2 0 1 8 A N NN UU A L RR EEE PP O R T
Photo ©Nasdaq
C O R P O R A T E P R O F I L E
CenterState Bank Corporation (NASDAQ: CSFL) operates as one of the largest
community bank franchises headquartered in the state of Florida. Both the
Company and its nationally chartered bank subsidiary, CenterState Bank, N.A.
(“the Bank”), are based in Winter Haven, Florida between Orlando and Tampa.
With over $12 billion assets, the Bank provides traditional retail, commercial,
mortgage, wealth management and SBA services throughout its Florida, Georgia
and Alabama branch network. The Bank also has a national footprint, serving
clients coast to coast, through its correspondent banking division.
Executive TEAM
L to R: Dan Bockhorst, Chief Credit Officer; Jennifer Idell, Chief Financial Officer; Steve Young, Chief Operating Officer; John Corbett,
President and CEO; Ernie Pinner, Executive Chairman; Mark Thompson, Bank President; Beth DeSimone, Chief Risk Officer/General Counsel;
Brett Rawls, Chief Administrative Officer
Dear Fellow Shareholders,
We are pleased to report another record year of performance for our company in
2018. Your investment in CenterState continued strong relative performance,
capping a five year period where the share price increased by 107%. Net income
for the year increased over $100 million to $156.4 million while total assets grew to
$12.3 billion at year end. Tangible book value per share rose 11% to $11.49.
Several years from now, we will look back at 2018 and
following months, our
team completed system
two significant milestones will stand out: surpassing the
integrations with both bank partners and invested in a
$10 billion assets threshold and the Bank’s commercial
broader infrastructure and technology platform. The two
expansion into Atlanta, Georgia. The pillars of our Bank’s
banks added approximately $3.4 billion in assets and $2.5
mission – an employee centric culture, organic growth,
billion in Florida-based deposits.
strategic expansion and exceptional asset quality –
remained consistent, propelling the Company into a
premier southeastern bank franchise.
In April, the Company announced the acquisition of
Charter Bank, headquartered in West Point, Georgia,
with a robust branch network in the vibrant Atlanta
The Company wasted no time moving past the $10 billion
market. The acquisition closed in September, taking the
assets mark, as we closed the acquisitions of Harbor Bank
Company beyond $12 billion in assets. The acquisition of
and Sunshine Bank on January 1, 2018. Over the
Charter represents CenterState’s first entry into Georgia
2
and Alabama for commercial banking. The Company
impressive. Led by Mark Thompson, President of the
previously maintained a significant presence in Atlanta,
Bank, CenterState achieved its new loan production goal
including 100 employees within our correspondent,
of $2.2 billion. We also enjoyed exceptional growth in fee
mortgage and SBA units.
income lines of business such as correspondent,
Staying with the strategic expansion theme, the
Company announced plans to acquire National
Commerce Corporation (NCOM), parent of National
mortgage and SBA, each areas of investment in recent
years. In the fourth quarter, the Company reached its
goal of fee income to assets of 1%.
Bank of Commerce in November. With a spring 2019
The measurable performance results of 2018 would not
projected close, NCOM strategically overlaps our existing
have been possible without a dedicated focus on the #1
metro footprint. The pro forma Company will have
strategic priority within our organization – culture.
approximately $16.4 billion in assets, $11.5 billion in loans
Commitment to our core values as guiding principles in
and $12.8 billion in deposits. The CenterState franchise
the way we transact business is critical to our success. In
will be anchored with $4.5 billion in deposits along the
2018, CenterState became one of the only banks in the
Interstate 4 corridor stretching from Tampa to Orlando,
country to establish a board-led culture committee. The
$1.5 billion of deposits in Atlanta and approximately $1
group provides oversight for programs and initiatives
billion of deposits in both Miami and Jacksonville. The
that honor our values, including a commitment to our
Company is positioned to operate with solid scale in
local communities and the creation of remarkable
some of the best growth markets in the United States.
experiences for our employees and customers.
Perhaps more meaningful than the metro market
enhancements that NCOM brings, there is a 19 year
relationship between both boards and management
teams, with a cohesive set of social and credit cultures
between our two groups. The partnership will add
strength and depth to the CenterState management team,
as several members of the NCOM leadership will transition
into the Company, including the appointment of Richard
Murray as Chief Executive Officer of the subsidiary Bank
and Will Matthews as Chief Financial Officer of the Holding
Company and Bank. Jennifer Idell, CenterState’s Chief
Financial Officer, will assume the Chief Administrative
Officer role upon completion of the merger.
Being a high growth company is in our DNA, and as we
entered 2018, it was one of the highest strategic priorities
set by our leadership team. Although our fastest growth
period ever, moving from $7 billion to $12 billion in assets,
was assisted by M&A efforts, the organic growth was also
Will Matthews & Richard Murray
3
Knowing our employees drive the success of our
As we look toward the future, it is important to reflect on
organization, we conducted a comprehensive internal
the historical evolution of the banking industry. The era of
survey, measuring the overall engagement of our
the 1990s led to the creation of large national banks
employees. Our results achieved the designation of the
through coast to coast consolidation. This disruption
coveted “Top Workplace” list in
fostered a wave of denovo bank formations during the
multiple markets where we
2000s in advance of the financial crisis and the passage of
operate, while also highlighting
the Dodd-Frank Act. Following the financial crisis, M&A
continued areas to aspire for
activity accelerated, the industry stabilized and rebounded
excellence and improvement for
nicely in recent years. After navigating these times and
our
team. Our
employees
benefitting from the recent regulatory relief from
continued
to shine
in
their
Congress, we believe that CenterState is very well
communities,
reporting over 7,000 hours of
positioned for the next phase of the industry’s evolution.
philanthropic service through over 400 organizations.
This next phase will be defined by regional banking
This type of community service teamed with strong
champions that embrace the evolving role of technology
lending earned CenterState
the
rare national
to serve our clients.
accomplishment of an “outstanding” rating for our
efforts in adherence to the Community Reinvestment
In summary, we are pleased to report the Company’s
Act. Finally, CenterState was named the top bank in
financial accomplishments and strategic growth achieved
Florida on Forbes first ever “Best-in-State Banks” listing,
in 2018. On the pages to follow, we are proud to present
selected by customers who rated us on categories such
our company, members of our leadership team and the
as trust, digital services and financial advice.
markets we serve.
As always, we thank you for your investment in CenterState and the confidence you have placed in our team.
