods ending December 31, 2015, 2014 and 2013, respectively. The Company
provided an income tax benefit in its tax provision for RSA, RSU and PSU expenses of approximately
$1,183, $517 and $122 during the twelve month periods ending December 31, 2015, 2014 and 2013,
respectively.
As of December 31, 2015, the total remaining unrecognized compensation cost related to non-vested stock
options, net of estimated forfeitures, was approximately $434 and will be recognized over the next 6 years.
The weighted average period over which this expense is expected to be recognized is approximately 1.9
years.
As of December 31, 2015, the total remaining unrecognized compensation cost related to non-vested RSAs,
net of estimated forfeitures, was approximately $4,980 and will be recognized over the next 9 years. The
weighted average period over which this expense is expected to be recognized is approximately 2.3 years.
As of December 31, 2015, the total remaining unrecognized compensation cost related to non-vested PSUs,
net of estimated forfeitures, was approximately $925 and will be recognized over the next 3 years. The
weighted average period over which this expense is expected to be recognized is approximately 1.7 years.
As of December 31, 2015 the total remaining unrecognized compensation cost related to non-vested RSUs,
net of estimated forfeitures, was approximately $328 and will be recognized over the next 3 years. The
weighted average period over which this expense is expected to be recognized is approximately 2.0 years.
142
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company granted stock options for 3,000 shares of common stock during the twelve month period
ending December 31, 2013. The Company did not grant any stock options during 2014 and 2015. However,
pursuant to the Company’s agreement to acquire Gulfstream, the Company converted all outstanding
Gulfstream stock options into CenterState options for 774,104 shares of common stock on the January 17,
2014 acquisition date. The estimated fair value of options granted, or acquired in the case of Gulfstream,
during these periods were calculated as of the grant date, or the acquisition date in the case of Gulfstream,
using the Black-Scholes option-pricing model. The weighted-average assumptions as of the grant date are as
follows:
2015
2014
2013
Expected option life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
0.5years
7.7 years
0.07%
0.01%
0.00%
1.91%
44.5%
0.39%
The Company determined the expected life of the stock options using the simplified method approach
allowed for plain-vanilla share options as described in SAB 107. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect as of the grant date. Expected volatility was determined using historical
volatility.
ASC 718 requires the recognition of stock-based compensation for the number of awards that are ultimately
expected to vest. As a result, for most awards, recognized stock compensation is reduced for estimated
forfeitures prior to vesting. Estimated forfeitures will be reassessed in subsequent periods and may change
based on new facts and circumstances.
The weighted-average estimated fair value of stock options granted, or acquired in the case of Gulfstream,
during the twelve month periods ended December 31, 2014 and 2013 was $4.67 per share and $4.91 per
share respectively. The table below present’s information related to stock option activity for the years ended
December 31, 2015, 2014 and 2013:
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . . . . . .
Cash received from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Gross income tax benefit from the exercise of stock options . . . . . . . . . . . .
2015
$827
$895
$113
2014
$1,114
1,129
350
2013
$
2
—
—
143
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
A summary of stock option activity for the years ended December 31, 2015, 2014 and 2013 is as follows:
2015
2014
2013
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Number
of Options
Weighted-
Average
Exercise
Price
Number
of Options
Number
of Options
Outstanding, beginning of period . . . . . 1,138,404 $11.23 1,073,716 $13.83 1,158,646 $13.64
3,000 $10.22
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Issued Gulfstream (note 1) . . . . . . . . . .
—
(1,714) $ 8.90
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
(86,216) $11.22
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(142,476) $ 6.63
(55,294) $14.57
774,104 $ 6.99
(233,762) $ 6.09
(475,654) $12.73
—
—
—
—
—
Outstanding, end of period . . . . . . . . . .
940,634 $11.73 1,138,404 $11.23 1,073,716 $13.83
note 1: Pursuant to the Company’s agreement to acquire Gulfstream in January 2014, all outstanding
Gulfstream stock options were converted to CenterState stock options as of the acquisition date.
Options outstanding, December 31, 2015 . . . . . . . .
Options fully vested and expected to vest,
Number
of Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Contractual
Term
Aggregate
Intrinsic
Value
940,634
$11.73
3.3 years
$3,796
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable, December 31, 2015 . . . . . . . . .
916,685
733,504
$11.75
$11.68
3.3 years
3.2 years
$3,687
$3,015
At December 31, 2015 there were restricted stock awards (“RSAs”) for 721,715 shares of the Company’s
common stock outstanding and not vested. Of this amount 189,588 restricted shares have been issued and
included in the Company’s total common stock outstanding, but have not vested as of December 31, 2015.
The remaining 532,127 represent common shares to be issued at the end of their respective vesting period.
A summary of the RSA activity for the years ended December 31, 2015, 2014 and 2013 is presented in the
table below.