John C. Corbett
President & CEO
Ernest S. ‘Ernie’ Pinner
Executive Chairman
This Annual Report contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements may address issues that involve significant risks
and uncertainties. Although we believe that the expectations reflected in this discussion are reasonable, actual results may be materially different. Please refer to the Company’s Annual Report
on Form 10-K for the year-ended December 31, 2018 (the “Form 10-K”) included in this Annual Report and filed with the U.S. Securities and Exchange Commission, for a more thorough description
of the types of risks and uncertainties that may affect management’s forward looking statements. Such risks and uncertainties include, among others, risks related to the adequacy of our allowance
for loan losses and the amount of loan loss provisions required in future periods; risks associated with mergers and acquisitions, including integration and implementation risks; cybersecurity risks
relating to our dependence on internal computer systems and the technology of outside service providers and the potential impacts of third-party security breaches resulting from deliberate
attacks or unintentional events, which could result in potential business disruptions or financial losses; regulatory change risks resulting from new laws, rules, regulations, proscribed practices or
ii
ethical standards, or from changes in regulators’ application of existing laws, regulations and standards, and other risks and uncertainties discussed in the Form 10-K. The Company undertakes
no obligation to update any forward-looking statements, all of which are expressly qualified by the statements above and others expressed in the Company’s securities filings.
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Key Performance Indicators*
* EPS and ROAA indicators are adjusted to exclude gain on sale of available for sale securities, gain on sale of trust department, gain on sale of deposits, gain on
extinguishment of debt, merger and acquisition related expenses and loss on termination of FDIC loss share agreement, net of tax, and the revaluation of the net
deferred tax asset. Efficiency indicator is adjusted as shown above with the additional exclusion of intangible amortization on a pre-tax basis.
5
Stock Performance
Five Year
Performance
Index
The shares of the Company’s
common stock are traded on
the NASDAQ Global Select
Market. 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
X
E
D
N
I
Index, since December 31, 2013
CenterState Bank Corporation
(assuming a $100 investment
S&P 500
on December 31, 2013 and
reinvestment of all dividends).
SNL Southeast Bank Index
Source: S&P Global Market Intelligence
6
Y E A R E N D
2013 2014 2015 2016
2017 2018
100
100
100
118
114
113
156
252
260
216
115
111
129
147
157
182
150
150
Southeastern
EXPANSION
Amplifying CenterState’s diverse geographic reach.
The pillars of our bank’s mission – an employee centric culture, organic balance
sheet growth, strategic expansion and exceptional asset quality – remained
consistent, propelling the Company into a premier southeastern bank franchise.
The CenterState franchise will be anchored with $4.5 billion in deposits along the Interstate 4
corridor stretching from Tampa to Orlando, a $1.5 billion deposit base in Atlanta and approximately
$1.0 billion deposits each in Miami and Jacksonville. The Company is positioned to operate with solid
scale in some of the best growth markets in the United States.
We believe that CenterState is positioned well for the next phase of the banking industry cycle,
which will be defined by regional banking champions, super community banks with a dynamic and
diverse geographic reach and product offering.
7
Central REGION
L to R: Paul Gerrard, East Polk Community President;
Dale Dreyer, Central Florida Regional President; Brett
Barnhardt, Orlando-Osceola Community President.
Assets: $1,988
Deposits: $1,759
Loans: $1,691
2018 Loan Production: $460
Amounts are in millions
South REGION
L to R: Jesse Flowers, Palm Beach Community
President; Gilbert Pomar, South Florida Regional
President; David Pruna, Miami-Dade/Monroe
Community President,
8
Assets: $1,405
Deposits: $1,236
Loans: $1,209
2018 Loan Production: $384
Amounts are in millions
West REGION
L to R: Shaun P. Merriman, West Florida Region
President; Angel Gonzalez, Hillsborough Community
President.
Assets: $1,332
Deposits: $1,162
Loans: $1,240
2018 Loan Production: $265
Amounts are in millions
Treasure Coast REGION
L to R: George Haley, Martin/North Palm Beach Community
President; John Williams, Okeechobee Community
President; Hal Roberts, Treasure Coast Regional President;
John Shoop Highlands Community President; Tammy
Roncaglione, St Lucie Community President; Chris Bieber,
Indian River Community President.
Assets: $1,631
Deposits: $1,449
Loans: $1,089
2018 Loan Production: $322
Amounts are in millions
9
North Central REGION
L to R: Bob Page, Alachua Community President;
Tim Pierson, North/Central Regional President;
Rusty Branson, Marion Community President.
Assets: $973
Deposits: $877
Loans: $700
2018 Loan Production: $196
Amounts are in millions
First Coast REGION
L to R: Chris Kamienski, First Coast Region President;
David Maholias, Volusia Community President.
10
Assets: $1,191
Deposits: $1,075
Loans: $1,026
2018 Loan Production: $392
Amounts are in millions
Chattahoochee REGION
L to R: Joe Ragland, Troup/Chambers Community
President; David Reaves, Lee Community President;
Lee Washam, GA Regional President; Wes Smith,
Cobb Community President; Mark Stevens, Macon
Community President.
Assets: $1,325
Deposits: $1,302
Loans: $1,122
2018 Loan Production: $97
Amounts are in millions
Correspondent DIVISION
Our talented ggroup of bankers
partner with bannks from coast to
coast, prooviding innovative
correspondent prroducts delivered
with woorld-class service.
L to R: Chris Nichols, Chief Strategy Officer;
Brad Jones, Correspondent Division Managing
Director; Erik Bagwell, Senior Vice President-
Business Development
Customers: 638
States: 43
Offices: 11
11
Board of Directors
Ernest S. Pinner
Executive Chairman
of the Board
CenterState Bank Corp.
Charles W. McPherson
Vice Chairman of
the Board
Retired Bank CEO
James H. Bingham
President
Concire Centers, Inc.
Michael Brown, Sr.
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.
William Knox Pou, Jr.
Exec. Vice President
W.S. Badcock Corp.
Michael F. Ciferri
President & Owner
Ciferri Enterprises
Daniel R. Richey
President & CEO
Riverfront Groves, Inc.
John C. Corbett
President & CEO
CenterState Bank Corp.
David Salyers
Retired Sr. Executive
Chick-fil-A
Jody J. Dreyer
Retired Sr. Executive
The Walt Disney
Company
Griffin A. Greene
President
Greene’s Citrus
Management, Inc.
Joshua A. Snively
President
Florida Chemical
Mark Thompson.
President
CenterState Bank N.A.
OFFICERS
Ernestt SS.. Pinner
Executive Chairman off ththe
Board of Directors
John C. Corbett
President and
ChChhieeieieff ExE ecutive Officer
Mark WW. ThhThThomomo pson
Presessiddididenene t
CenterState Bank N.AAA.
Jennifer L. Idell
Chief Financial Officer
Stephen D. Young
Chief Operating Officer
Daniel E. Bockhorst
Chief Credit Officer
Beth S. DeSimone
Chief Risk Officer
BrB ett S. Rawls
Chief Admininistststraratitiveve Officer
CORPORATE OFFICE
1101 First St. South
Winter Haven, FL 33880
863.293.4710
CORPORATE WEBSITE
CenterStStata eBanks.com
STOCK LISTING
SySymbmbol - CSFL
SHAREHOLDER SERVICES
CoContn inental Stock Transfer &
Trust Company
17 Battery Placee, NY, NY 10004
2122.505 9.4000
INDEPENDENT AUDITORS
CrCrowo e LLP
Franklin, TeTennn esessesee
2019 ANNUAL MEETING
April 25, 202019 10am
401 Avenue BB, , NW
WiW nter Haven, FL 3388181
12
UNITED STATES 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, 2018
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-32017
CENTERSTATE BANK CORPORATION
(Name of registrant as specified in its charter)
Florida
(State or Other Jurisdiction
of Incorporation or Organization)
1101 First Street South, Suite 202, Winter Haven, Florida
(Address of principal executive offices)
59-3606741
(I.R.S. Employer
Identification No.)
33880
(Zip Code)
Issuer’s telephone number, including area code:
(863) 293-4710
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 È NO ‘
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 every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). YES È NO ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not 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, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘
Emerging growth company ‘
Accelerated filer ‘
Smaller reporting company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ‘ NO È
The aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant (65,699,770 shares) on
June 30, 2018, was approximately $1,959,167,000. The aggregate market value was computed by reference to the last sale of the Common
Stock of the registrant at $29.82 per share on June 30, 2018. 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 26, 2019 there were outstanding 95,803,337 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 25, 2019 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
Lending Activities
Deposit Activities
Investments
Correspondent Banking
Acquisition Strategy
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
Properties
Legal Proceedings
[Removed and Reserved]
Item 2.
Item 3.
Item 4.
PART II
Item 5. Market for Common Equity, Related Shareholder 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.
Item 9.
Financial Statements and Supplementary Data
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 Shareholder
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
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186
PART I
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 impact on failing to
implement our business strategy, including our growth and acquisition strategy; the ability to successfully
integrate our acquisitions; additional capital requirements due to our growth plans; the impact of an increase in
our asset size to over $10 billion; the ability to implement our mortgage and SBA lines of business; the risks of
changes in interest rates and the level and composition of deposits, loan demand, the credit and other risks in our
loan portfolio and the values of loan collateral; the impact of us not being able to manage our risk; the impact on
a loss of management or other experienced employees; the impact if we failed to maintain our culture and attract
and retain skilled people; risks related to pending or future litigation; the risk of changes in technology and
customer preferences; the impact of any material failure or breach in our infrastructure or the infrastructure of
third parties on which we rely including as a result of cyber-attacks; or material regulatory liability in areas such
as BSA or consumer protection; the effects of future economic and political conditions; reputational risks from
such failures or liabilities or other events; adverse weather or manmade events; governmental monetary and
fiscal policies, as well as legislative and regulatory changes; the effects of competition from technological change
and other commercial banks, thrifts, consumer finance companies, and other financial institutions operating in
our market area and elsewhere; her factors disclosed in this Annual Report on Form 10-K, including, among
others, those disclosed in Part I, Item 1A. “Risk Factors.” 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.
Item 1.
Business
General
CenterState Bank Corporation (“We,” “Our,” “CenterState,” “CSFL,” or the “Company”) is a financial
holding company incorporated in September 20, 1999 under the laws of the State of Florida. Through our
national bank subsidiary, CenterState Bank, N.A. (“CenterState Bank” or the “Bank”), we provide a full range of
consumer and commercial banking services to individuals, businesses and industries through our headquarters
branch in Winter Haven, Florida and, as of December 31, 2018, a 126 bank branch network located throughout
Florida, Georgia and Alabama, as well as one loan production office in Florida and one loan production office in
Macon, Georgia. CenterState is among the largest Florida-based community banking organizations in terms of
publicly available deposit data as of December 31, 2018.
We also operate, through our Bank, a correspondent banking and capital markets service division for over
600 small and medium sized community banks throughout the United States. Based primarily in Atlanta, Georgia
and Birmingham, Alabama, this division earns commissions on fixed income security sales, fees from hedging
services, loan brokerage fees and consulting fees for services related to these activities.
We have grown primarily through a series of acquisitions, starting in June 2000 through 2018. Our most
recent acquisitions include:
• Gulfstream Bancshares, Inc. (“Gulfstream”), in January 2014, which added approximately $479 million
in deposits;
•
First Southern Bancorp, Inc. (“First Southern”), in June 2014, which added approximately $853 million
in deposits;
• Community Bank of South Florida, Inc. (“Community”), in March 2016, which added approximately
$453 million in deposits;
• Hometown of Homestead Banking Company (“Hometown”), in March 2016, which added
approximately $253 million in deposits;
•
Platinum Bank Holding Company (“Platinum”), in April 2017, which added approximately
$520 million in deposits;
• Gateway Financial Holdings of Florida, Inc. (“Gateway”) in May 2017, which added approximately
$708 million in deposits;
• HCBF Holding Company, Inc. (“HCBF”), in January 2018, which added approximately $719 million
in deposits;
•
Sunshine Bancorp, Inc. (“Sunshine”), also in January 2018, which added approximately $1.8 billion in
deposits; and
• Charter Financial Corporation (“Charter”), in September 2018, which added approximately $1.3 billion
in deposits.
On November 23, 2018, CenterState entered into an Agreement and Plan of Merger with National
Commerce Corporation (“NCC”), a financial holding company headquartered in Birmingham, Alabama, which
engages in the business of banking through National Bank of Commerce (“NBC”). NBC operates branches
throughout Florida (including under the trade names United Legacy Bank, Reunion Bank of Florida, Patriot
Bank, Premier Bank and FirstAtlantic Bank), in the Atlanta, Georgia area (including under the trade names First
Landmark Bank, Private Bank of Buckhead, Private Bank of Decatur and PrivatePlus Mortgage) and in
Birmingham, Huntsville, Auburn-Opelika and Baldwin County, Alabama. NCC also engages in the business of
factoring commercial receivables of transportation companies and automotive parts and service providers
through the United States and parts of Canada through a subsidiary, CBI Holding Company, LLC, and its
subsidiary Corporate Billing, LLC. Upon completion of the merger, which is subject to receipt of regulatory and
shareholder approvals and other customary closing conditions, CenterState will have on a pro forma basis,
excluding purchase accounting adjustments, assets of $16.4 billion, deposits of $12.8 billion, loans of
$11.5 billion and total shareholders’ equity of $2.9 billion.
We also own R4ALL, Inc. (“R4ALL”), which acquires and disposes troubled assets, and CSFL Insurance
Corp. (“CSFL IC”), which operates a captive insurance subsidiary pursuant to section 831(b) of the U.S. Tax
Code.
At December 31, 2018, we had total consolidated assets of $12.3 billion, total consolidated loans of
$8.3 billion, total consolidated deposits of $9.5 billion, and total consolidated shareholders’ equity of
$2.0 billion.
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.
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 the tax, monetary and fiscal policies of the U.S.
and state government and 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 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, including tax rates and regulatory
structure. We face strong competition in the attraction of deposits (our primary source of lendable funds) and in
the origination of loans. See “Competition.”
2
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, 2018 and 2017 were $8.3 billion, or 68% and
$4.8 billion, or 67%, 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, 2018, approximately 84% of our
consolidated loan portfolio consisted of loans secured by mortgages on real estate, 14% of the loan portfolio
consisted of commercial loans (not secured by real estate) and 2% of our loan portfolio consisted of consumer
and other loans.