2015
2014
2013
Number of
RSAs
underlying
shares not
issued
Number of
RSAs
underlying
shares
issued
Weighted
average
fair value
at grant
date
Number of
RSAs
underlying
shares not
issued
Number of
RSAs
underlying
shares
issued
Weighted
average
fair value
at grant
date
Total
number
of RSAs
Total
number
of RSAs
Weighted
average
fair value
at grant
date
Number
of RSAs
Outstanding, beginning
period . . . . . . . . . . . . . 410,128
Granted . . . . . . . . . . . . . . 205,082
(62,170)
Vested . . . . . . . . . . . . . .
(20,913)
Forfeited . . . . . . . . . . . . .
249,542
3,000
659,670 $10.30
208,082 $11.96
(57,954) (120,124) $10.12
(25,913) $10.64
(5,000)
240,341
241,739
(35,753)
(36,199)
— 240,341 $ 9.76 209,384 $ 9.62
59,500 $10.22
(28,543) $ 9.66
— $ 0.00
250,375 492,114 $10.55
(833) (36,586) $ 9.77
— (36,199) $10.79
Outstanding, end of
period . . . . . . . . . . . . . 532,127
189,588
721,715 $10.79
410,128
249,542 659,670 $10.30 240,341 $ 9.76
144
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
In September 2014 the Company initiated a Long-Term Incentive Plan that includes a Performance Share
Unit (“PSU”) award that could be awarded in PSUs, which can eventually be converted to common stock,
based on the Company’s relative Total Shareholder Return as compared to a peer group of similar
companies selected by the Company’s Compensation Committee over a 39 month period beginning on
September 18, 2014 and ending on December 31, 2017. The Company expects to recognize an expense of
$980 over the 39 month period ending December 31, 2017. The expense recognized during 2015 was $301.
In September 2015, the Company also awarded PSUs pursuant to its Long-Term Incentive Plan that could
eventually be converted to the Company’s common stock based equally upon the Company’s relative Total
Shareholder Return and the Company’s absolute earnings per share growth over a three year period ending
on January 1, 2019. The Company expects to recognize an expense of $348 over the 39 month period ending
January 1, 2019. The expense recognized during 2015 was $27.
In addition, the Company also awarded RSUs during September 2015 pursuant to its Long-Term Incentive
Plan that also could eventually be converted into the Company’s common stock. The total RSUs awarded
was 29,092 units with an estimated fair value at date of grant equal to $12.22 per unit, or a total expected
expense of $356. The RSUs will vest at a rate of one third each January 1, 2017, 2018 and 2019. The
expense recognized during 2015 was $27.
(20) Employee Benefit Plan
Substantially all of the Company’s employees are covered under its 401(k) defined contribution retirement
plan. Employees are eligible to participate in the plan after completing six months of continuous
employment. The Company contributes an amount equal to a certain percentage of the employees’
contributions based on the discretion of the Board of Directors. In addition, the Company may also make
additional contributions to the plan each year, subject to profitability and other factors, and based solely on
the discretion of the Board of Directors. For the years ended December 31, 2015, 2014 and 2013, the
Company’s contributions to the plan were $1,617, $1,398 and $1,219, respectively, which are included in
salary and benefits on the Consolidated Statements of Operations.
In 2008, the Company entered into a salary continuation agreement with its chief executive officer. Five
additional Company executive officers entered into salary continuation agreements during 2010. In 2007, an
additional four pre-existing salary continuation agreements with certain Valrico State Bank’s executive
officers were assumed as part of the acquisition. The plans are nonqualified deferred compensation
arrangements that are designed to provide supplemental retirement income benefits to participants. The
Company expensed $618, $580 and $569 for the accrual of future salary continuation benefits in 2015, 2014
and 2013, respectively. Other liabilities included salary continuation benefits payable of $3,836, $3,621 and
$3,143 at December 31, 2015, 2014 and 2013, respectively.
In 2007, the Company entered into deferred compensation arrangements, through Rabbi Trust agreements,
with two Valrico State Bank’s executive officers pursuant to the acquisition. The Rabbi Trust asset is
included in other assets, and the related deferred compensation payable is included in other liabilities. The
Rabbi Trust asset and the related deferred compensation payable at December 31, 2015, 2014, and 2013
were $1,493, $1,484 and $1,355, respectively. Earnings from the Rabbi Trust increase the asset and increase
the deferred compensation payable. Losses from the Rabbi Trust decrease the asset and decrease the
deferred compensation payable. There is no net income statement effect other than the administration
expenses of the Trust which approximates $5 per year.
145
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(21) Parent Company Only Financial Statements
Condensed financial statements of CenterState Banks, Inc. (parent company only) follow:
Condensed Balance Sheet
December 31, 2015 and 2014
2015
2014
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-company receivable from bank subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Investment in wholly-owned bank subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in other wholly-owned subsidiary . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15
25,000
484,993
693
9,701
$
2,808
27,000
441,710
1,381
9,782
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$520,402
$482,681
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,795
24,093
29,888
$
6,287
23,917
30,204
455
393,191
95,430
1,438
490,514
453
388,698
59,273
4,053
452,477
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
$520,402
$482,681
Condensed Statements of Operations
Years ended December 31, 2015, 2014 and 2013
2015
2014
2013
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in undistributed income of subsidiaries . . . . .