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
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 made at adjustable interest rates. 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 consists primarily of loans to small-to-medium sized businesses located
primarily in our market area 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 14% and 15% of our
Company’s total loan portfolio as of December 31, 2018 and 2017, 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, 2018, approximately 44% of our total non-PCI (“Purchased Credit-Impaired”) loan
portfolio is fixed rate, 14% is floating rate and 42% is variable rate other than floating.
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 employ
shorter loan terms in order to reduce the risk of a decline in the value of such collateral.
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In addition, we have a mortgage line of business which originates single-family home loans and sells a
majority of those mortgages into the secondary market of which the majority are sold with servicing rights
released. We also have a SBA 7(a) line of business whereby we routinely sell the government guaranteed portion
of the SBA loans to investors with the unguaranteed portion of the loan and the servicing rights retained.
For additional information regarding our loan portfolio, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
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, negotiable order of withdrawal or NOW, and money market deposit
accounts to be core deposits. These accounts comprised approximately 81% and 85% of our consolidated total
deposits at December 31, 2018 and 2017, respectively. Approximately 19% and 15% of our consolidated
deposits at December 31, 2018 and December 31, 2017, respectively, were certificates of deposit. 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 10% and 8% of consolidated total deposits at December 31, 2018 and 2017, respectively.
The majority of the deposits are generated from market areas where we conduct business. Generally, 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.”
Investments
Our available for sale investment debt securities portfolio was $1.7 billion and $1.1 billion at December 31,
2018 and 2017, respectively, representing 14% and 15% of our total consolidated assets. At December 31, 2018,
approximately 92% of this portfolio was invested in U.S. government mortgage backed securities (“MBS”),
specifically residential Fannie Mae, Freddie Mac and Ginnie Mae MBS. We have selected these types of
investments because such securities generally represent what we believe to be a minimal investment risk. We do
not own any private label MBSs. Approximately 5%, or $88.8 million, 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 debt 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
shareholders’ 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 2018, we sold approximately $23.1 million of
these securities and recognized a net loss on the sales of approximately $22,000. In addition, we sold
approximately $332.6 million of securities acquired from the purchase of Harbor and Sunshine on January 1,
2018. These securities were marked to fair value and subsequently sold soon after the acquisition date and thus
no gains or losses were recognized.
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
4
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 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 Statements of Income and Comprehensive Income. Securities purchased for this portfolio have
primarily been municipal securities and are held for short periods of time. During 2018, we purchased
approximately $254.6 million of securities for this portfolio and sold $259.7 million, recognizing a net realized
gain on sale of approximately $20,000. At December 31, 2018 we had $1.7 million of securities in our trading
portfolio.
Our held to maturity debt securities portfolio was $216.8 million and $232.4 million at December 31, 2018
and December 31, 2017, respectively, representing 2% and 3% our total consolidated assets. These securities had
unrecognized net losses of approximately $4.7 million and $784,000, resulting in estimated fair values of
$212.2 million and $231.6 million at December 31, 2018 and 2017, respectively. At December 31, 2018,
approximately 39% of this portfolio is invested in MBS and 61% in municipal securities. 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
Our correspondent banking and capital markets segment operates as a division within our 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 located throughout the United States.
Acquisition Strategy
Our business growth, profitability and market share have been enhanced by us engaging in strategic mergers
and acquisitions either within or contiguous to our existing footprint. Our acquisition strategy focuses on banking
institutions that:
•
•
•
are a good fit with our culture;
are strategically attractive by enhancing our footprint, allowing for cost savings and economies of
scale, or providing market diversification, or otherwise may be strategically compelling;
have been determined to meet our risk appetite and profile; and
• meet our financial criteria.
We expect to continue to assess future opportunities of financial companies using these criteria, based on
market and other conditions.
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.
5
The Bank provides item processing services and certain other information technology (“IT”) services for
itself 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, seeks to influence
interest rates and the supply of money and credit within the United States. Among the traditional methods that
have been used to achieve this objective are open market operations in U.S. government securities, changes in the
discount rate for bank borrowings, expanded access to funds for non-banks and changes in reserve requirements
against bank deposits. The Federal Reserve has, as a response to the financial crisis, steeply increased the size of
its balance sheet by buying securities and has paid interest on excess reserves held by banks at the Federal
Reserve. Both the traditional and more recent methods are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, interest rates on loans and securities, and rates
paid for deposits. 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. Following a
prolonged period in which the federal funds rate was stable or decreasing, the Federal Reserve has begun to
increase this benchmark rate. In addition, after an extended period during which the Federal Reserve increased
the size of its balance sheet substantially above historical levels through the purchase of debt securities, the
Federal Reserve has begun to reduce the size of its balance sheet from these elevated levels, which might also
affect interest rates. Future monetary policies, including whether the Federal Reserve will continue to increase
the federal funds rate and whether or at what pace it will continue to reduce the size of its balance sheet, 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
We are extensively regulated under federal and state law. The following is a brief summary of certain
aspects of that regulation which are material to us, and does not purport to be a complete description of all
regulations that affect us or all aspects of those regulations. To the extent particular statutory and regulatory
provisions are described, the description is qualified in its entirety by reference to the particular statute or
regulation. 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. In addition to laws and
regulations, bank regulatory agencies may issue policy statements, interpretive letters and similar written
guidance applicable to the Company or the Bank. A change in applicable laws, regulations or regulatory
guidance, or in the manner such laws, regulations or regulatory guidance 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 and customers, the deposit insurance fund and the U.S. banking and financial system
rather than shareholders.
Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have
increased in recent years in response to the financial crisis, as well as other factors such as technological and
market changes. As described in further detail below, the Company and the Bank will become subject to
additional regulatory requirements in the future as a result of the growth of their assets. Regulatory enforcement
and fines have also increased across the banking and financial services sector. Many of these changes have
occurred as a result of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank
6
Act”) and its implementing regulations. While there has been some changes in the post financial crisis
framework applicable to the Company, primarily relating to stress testing, the Company expects that its business
will remain subject to extensive regulation and supervision.
We are also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, both as administered by the SEC, as well as the rules of
Nasdaq that apply to companies with securities listed on the Nasdaq Global Select Market.
Regulation of the Company
We are registered as a bank holding company with the Federal Reserve under the Bank Holding Company
Act of 1956 (the “BHC Act”) and have elected to be a financial holding company. As a financial holding
company, we are subject to comprehensive regulation, examination and supervision by the Federal Reserve and
are subject to its regulatory reporting requirements. Federal law subjects financial holding companies, such as the
Company, 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.