Equity in undistributed income (losses) of subsidiaries . . . . . . . . . .
Net income before income tax benefit
. . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,232
—
(968)
(4,422)
(4,158)
41,431
37,273
(2,065)
$ 1,155
—
(942)
(3,875)
(3,662)
14,828
11,166
(1,798)
$ 45,725
—
(602)
(3,538)
41,585
(31,040)
10,545
(1,698)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39,338
$12,964
$ 12,243
146
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Condensed Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
2015
2014
2013
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash used in
$ 39,338
$ 12,964
$ 12,243
operating activities:
Equity in net earnings of subsidiaries . . . . . . . . . .
Increase in payables and accrued expenses . . . . . .
Decrease in other assets . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . .
(42,663)
340
89
1,235
(15,983)
(608)
2,294
497
(14,686)
371
1,843
107
Net cash flows used in operating activities . . . . . . . . . .
(1,661)
(836)
(122)
Cash flows from investing activities:
Inter-company receivables (payables) from (to) subsidiary
banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from bank acquisition . . . . . . . . . . . . . . . . . . . . . . .
Cash payments to shareholders . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from bank subsidiaries . . . . . . . . . . . . . . . . . . . . .
Dividends from nonbank subsidiary . . . . . . . . . . . . . . . . . . .
Net cash flows provided by investing activities . . . . . . .
Cash flows from financing activities:
Stock options exercised, net of tax benefit . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows used in financing activities . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . .
1,991
—
(466)
(476)
—
1,232
2,281
784
(1,016)
(3,181)
(3,413)
(2,793)
2,808
18,703
(16,455)
—
—
—
1,155
(43,703)
—
—
—
34,000
11,725
3,403
2,022
984
––
(1,709)
(725)
1,842
966
(1,204)
(1,204)
696
270
966
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . .
$
15
$ 2,808
$
(22) Credit Commitments
The Company has outstanding at any time a significant number of commitments to extend credit. These
arrangements are subject to strict credit control assessments and each customer’s credit worthiness is
evaluated on a case-by-case basis.
147
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
A summary of commitments to extend credit and standby letters of credit written at December 31, 2015 and
2014, are as follows:
December 31,
2015
2014
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit
Available lines of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded loan commitments—fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded loan commitments—variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,737
429,231
53,640
32,265
$ 10,299
244,016
62,450
17,416
Because many commitments expire without being funded in whole or part, the contract amounts are not
estimates of future cash flows.
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that the collateral or other security is of no value.
The Company’s policy is to require customers to provide collateral prior to the disbursement of approved
loans. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of
credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, real estate and income providing commercial properties.
Standby letters of credit are contractual commitments issued by the Company to guarantee the performance
of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
Outstanding commitments are deemed to approximate fair value due to the variable nature of the interest
rates involved and the short-term nature of the commitments.
(23) Concentrations of Credit Risk
Most of the Company’s business activity is with customers located throughout Central, Southeastern and
Northeastern Florida. The majority of commercial and mortgage loans are granted to customers doing
business or residing in these areas. Generally, commercial loans are secured by real estate, and mortgage
loans are secured by either first or second mortgages on residential or commercial property. As of
December 31, 2015, substantially all of the Company’s loan portfolio was secured. Although the Company
has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is
dependent upon the economy of those areas listed above. The Company does not have significant exposure
to any individual customer or counterparty.
(24) Basic and Diluted Earnings Per Share
The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class
method, earnings available to common shareholders for the period are allocated between common
shareholders and participating securities according to dividends declared (or accumulated) and participation
rights in undistributed earnings. There were an average of 470,852, 928,692, and 1,110,465 stock options
that were not considered in computing diluted earnings per common share because they were anti-dilutive
during the years ending December 31, 2015, 2014, and 2013, respectively.
148
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The following table presents the factors used in the earnings per share computations for the periods
indicated.
Basic
Net income available to common shareholders . . . . . .
Less: Earnings allocated to participating securities . . .
Net income allocated to common shareholders . . . . . .
Weighted average common shares outstanding
2015
2014
2013
$
$
39,338
(212)
39,126
$
$
12,964
(17)
12,947
$
$
12,243
—
12,243
including participating securities . . . . . . . . . . . . . . .
Less: Participating securities (1) . . . . . . . . . . . . . . . . . .
45,427,857
(245,633)
40,904,988
(52,986)
30,102,777
—
Average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,182,224
40,852,002
30,102,777
Basic earnings per common share . . . . . . . . . . . . . . . . .
Diluted
Net income available to common shareholders . . . . . .
$
$
0.87
39,126
$
$
0.32
12,947
$
$
0.41
12,243
Weighted average common shares outstanding for
basic earnings per common share . . . . . . . . . . . . . . .