As a financial holding company, we are permitted to engage in, and be affiliated with companies engaging
in, a broader range of activities than those permitted for a bank holding company. Bank holding companies are
generally restricted to engaging in the business of banking, managing or controlling banks and certain other
activities determined by the Federal Reserve to be closely related to banking. Financial holding companies may
also engage in activities that are considered to be financial in nature, as well as those incidental or
complementary to financial activities, including certain insurance underwriting activities. We and the Bank must
each remain “well-capitalized” and “well-managed” and the Bank must receive a Community Reinvestment Act
(“CRA”) rating of at least “Satisfactory” at its most recent examination in order for us to maintain our status as a
financial holding company. In addition, the Federal Reserve has the power to order a financial 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.
A financial holding company is required 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”
has been defined 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 the depository
institution (in this case the Office of the Comptroller of the Currency or OCC) may require reports from the
Company to assess its ability to serve as a source of strength and to enforce compliance with the source-of-
strength requirements by requiring the holding company to provide financial assistance to the Bank if its capital
were to become impaired. If the Company fails to provide such assistance within three months, it could be
ordered to sell its stock of the Bank to cover the deficiency. Any capital loans by the Company to the Bank
would be subordinate in right of payment to deposits and certain other debts of the Bank. In the event of the
Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the
capital of the Bank would be assumed by the bankruptcy trustee and entitled to a priority of payment.
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 additional
bank or bank holding company, (ii) taking any action that causes an additional bank or bank holding company to
become a subsidiary of the financial holding company, or (iii) merging or consolidating with any other bank
holding company. The Federal Reserve may not approve any such 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
7
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 (1) the financial and managerial resources of the companies involved, including pro forma capital ratios;
(2) the risk to the stability of the United States banking or financial system; (3) the convenience and needs of the
communities to be served, including the companies’ performance under the CRA; and (4) the effectiveness of the
companies in combatting money laundering. We are permitted under applicable federal and state law to make out
of state acquisitions and mergers of other banks and bank holding companies, subject to the requirements
summarized above.
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 or a national 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, such as the Company, and the OCC before acquiring control of any national bank, such as the 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. As a result, a person or entity generally must provide prior notice to the Federal
Reserve before acquiring the power to vote 10% or more of our outstanding common stock. Investors should be
aware of these requirements when acquiring shares of our stock.
Regulation of the Bank
CenterState Bank is a national bank subject to comprehensive regulation, examination and supervision by
the OCC and is subject to its regulatory reporting requirements. The deposits of the Bank are insured by the
FDIC 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 certain Federal
Reserve regulations. These 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; the disclosure of the costs and
terms of such credit, requirements to maintain reserves against deposits and loans, limitation on the types of
investment that may be made and requirements governing risk management practices.
The Bank also is subject to restrictions on its ability to lend to and engage in other transactions with the
Company and the Bank’s other affiliates. Under these provisions, individual loans or other extensions of credit
between the Bank and the Company or any nonbank affiliate generally are limited to 10% of the Bank’s capital
and surplus, and all such transactions between the Bank and either the Company or any nonbank affiliate are
limited to 20% of the Bank’s capital and surplus. Loans and other extensions of credit from the Bank to any
affiliate generally are required to be secured by eligible collateral in specified amounts. In addition, any
transaction between the Bank and any affiliate are required to be on arm’s length terms and conditions. The
definition of “extension of credit” for these purposes includes credit exposures arising from a derivative
transaction, a repurchase or reverse repurchase agreement and a securities lending or borrowing transaction.
Federal banking laws also place similar restrictions on loans and other extensions of credit by FDIC-insured
banks, such as the Bank, to their directors, executive officers and principal shareholders. These restrictions have
not had a material impact on the Company or the Bank.
Federal Reserve rules require depository institutions, such as the Bank, to maintain reserves against their
transaction accounts, primarily NOW and regular checking accounts. For 2018, the first $16 million of covered
8
balances are exempt from the reserve requirement, aggregate balances between $16 million and $122.3 million
are subject to a 3% reserve requirement and aggregate balances above $122.3 million are subject to a 10%
reserve requirement. These reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is permitted under federal law to branch on a de novo basis across state lines where the laws of
that state would permit a bank chartered by that state to open a de novo branch.
Supervision, Examination and Enforcement
The Federal Reserve, OCC and FDIC have broad supervisory, examination and enforcement authority with
regard to bank holding companies and banks, including the power to impose nonpublic supervisory agreements,
issue cease and desist or removal orders, impose fines and other civil and criminal penalties, initiate injunctive
actions, terminate deposit insurance and appoint a conservator or receiver. In general, these actions may be
initiated for violations of laws and regulations, as well as engagement in unsafe and unsound practices, and
certain of these actions also may be taken against an “institution affiliated party” as defined in the law.
Specifically, the regulators may direct a bank holding company or bank to, among other things, increase its
capital, sell subsidiaries or other assets, limit its dividends and distributions, restrict its growth or remove officers
and directors. Supervision and examinations are confidential, and the outcomes of these actions may not be made
public.
Changes to our Regulation and Supervision in Crossing $10 Billion in Assets Threshold
As a result of having assets that exceed $10 billion in total consolidated assets as of start of four quarters,
certain changes will occur in our supervision effective July 1, 2019, which is the date following the fourth
consecutive quarter (plus any applicable phase-in period) in which the Company or the Bank’s total consolidated
assets exceeded that $10 billion threshold:
• The calculation of the Bank’s FDIC deposit insurance assessment base will be changed and will utilize
the performance score and a loss-severity score system as summarized under “FDIC Insurance
Assessments.”
• The Consumer Financial Protection Bureau (“CFPB”) will become our supervisor with respect to
consumer protection laws and regulations and will have examination authority following the fourth
consecutive quarter in which the Bank’s total assets exceed $10 billion. Currently, the Bank is subject
to regulations adopted by the CFPB, but the OCC is primarily responsible for examining our
compliance with consumer protection laws and regulations.
In addition, beginning on July 1, 2019, the Bank will become subject to the cap on debit card interchange
fees imposed by the so-called Durbin Amendment. Under the Durbin Amendment and the Federal Reserve’s
implementing regulations, bank issuers who are not exempt may only receive an interchange fee from merchants
that is reasonable and proportional to the cost of clearing the transaction. The maximum permissible interchange
fee is equal to no more than $0.21 plus 5 basis points of the transaction value for many types of debit interchange
transactions. A debit card issuer may also recover $0.01 per transaction for fraud prevention purposes if the
issuer complies with certain fraud-related requirements required by the Federal Reserve. In addition, the Federal
Reserve has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for
routing transactions on each debit or prepaid product. The impact of this change is expected to reduce the Bank’s
fee income by approximately $3.5 million in year 2019 and $7 million annually, afterwards.
FDIC Insurance Assessments and Depositor Preference
The deposits of the Bank are insured by the FDIC up to the limits under applicable law, which currently are
set at $250,000 for accounts under the same name and title. The Bank is subject to deposit insurance premium
9
assessments. The FDIC imposes a risk-based deposit premium assessment system. Under this system, the
assessment rates for an insured depository institution vary according to the level of risk incurred in its activities.
To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories
determined by reference to its capital levels and supervisory ratings. In the case of those institutions in the lowest
risk category, the FDIC further determines its assessment rate based on certain specified financial ratios or, if
applicable, long-term debt ratings. The assessment rate schedule can change from time to time, at the discretion
of the FDIC, subject to certain limits. Under the current system, premiums are assessed quarterly. The FDIC has
published guidelines on the adjustment of assessment rates for certain institutions. In addition, insured depository
institutions have been required to pay a pro rata portion of the interest due on the obligations issued by the
Financing Corporation to fund the closing and disposal of failed thrift institutions by the Resolution Trust
Corporation.
The assessment base on which the Bank’s deposit insurance premiums is paid to the FDIC is now calculated
based on its average consolidated total assets less its average equity. However, effective as of July 1, 2019, the
FDIC will use a performance score and loss-severity score to calculate the Bank’s initial FDIC assessment rate.
In calculating these scores, the FDIC will use the Bank’s capital level and regulatory supervisory ratings and
certain financial measures to assess the Bank’s ability to withstand asset-related and funding related stress, and
make certain adjustments based on risk factors that are not adequately captured in these calculations.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a bank’s federal regulatory agency. Deposits and
certain claims for administrative expenses and employee compensation against insured depository institutions are
afforded a priority over other general unsecured claims against the institution, including federal funds and letters
of credit, in the liquidation or other resolution of that institution by any receiver appointed by federal authorities.
These priority creditors include the FDIC.
Dividend Restrictions
The Company is a legal entity separate and distinct from its banking and other subsidiaries and has in the
past relied on dividends from the Bank as its primary source of liquidity. There are limitations on the payment of
dividends by the Bank to the Company, as well as by the Company to its shareholders.
The OCC has the general authority to limit the dividends paid by the Bank if such payment may be deemed
to constitute an unsafe and unsound practice. The 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, such as the 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.
We and the Bank must maintain the applicable common equity Tier 1 or CET1 capital conservation buffer
of 2.5% to avoid becoming subject to restrictions on capital distributions, including dividends. For more
information on the CET1 capital conservation buffer, see Part I Item 1. Supervision and Regulation – Capital
Requirements.
In addition, Federal Reserve policy provides that bank holding companies, such as the Company, should
generally pay dividends to shareholders only if (i) the organization’s net income available to common
shareholders over the past year has been sufficient to fully fund the dividends ; (ii) the prospective rate of
earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial
10
condition and (iii) the organization will continue to meet minimum capital adequacy ratios. The policy also
provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or
paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in
a material adverse change to the bank holding company’s capital structure. Bank holding companies also are
required to consult with the Federal Reserve before increasing dividends or redeeming or repurchasing capital
instruments. Additionally, the Federal Reserve could prohibit or limit the payment of dividends by a bank
holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
Capital Requirements
We are required under federal law to maintain certain minimum capital levels at each of the Company and
the Bank. The federal banking agencies have issued substantially similar risk-based and leverage capital
requirements to banking organizations they supervise. Under these requirements, the Company and the Bank are
required to maintain certain capital standards based on ratios of capital to total assets and capital to risk-weighted
assets. The requirements also define the weights assigned to assets and off-balance sheet items to determine the
risk-weighted asset components of the risk-based capital rules. The required capital ratios are minimums, and the
Federal Reserve and OCC may determine that a banking organization, based on its size, complexity or risk
profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as
concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s
exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s
ability to manage those risks are important factors that are to be taken into account by the federal banking
agencies in assessing an institution’s overall capital adequacy.
Under the applicable capital rules, the Company and the Bank are subject to the following risk-based capital
ratios: a common equity Tier 1 (“CET1”) risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes
CET1 and additional Tier 1 capital, and a total capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is
primarily comprised of the sum of common stock instruments and related surplus net of treasury stock, retained
earnings, and certain qualifying minority interests, less certain adjustments and deductions, including with
respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary
timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock,
tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital consists of instruments
disqualified from Tier 1 capital, including qualifying subordinated debt, other preferred stock and certain hybrid
capital instruments, and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted
assets, subject to certain eligibility criteria. For institutions, such as us, that have exercised an opt-out election
regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized
gains on available-for-sale equity securities with readily determinable fair market values are also included in Tier
2 capital. The capital rules also define the risk-weights assigned to assets and off-balance sheet items to
determine the risk-weighted asset components of the risk-based capital rules, including, for example, “high
volatility” commercial real estate, past due assets, structured securities and equity holdings.
In addition, in December 2018, the U.S. federal banking agencies finalized rules that would permit bank
holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new current
expected credit loss accounting rule on retained earnings over a period of three years. For further discussion of
the new current expected credit loss accounting rule, see Note 1 of the “Notes to Consolidated Financial
Statements.”
The capital rules require a minimum CET1 risk-based capital ratio of 4.5%, a minimum overall Tier 1
risk-based capital ratio of 6.0%, and a total risk-based capital ratio of 8.0%. In addition, the capital rules require a
capital conservation buffer of up to 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1,
and total risk-based capital) which must be met for a bank or bank holding company to be able to pay dividends,
engage in share buybacks or make discretionary bonus payments to executive management without restriction.
This capital conservation buffer was phased in over a four-year period that began on January 1, 2016, was 1.25%
11
as of January 1, 2017, 1.875% as of January 1, 2018, and is 2.50% as of January 1, 2019, so that a banking
organization now needs to maintain a CET1 capital ratio of at least 7%, a total Tier 1 capital ratio of at least 8.5%
and a total risk-based capital ratio of at least 10.5% or it would be subject to restrictions on capital distributions
and discretionary bonus payments to its executive management.
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to
quarterly average total assets, less goodwill and other disallowed intangible assets. The required minimum
leverage ratio for all banks and bank holding companies is 4%.
To be well-capitalized, the Bank must maintain the following capital ratios:
• CET1 risk-based capital ratio of 6.5% or greater;
• Tier 1 risk-based capital ratio of 8.0% or greater;
• Total risk-based capital ratio of 10.0% or greater; and
• Tier 1 leverage ratio of 5.0% or greater.
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect
the higher capital requirements imposed under the current capital rules. For purposes of the Federal Reserve’s
Regulation Y, including determining whether a bank holding company meets the requirements to be a financial
holding company, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio
of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized. If the Federal
Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that
applicable to the Bank, the Company’s capital ratios as of December 31, 2017 would exceed such revised well-
capitalized standard. The Federal Reserve may require bank holding companies, including the Company, to
maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic
conditions and a bank holding company’s particular condition, risk profile and growth plans.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory
and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material
effect on our operations or financial condition. For example, only a well-capitalized depository institution may
accept brokered deposits without prior regulatory approval. Failure to be well-capitalized or to meet minimum
capital requirements could also result in restrictions on the Company’s or the Bank’s ability to pay dividends or
otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.
The table below summarizes the capital requirements that the Company and the Bank must satisfy to avoid
limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital
ratios plus the capital conservation buffer) during the remaining transition period for the capital conservation
buffer:
CET1 risk-based capital ratio . . . .