45,182,224
40,852,002
30,102,777
Add: Dilutive effects of stock based compensation
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
606,408
383,550
117,350
Average shares and dilutive potential common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,788,632
41,235,552
30,220,127
Dilutive earnings per common share . . . . . . . . . . . . . . .
$
0.85
$
0.31
$
0.41
1.
Participating securities are restricted stock awards whereby the stock certificates have been issued, are
included in outstanding shares, receive dividends and can be voted, but have not vested.
149
(Continued)
— $ 162,320
(7,286)
—
— $ 155,034
(4,493)
—
37,450
—
(126,082)
—
— $
—
61,909
(22,571)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(25) Reportable segments
The Company’s reportable segments represent the distinct product lines the Company offers and are viewed
separately for strategic planning purposes by management. The tables below are reconciliations of the
reportable segment revenues, expenses, and profit as viewed by management to the Company’s consolidated
total for the year ending December 31, 2015, 2014 and 2013.
Year ending December 31, 2015
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Elimination
entries
Total
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
$ 155,369
(5,697)
Net interest income (expense) . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Non interest income . . . . . . . . . . . . . . . . . .
Non interest expense . . . . . . . . . . . . . . . . .
$ 149,672
(4,335)
9,887
(99,900)
$
$
6,951
(621)
6,330
(158)
27,563
(21,760)
$ —
$
$
(968)
(968)
—
—
(4,422)
Net income (loss) before taxes . . . . . . . . .
. . . . . . . . .
Income tax (provision) benefit
Net income (loss) . . . . . . . . . . . . . . . . . . . .
$
$
55,324
(20,016)
$ 11,975
(4,620)
$ (5,390)
2,065
35,308
$
7,355
$ (3,325)
$
— $
39,338
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$3,679,946
$335,643
$518,107
$(510,979) $4,022,717
Year ending December 31, 2014
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Elimination
entries
Total
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
$ 134,938
(6,365)
Net interest income (expense) . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Other non interest income . . . . . . . . . . . . .
Other non interest expense . . . . . . . . . . . .
Net income (loss) before taxes . . . . . . . . .
. . . . . . . . .
Income tax (provision) benefit
128,573
(826)
6,073
(112,836)
20,984
(7,411)
Net income (loss) . . . . . . . . . . . . . . . . . . . .
$
13,573
$
$
$
$
3,289
(50)
3,239
—
20,153
(19,470)
3,922
(1,513)
2,409
$ —
$
$
(941)
(941)
—
—
(3,875)
$ (4,816)
1,798
— $ 138,227
(7,356)
—
— $ 130,871
(826)
—
26,226
—
(136,181)
—
— $
—
20,090
(7,126)
$ (3,018)
$
— $
12,964
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$3,487,014
$280,079
$482,681
$(472,905) $3,776,869
150
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Year ending December 31, 2013
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
$
Net interest income (expense) . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Other non interest income . . . . . . . . . . . . .
Other non interest expense . . . . . . . . . . . .
Net income (loss) before taxes . . . . . . . . .
. . . . . . . . .
Income tax (provision) benefit
97,504
(5,263)
92,241
76
13,536
(86,726)
19,127
(6,140)
$
2,874
(20)
2,854
—
20,410
(20,498)
2,766
(1,067)
$ —
(602)
(602)
—
—
(3,538)
(4,140)
1,697
Elimination
entries
Total
— $ 100,378
(5,885)
—
—
—
—
—
—
—
94,493
76
33,946
(110,762)
17,753
(5,510)
Net income (loss) . . . . . . . . . . . . . . . . . . . .
$
12,987
$
1,699
$ (2,443)
— $
12,243
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$2,279,221
$132,821
$294,976
$(291,007) $2,416,011
Commercial and retail banking: The Company’s primary business is commercial and retail banking.
Currently, the Company operates through one subsidiary bank and two non bank subsidiaries (R4ALL and
CSFL Insurance Corp.), with 57 locations in 20 counties throughout Central Florida providing traditional
deposit and lending products and services to its commercial and retail customers.
Correspondent banking and capital markets division: Operating as a division of our subsidiary bank, its
primary revenue generating activities are related to the capital markets division which includes commissions
earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees
for services related to these activities. Income generated related to the correspondent banking services
includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and fees
generated from safe-keeping activities, bond accounting services, asset/liability consulting services,
international wires, clearing and corporate checking account services and other correspondent banking
related services. The fees derived from the correspondent banking services are less volatile than those
generated through the capital markets group. The customer base includes small to medium size financial
institutions primarily located in Southeastern United States.
Corporate overhead and administration: Corporate overhead and administration is comprised primarily of
compensation and benefits for certain members of management, interest on parent company debt, office
occupancy and depreciation of parent company facilities, merger related costs and other expenses.
(26) Business combinations
Acquisition of Gulfstream Bancshares, Inc.