Tier 1 risk-based capital ratio . . . .
Total risk-based capital ratio . . . . .
Minimum Applicable Regulatory Capital Ratio Plus Capital Conservation Buffer
January 1,
2017
5.75%
7.25
9.25
January 1,
2018
6.375%
7.875
9.875
January 1,
2019
7.0%
8.5
10.5
As of December 31, 2018, the Company’s and the Bank’s regulatory capital ratios were above the well-
capitalized standards and met both the then-applicable and fully phased-in capital conservation buffer. Please
refer to the table below for a summary of the Company’s and the Bank’s regulatory capital ratios as of
December 31, 2018 and 2017, calculated using the regulatory capital methodology applicable to us during 2018.
12
Minimum
Regulatory
Capital
Ratio
Minimum
Ratio + Capital
Conservation
Buffer (1)
Well-
Capitalized
Minimums (2) Actual
Capital
Above
Minimums (3)
As of December 31, 2018
Tier 1 leverage ratio . . . . . . . . . . Consolidated
Bank
CET1 risk-based capital ratio . . . Consolidated
Tier 1 risk-based capital ratio . . Consolidated
Bank
Bank
Total risk-based capital ratio . . . Consolidated
As of December 31, 2017
Tier 1 leverage ratio . . . . . . . . . . Consolidated
Bank
Bank
CET1 risk-based capital ratio . . . Consolidated
Bank
Tier 1 risk-based capital ratio . . Consolidated
Bank
Total risk-based capital ratio . . . Consolidated
Bank
4.00%
4.00%
4.50%
4.50%
6.00%
6.00%
8.00%
8.00%
4.00%
4.00%
4.50%
4.50%
6.00%
6.00%
8.00%
8.00%
N/A
N/A
6.375%
6.375%
7.875%
7.875%
9.875%
9.875%
N/A
N/A
5.75%
5.75%
7.25%
7.25%
9.25%
9.25%
10.04% $
N/A
9.99% $
5.00%
N/A
11.86% $
6.50% 12.21% $
6.00% 12.27% $
8.00% 12.21% $
10.00% 12.70% $
10.00% 12.64% $
9.82% $
N/A
9.39% $
5.00%
N/A
11.46% $
6.50% 11.54% $
6.00% 11.96% $
8.00% 11.54% $
10.00% 12.57% $
10.00% 12.15% $
687,898
567,921
510,855
532,000
409,565
392,312
251,300
245,828
384,734
290,478
309,843
271,368
255,816
190,638
139,369
115,816
(1) Reflects the capital conservation buffer of 1.875% applicable during 2018. The Company and the Bank
already meet the capital conservation buffer at the fully phased-in level of 2.5%.
(2) Reflects the well-capitalized standard applicable to the Bank and the well-capitalized standard applicable to
the Company under Federal Reserve Regulation Y.
(3) Amount greater than the highest of the minimum regulatory capital ratio, the minimum regulatory capital
ratio plus the capital conservation buffer and the well-capitalized minimum, as applicable.
Safety and Soundness Guidelines
The federal banking agencies have adopted guidelines prescribing safety and soundness standards relating to
internal controls, risk management, information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and benefits. These guidelines in
general require appropriate systems and practices to identify and manage specified risks and exposures. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and characterize compensation as
excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive
officer or employee, director or principal shareholder. In addition, the agencies have adopted regulations that
authorize but do not require an agency to order an institution that has been given notice by the agency that it is
not in compliance with any of the safety and soundness standards to submit a compliance plan. If after being so
notified, an institution fails to submit an acceptable compliance plan, the agency must issue an order directing
action to correct the deficiency and may issue an order directing other actions of the types, including those that
may limit growth or capital distributions.
Lending Standards and Guidance
The federal banking agencies have adopted uniform regulations prescribing standards for extensions of
credit that are secured by liens or interests in real estate or made for the purpose of financing permanent
improvements to real estate. Under these regulations, all insured depository institutions, such as the Bank, must
adopt and maintain written policies establishing appropriate limits and standards for extensions of credit that are
secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards
13
(including loan-to-value limits) that are clear and measurable, loan administration procedures, and
documentation, approval and reporting requirements. The real estate lending policies must reflect consideration
of the federal bank regulators’ Interagency Guidelines for Real Estate Lending Policies.
The federal banking agencies have also jointly issued guidance on “Concentrations in Commercial Real
Estate Lending” (the “Guidance”), which 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. If a concentration is present, management must employ
heightened risk management practices that address key elements, including board and management oversight and
strategic planning, portfolio management, development of underwriting standards, risk assessment and
monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to
support the level of commercial real estate lending. The required heightened risk management practices could
include enhanced strategic planning, 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 states that the following metrics
may indicate a concentration of commercial real estate loans, but that these metrics are neither limits nor a safe
harbor: (1) total reported loans for construction, land development, and other land represent 100% or more of
total risk-based capital; or (2) total reported loans secured by multi-family properties, non-farm non-residential
properties (excluding those that are owner-occupied), and loans for construction, land development, and other
land represent 300% or more of total risk-based capital and the bank’s commercial real estate loan portfolio has
increased 50% or more during the prior 36 months. As of December 31, 2018, our total reported loans for
construction, land development, and other land were 55% of the Bank’s total risk based capital and our total
reported loans secured by multifamily and non-farm nonresidential properties and loans for construction, land
development, and other land were 279% of the Bank’s total risk based capital.
Consumer Protection Laws
The Bank is subject to a number of federal laws designed to protect its customers. These consumer
protection laws apply to a broad range of our activities and to various aspects of our business and include laws
relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to consumer
borrowers, debt collection practices, the use of and the provision of information to consumer reporting agencies,
and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision
of consumer financial products and services. Administration of many of these consumer protection rules are the
responsibility of the CFPB, which has exclusive supervisory authority over insured depository institutions with
more than $10 billion in total assets and any affiliates thereof. The CFPB also has authority to define and prevent
unfair, deceptive and abusive practices in the consumer financial area, and expanded data collecting powers for
purposes of determining bank compliance with the fair lending laws. Because our insured depository institution,
the Bank, has had less than $10 billion in total assets, we have been supervised in these areas by the OCC. The
CFPB will become our exclusive supervisor in these areas following the fourth consecutive quarter where the
Bank’s total assets exceed $10 billion or as of the second quarter of 2019.