On January 17, 2014, the Company completed its acquisition of Gulfstream Bancshares, Inc. (“Gulfstream”)
whereby Gulfstream merged with and into the Company. Pursuant to and simultaneously with the merger of
Gulfstream with and into the Company, Gulfstream’s wholly owned subsidiary bank, Gulfstream Business
Bank (“GSB”), merged with and into the Company’s subsidiary bank, CenterState Bank of Florida, N.A.
151
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company’s primary reasons for the transaction were to further solidify its market share in the southeast
Florida market and expand its customer base to enhance deposit fee income and leverage operating cost
through economies of scale. The acquisition increased the Company’s total assets and total deposits by
approximately 23% and 23%, respectively, as compared with the balances at December 31, 2013, and is
expected to positively affect the Company’s operating results to the extent the Company earns more from
interest earning assets than it pays in interest on its interest bearing liabilities.
The acquisition was accounted for under the acquisition method of accounting in accordance with ASC
Topic 805, Business Combinations. The Company recognized goodwill on this acquisition of $31,516, after
consideration of a measurement period adjustment discussed below, which is nondeductible for tax purposes
as this acquisition is a nontaxable transaction. The goodwill is calculated based on the fair values of the
assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the
information available, and are subject to change for up to one year after the closing date of the acquisition as
additional information relative to closing date fair values becomes available.
The Company acquired 100% of the outstanding common stock of Gulfstream. The purchase price consisted
of both cash and stock. Each share of Gulfstream common stock was exchanged for $14.65 cash and 3.012
shares of the Company’s common stock. Based on the closing price of the Company’s common stock on
January 16, 2014, the resulting purchase price was $82,040. The table below summarizes the purchase price
calculation.
Number of shares of Gulfstream common stock outstanding at January 16, 2014 . . . . . . .
Gulfstream preferred shares that converted to Gulfstream common shares upon a change
in control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Gulfstream common shares including conversion of preferred shares . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of CenterState common stock less 138 of fractional shares . . . . . . . . .
Multiplied by CenterState common stock price per share on January 16, 2014 . . . . . . . . .
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Gulfstream common shares including conversion of preferred shares . . . . . . . . . . .
Multiplied by the cash consideration each Gulfstream share is entitled to receive . . . . . .
Total cash consideration, not including cash for fractional shares . . . . . . . . . . . . . . . . . . .
Total stock consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash consideration plus $2 for 138 of fractional shares . . . . . . . . . . . . . . . . . . . . . . .
Total consideration paid to Gulfstream common shareholders . . . . . . . . . . . . . . . . . . . . . .
Fair value of current Gulfstream stock options converted to CenterState stock options . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,569,364
155,629
1,724,993
3.012
5,195,541
10.23
53,150
1,724,993
14.65
25,271
53,150
25,273
78,423
3,617
82,040
$
$
$
$
$
$
$
152
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The list below summarizes the estimates of the fair value of the assets purchased, including goodwill, and
liabilities assumed as of the January 17, 2014 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jan 17, 2014
$102,278
329,515
30,068
247
60,816
1,087
5,519
262
885
4,939
2,694
4,173
31,516
11,261
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$585,260
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Official checks outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$478,999
5,708
7,576
125
826
6,745
3,241
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$503,220
153
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
In the acquisition, the Company purchased $359,583 of loans at fair value, net of $18,267, or 4.8%,
estimated discount to the outstanding principal balance, representing 24.4% of the Company’s total loans at
December 31, 2013. Of the total loans acquired, management identified $30,068 with credit deficiencies. All
loans that were on non-accrual status and all loan relationships that were greater than $500 and identified as
impaired as of the acquisition date were considered by management to be credit impaired and are accounted
for pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal
and interest cash payments, management’s estimate of expected total cash payments and fair value of the
loans as of January 17, 2014 for purchased credit impaired loans. Contractually required principal and
interest payments have been adjusted for estimated prepayments.
Contractually required principal and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,289
(11,766)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,523
(6,455)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,068
The table below presents information with respect to the fair value of acquired loans, as well as their unpaid
principal balance (“Book Balance”) at acquisition date.
Loans:
Single family residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction/development/land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit-impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book
Balance
Fair
Value
$ 33,506
185,250
30,387
85,940
2,112
40,655
$ 32,319
183,189
27,704
84,203
2,100
30,068
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$377,850
$359,583
In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition
have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for
goodwill and other intangible assets such as core deposit intangibles, in a business combination. The
Company determined the estimated fair value of the core deposit intangible asset totaled $4,173, which will
be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten
years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit,
deposit retention, interest rates and age of deposit relationships.
154
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Measurement period adjustments
On January 17, 2014 the Company purchased Gulfstream. As previously disclosed, the fair values initially
assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to
one year after the closing date of the acquisition as new information relative to closing date fair values
became available. Based on appraisals received subsequent to the acquisition date, the Company adjusted its
initial fair value estimates of certain other real estate owned acquired.
Jan 17, 2014
(as initially reported)
measurement
period
adjustments
Jan 17, 2014
(as adjusted)
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Loans, held for investment . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . .
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . .
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Official checks outstanding . . . . . . . . . . . . . . . . . . .
Corporate debenture . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . .
$102,278
329,515
30,068
247
60,816
1,087
5,519
262
885
4,939
3,365
4,173
31,104
11,002
$585,260
$478,999
5,708
7,576
125
826
6,745
3,241
$503,220
$ —
(671)
412
259
$ —
$ —
$ —
$102,278
329,515
30,068
247
60,816
1,087
5,519
262
885
4,939
2,694
4,173
31,516
11,261
$585,260
$478,999
5,708
7,576
125
826
6,745
3,241
$503,220
Acquisition of First Southern Bancorp, Inc.
On June 1, 2014, the Company completed its acquisition of First Southern Bancorp, Inc. (“FSB”) whereby
FSB merged with and into the Company. Pursuant to and simultaneously with the merger of FSB with and
into the Company, FSB’s subsidiary bank, First Southern Bank, merged with and into the Company’s
subsidiary bank, CenterState Bank of Florida, N.A.
155
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The Company’s primary reasons for the transaction were to further solidify its market share in the southeast
Florida market as well as in central and northeastern Florida and expand its customer base to enhance
deposit fee income and leverage operating cost through economies of scale. The acquisition increased the
Company’s total assets and total deposits by approximately 32% and 33%, respectively, as compared with
the balances at March 31, 2014, and is expected to positively affect the Company’s operating results to the
extent the Company earns more from interest earning assets than it pays in interest on its interest bearing
liabilities.
The acquisition was accounted for under the acquisition method of accounting in accordance with ASC
Topic 805, Business Combinations. The Company recognized goodwill on this acquisition of $299 after
consideration of a measurement period adjustment discussed below, which is nondeductible for tax purposes
as this acquisition is a nontaxable transaction. The goodwill is calculated based on the fair values of the
assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the
information available, and are subject to change for up to one year after the closing date of the acquisition as
additional information relative to closing date fair values becomes available.
The Company acquired 100% of the outstanding common stock of FSB. The purchase price consisted of
both cash and stock. Each share of FSB common stock was exchanged for $3.00 cash and 0.30 shares of the
Company’s common stock. Based on the closing price of the Company’s common stock on May 30, 2014
(the last trading day prior to the June 1, 2014 acquisition date), the resulting purchase price was $195,404.
The table below summarizes the purchase price calculation.
Number of shares of FSB common stock outstanding at May 30, 2014 . . . . . . . . . . . . . .
FSB preferred shares that converted to FSB common shares upon a change in
31,539,698
control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,375
Total FSB common shares including conversion of preferred shares . . . . . . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,588,073
0.3
Number of shares of CenterState common stock, less 377 of fractional shares . . . . . . . .
Multiplied by CenterState common stock price per share on May 30, 2014 . . . . . . . . . .
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total FSB common shares including conversion of preferred shares . . . . . . . . . . . . . . . .
Multiplied by the cash consideration each FSB share is entitled to receive . . . . . . . . . . .
Total cash consideration, not including cash for fractional shares . . . . . . . . . . . . . . . . . .
Total stock consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash consideration, plus $3 for 377 of fractional shares . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,476,045
10.62
100,636
31,588,073
3.00
94,765
100,636
94,768
195,404
$
$
$
$
$
$
156
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
The list below summarizes the preliminary estimates of the fair value of the assets purchased, including
goodwill, and liabilities assumed as of the June 1, 2014 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank and Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned covered by FDIC loss share agreements . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 1, 2014
$ 148,257
477,841
121,684
204,723
2,007
1,594
1,282
7,119
5,576
2,555
22,731
454
7,396
299
44,131
4,581
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,052,230
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 662,959
189,674
58
4,135
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 856,826
157
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
In the acquisition, the Company purchased $599,525 of loans at fair value, net of $30,811, or 4.9%,
estimated discount to the outstanding principal balance, representing 33% of the Company’s total loans at
March 31, 2014. Of the total loans acquired, management identified $121,684 with credit deficiencies. All
loans that were on non-accrual status, all TDRs, all impaired loans, all loans previously identified by FSB
with credit deficiencies and any other loan identified by the Company with a probable credit deficiency
were considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.
The table below summarizes the total contractually required principal and interest cash payments,
management’s estimate of expected total cash payments and fair value of the loans as of June 1, 2014 for
purchased credit impaired loans. Contractually required principal and interest payments have been adjusted
for estimated prepayments.
Contractually required principal and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$180,960
(33,527)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147,433
(25,749)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$121,684
The table below presents information with respect to the fair value of acquired loans, as well as their unpaid
principal balance (“Book Balance”) at acquisition date.
Loans:
Single family residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction/development/land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit-impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book
Balance
Fair Value
$ 60,332
387,589
17,238
20,267
2,496
142,414
$ 57,693
382,162
15,942
19,906
2,138
121,684
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$630,336
$599,525
In its assumption of the deposit liabilities, the Company believed the deposits assumed from the acquisition
have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for
goodwill and other intangible assets such as core deposit intangibles, in a business combination. The
Company determined the estimated fair value of the core deposit intangible asset totaled $7,396, which will
be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten
years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit,
deposit retention, interest rates and age of deposit relationships.
158
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Measurement period adjustments
On June 1, 2014 the Company purchased FSB. As previously disclosed, the fair values initially assigned to
the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year
after the closing date of the acquisition as new information relative to closing date fair values became
available. Based on income tax returns filed subsequent to the acquisition date, the Company adjusted its
initial fair value estimate of the deferred tax asset acquired.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Loans, excluding purchased credit impaired
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . .
Federal Reserve Bank and Federal Home Loan
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . .
OREO covered by FDIC loss share agreements . . .
Other repossessed real estate owned (“OREO”) . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 1, 2014
(as initially reported)
measurement
period
adjustments
June 1, 2014
(as adjusted)
$ 148,257
$ —
$ 148,257
477,841
121,684
204,723
2,007
1,594
1,282
7,119
5,576
2,555
22,731
454
7,396
541
43,889
4,581
477,841
121,684
204723
2,007
1,594
1,282
7119
5576
2,555
22,731
454
7,396
299
44,131
4,581
(242)
242
Total assets acquired . . . . . . . . . . . . . . . . . . . .
$1,052,230
—
$1,052,230
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits held for sale . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
662,959
189,674
58
4,135
662,959
189,674
58
4,135
Total liabilities assumed . . . . . . . . . . . . . . . . .
$ 856,826
$ —
$ 856,826
159
(Continued)
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
Pro-forma information
Pro-forma data for the twelve month period ending December 31, 2013 listed in the table below presents
pro-forma information as if the Gulfstream acquisition occurred at the beginning of 2013. Because the
Gulfstream transaction closed on January 17, 2014 and its actual results are included in the Company’s
actual operating results for 2014, its actual results were used in the table below for the twelve month period
ending December 31, 2014 instead of a pro-forma amount. The pro-forma information for the twelve month
periods ending December 31, 2014 and 2013 assumes the FSB acquisition occurred at the beginning of
2013.
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . .
EPS—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2014
2013
$143,527
20,066
0.45
0.44
$
$
$153,719
21,390
0.48
0.47
$
$
Disposition of certain branches acquired pursuant to the FSB acquisition.
The Company consummated its previously announced sale of deposits and certain branch real estate
acquired pursuant to its FSB acquisition. On September 18, 2014, the Company sold approximately $170
million of deposits from six prior FSB branches for a premium of 1.5% and the related real estate for five
branch offices for approximately $6 million. On September 19, 2014, the Company also closed and
consolidated four additional branch offices which were also acquired from FSB.
(27) Derivatives
The Company enters into interest rate swaps in order to provide commercial loan clients the ability to swap
from fixed to variable interest rates. Under these agreements, the Company enters into a fixed-rate loan with
a client in addition to a swap agreement. This swap agreement effectively converts the client’s fixed rate
loan into a variable rate. The Company then enters into a matching swap agreement with a third party dealer
in order to offset its exposure on the customer swap. At years ended December 31, 2015 and 2014, the
notional amount of such arrangements was $939,831 and $240,779, respectively, and investment securities
with a fair value of $31,801 and $10,445 were pledged as collateral to the third party dealers. As the interest
rate swaps with the clients and third parties are not designated as hedges under ASC 815, changes in market
values are reported in earnings.
Summary information about the derivative instruments is as follows:
Notional amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average pay rate on interest-rate swaps . . . . . . . . . . . . . . . . . . . . . .
Weighted average receive rate on interest rate swaps . . . . . . . . . . . . . . . . . . . .
Weighted average maturity (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of interest rate swap derivatives (asset) . . . . . . . . . . . . . . . . . . . . . .
Fair value of interest rate swap derivatives (liability) . . . . . . . . . . . . . . . . . . . .
2015
2014
$939,831
$240,779
2.61%
2.57%
12
$ 18,619
$ 19,822
$
$
2.77%
2.69%
11
6,800
7,575
(Continued)
160
CENTERSTATE BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
December 31, 2015, 2014 and 2013
(28) Subsequent Events
Announced acquisitions
On March 1, 2016, the Company closed its previously announced acquisition of Community Bank of South
Florida, Inc. (“Community”) in Homestead, Florida. The purchase price was approximately $64,986
comprised of both stock and cash consideration. The Company’s primary reasons for the transaction were to
further solidify its market share in the Central and South Florida markets and expand its customer base to
enhance deposit fee income and leverage operating cost through economies of scale. During the year 2015,
the Company incurred approximately $272 of acquisition costs related to this transaction. These acquisition
costs are reported in merger and acquisition related expenses on the Company’s Consolidated Statements of
Operations and Comprehensive Income. The majority of the acquisition costs for this transaction are
expected to be recorded in 2016. Additional disclosures required by ASC 805 have been omitted because the
information needed for the disclosures is not available due to the close proximity of the closing of this
transaction with the date these financial statements are being issued. On December 31, 2015, Community,
with 11 banking branch offices, reported total assets of $484,602, total loans of $334,349 and total deposits
of $436,765.
On March 1, 2016, the Company closed its previously announced acquisition of Hometown of Homestead
Banking Company (“Hometown”) also located in Homestead, Florida. The purchase price was
approximately $19,150, which was all cash consideration. The Company’s primary reasons for the
transaction were to expand its market share in the southeast Florida market, together with its acquisition of
Community as described above, and expand its customer base to enhance deposit fee income and leverage
operating cost through economies of scale. During the year 2015, the Company incurred approximately
$263 of acquisition costs related to this transaction. These acquisition costs are reported in merger and
acquisition related expenses on the Company’s Consolidated Statements of Operations and Comprehensive
Income. The majority of the acquisition costs for this transaction are expected to be recorded in 2016.
Additional disclosures required by ASC 805 have been omitted because the information needed for the
disclosures is not available due to the close proximity of the closing of this transaction with the date these
financial statements are being issued. On December 31, 2015, Community, with 6 banking branch offices
reported total assets of $331,187, total loans of $201,930 and total deposits of $265,761.
Other subsequent events
On February 3, 2016, the Company entered into an agreement with the FDIC to terminate all existing loss
share arrangements. The Company received a payment of $5,482 from the FDIC and expects to recognize a
loss of approximately $17,560 during the first quarter of 2016.
On January 22, 2016, the Company bought-out, redeemed and terminated its Gulfstream Bancshares Capital
Trust I ($7,000 par value). The Company will recognize a gain on extinguishment of debt of approximately
$308 during the first quarter of 2016. In addition, the transaction will reduce the Company’s 2016 interest
expense by approximately $250.
161
(Continued)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has caused this report to be duly signed on its behalf by the undersigned, thereunto duly authorized, in the City of
Davenport, State of Florida, on the 3rd day of March, 2016.
SIGNATURES
CENTERSTATE BANKS, INC.
/s/ JOHN C. CORBETT
John C. Corbett
President and Chief Executive Officer
(Principal executive officer)
/s/ JAMES J. ANTAL
James J. Antal
Senior Vice President and Chief Financial Officer (Principal
financial officer and principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on March 3, 2016.
Signature
Title
/s/ ERNEST S. PINNER
Ernest S. Pinner
/s/ JAMES H. BINGHAM
James H. Bingham
/s/ G. ROBERT BLANCHARD, JR.
G. Robert Blanchard, Jr.
/s/ C. DENNIS CARLTON
C. Dennis Carlton
/s/ MICHAEL F. CIFERRI
Michael F. Ciferri
/s/ JOHN C. CORBETT
John C. Corbett
/s/ GRIFFIN A. GREENE
Griffin A. Greene
/s/ CHARLES W. MCPHERSON
Charles W. McPherson
/s/ G. TIERSO NUNEZ II
G. Tierso Nunez II
/s/ THOMAS E. OAKLEY
Thomas E. Oakley
/s/ WILLIAM KNOX POU, JR.
William Knox Pou, Jr.
/s/ DANIEL R. RICHEY
Daniel R. Richey
/s/ JOSHUA A. SNIVELY
Joshua A. Snively
Executive Chairman of the Board
Director
Director
Director
Director
Director
President and Chief Executive Officer
Director
Director
Director
Director
Director
Director
Director
162
Exhibit 31.1
CERTIFICATIONS
I, John C. Corbett, certify, that:
1.
I have reviewed this report on Form 10-K of CenterState Banks, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 3, 2016
/s/ JOHN C. CORBETT
John C. Corbett
President and Chief Executive Officer
Exhibit 31.2
I, James J. Antal, certify, that:
1.
I have reviewed this report on Form 10-K of CenterState Banks, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 3, 2016
/s/ JAMES J. ANTAL
James J. Antal
Senior Vice President and
Chief Financial Officer
Certification of President and Chief Executive Officer
The undersigned President and Chief Executive Officer of CenterState Banks, Inc. does hereby certify, to
such officer’s knowledge, that this report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material
respects, the financial condition and results of operation of CenterState Banks, Inc.
Exhibit 32.1
/s/ JOHN C. CORBETT
John C. Corbett
President and Chief Executive Officer
Date: March 3, 2016
Certification of Senior Vice President and Chief Financial Officer
The undersigned Senior Vice President and Chief Financial Officer of CenterState Banks, Inc. does hereby
certify, to such officer’s knowledge, that this report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in
all material respects, the financial condition and results of operation of CenterState Banks, Inc.
Exhibit 32.2
Date: March 3, 2016
/s/ JAMES J. ANTAL
James J. Antal
Senior Vice President and
Chief Financial Officer
[THIS PAGE INTENTIONALLY LEFT BLANK]
CENTERSTATE BANKS, INC.
42745 U.S. Highway 27 Davenport, Florida 33837 863.419.7750