The CFPB has promulgated many mortgage-related final rules, including rules related to the ability to repay
and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-
cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards
for higher priced mortgages. In addition, several proposed revisions to mortgage-related rules are pending
finalization. The mortgage-related final rules issued by the CFPB have materially restructured the origination,
servicing and securitization of residential mortgages in the United States. These rules have impacted, and will
continue to impact, the business practices of mortgage lenders, including the Company. For example, under the
14
CFPB’s Ability to Repay and Qualified Mortgage rule, before making a mortgage loan, a lender must establish
that a borrower has the ability to repay the mortgage. “Qualified mortgages”, as defined in the rule, are presumed
to comply with this requirement and, as a result, present less litigation risk to lenders. For a loan to qualify as a
qualified mortgage, the loan must satisfy certain limits on terms and conditions, pricing and a maximum
debt-to-income ratio. Loans eligible for purchase, guarantee or insurance by a government agency or
government-sponsored enterprise are exempt from some of these requirements. Satisfying the qualified mortgage
standards, ensuring correct calculations are made for individual loans, recordkeeping and monitoring, as well as
understanding the effect of the qualified mortgage standards on CRA obligations, impose significant new
compliance obligations on, and involve compliance costs for, mortgage lenders, including the Company.
Community Reinvestment Act
The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to
assess the bank’s record in meeting the credit needs of the communities served by the institution, including low
and moderate income neighborhoods. Furthermore, the relevant federal bank regulatory agency is required to
consider a bank’s CRA assessment when considering the bank’s application to, among other things, merge or
consolidate with or acquire the assets or assume the liabilities of an insured depository institution or open or
relocate a branch office. In the case of a bank holding company, the Federal Reserve Board is required to assess
the CRA record of each subsidiary bank of any bank holding company that applies to acquire a bank or bank
holding company in connection with the application. Under the CRA, institutions are assigned a rating of
“outstanding,” “satisfactory,” “needs to improve,” or “unsatisfactory.” The Bank received an “outstanding”
rating at its most recent CRA evaluation.
Anti-Money Laundering Rules
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 (“AML”) program
and file suspicious activity and currency transaction reports when appropriate. Among other things, these laws
and regulations require the Bank to take steps to prevent the use of the Bank to facilitate the flow of illegal or
illicit money, to report large currency transactions and to file suspicious activity reports. The Bank also is
required to develop and implement a comprehensive AML compliance program. Banks must also have in place
appropriate “know your customer” policies and procedures.
Violations of these requirements can result in substantial civil and criminal sanctions, and the federal
banking agencies are required to consider the effectiveness of a financial institution’s AML activities when
reviewing bank mergers and bank holding company acquisitions. 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,
CFPB, Drug Enforcement Administration, and Internal Revenue Service.
OFAC Regulation
The Office of Foreign Assets Control or OFAC is responsible for administering economic sanctions that
affect transactions with designated foreign countries, nationals and others, as defined by various Executive
Orders and in various legislation. OFAC-administered sanctions take many different forms. For example,
sanctions may include: (1) restrictions on trade with or investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons
engaging in financial transactions relating to, making investments in, or providing investment-related advice or
assistance to, a sanctioned country; and (2) a blocking of assets in which the government or “specially designated
nationals” of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S.
jurisdiction, including property in the possession or control of U.S. persons. OFAC also publishes lists of
15
persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as
Specially Designated Nationals and Blocked Persons. Blocked assets, for example property and bank deposits,
cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. 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.
Failure to comply with these sanctions could have serious legal and reputational consequences.
Data Privacy
Federal and state law contains extensive consumer privacy protection provisions. The Gramm-Leach-Bliley
Act of 1999 requires financial institutions to periodically disclose their privacy policies and practices relating to
sharing such information and enables retail customers to opt out of our ability to share information with
unaffiliated third parties under certain circumstances. Other federal and state laws and regulations impact our
ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing
purposes, or to contact customers with marketing offers. The Gramm-Leach-Bliley Act also requires financial
institutions to implement a comprehensive information security program that includes administrative, technical
and physical safeguards to ensure the security and confidentiality of customer records and information. These
security and privacy policies and procedures for the protection of personal and confidential information are in
effect across all businesses and geographic locations. Federal law also makes it a criminal offense, except in
limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or
deceptive means.
Data privacy and data protection are areas of increasing state legislative focus. For example, in June of
2018, the Governor of California signed into law the California Consumer Privacy Act of 2018 (“CCPA”). The
CCPA, which becomes effective on January 1, 2020, applies to for-profit businesses that conduct business in
California and meet certain revenue or data collection thresholds. The CCPA will give consumers the right to
request disclosure of information collected about them, and whether that information has been sold or shared
with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt
out of the sale of the consumer’s personal information, and the right not to be discriminated against for
exercising these rights. The CCPA contains several exemptions, including an exemption applicable to
information that is collected, processed, sold or disclosed pursuant to the Gramm-Leach-Bliley Act. The
California Attorney General has not yet proposed or adopted regulations implementing the CCPA, and the
California State Legislature has amended the Act since its passage. The impact of the CCPA on our business is
yet to be determined. In addition, similar laws may be adopted by other states where we do business. The federal
government may also pass data privacy or data protection legislation.
Like other lenders, the Bank uses credit bureau data in their underwriting activities. Use of such data is
regulated under the Fair Credit Reporting Act, which also regulates reporting information to credit bureaus,
prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for
marketing purposes. Similar state laws may impose additional requirements on us and our subsidiaries.
Future Legislation and Regulation
Banking statutes, regulations and policies are continually under review by Congress, state legislatures and
federal and state regulatory agencies. In addition to laws and regulations, state and federal bank regulatory
agencies may issue policy statements, interpretive letters and similar written guidance applicable to us and our
subsidiaries. We cannot predict the substance or impact of pending or future legislation or regulation or the
application of those laws or regulations, although enactment of any significant proposal could affect how we
operate and could significantly increase our costs, impede the efficiency of internal business processes or limit
our ability to pursue business opportunities in an efficient manner, any of which could materially and adversely
affect our business, financial condition and results of operations.
16
Competition
We encounter strong competition both in making loans and in attracting deposits. In one or more aspects of
its business, our Company competes with other local, regional and national financial service providers, including
commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies, and other financial intermediaries located both within
and outside our market area. 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.
Technological advances have made it possible for our non-bank competitors to offer products and services
that traditionally were banking products and for financial institutions and other companies to provide electronic
and internet-based financial solutions, including online deposit accounts, electronic payment processing and
marketplace lending, without having a physical presence where their customers are located. 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.
Employees
As of December 31, 2018, we had a total of 2,113 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
We make available at no cost all of our reports filed electronically with the United States Securities and
Exchange Commission (“SEC”), including our Annual Report on Form 10-K, quarterly reports on Form 10-Q,
and current reports on Form 8-K, and the annual proxy statement, as well as amendments to those reports,
through our website at www.centerstatebanks.com. These filings are also accessible on the SEC’s website at
www.sec.gov.
We also will provide without charge a copy of our Annual Report on Form 10-K to any shareholder by mail.
Requests should be sent to CenterState Bank Corporation, Attention: Corporate Secretary, 1101 1st Street South,
Winter Haven, FL 33880.
We have adopted a Code of Ethics, which is available on our website at www.centerstatebanks.com under
Investor Relations/Governance Documents, and encourage our employees to take initiative and be responsible for
their actions. The importance of maintaining our culture and communicating our core values to our stakeholders,
including our employees and mentoring and training our employees as we grow is such that in 2018 we
established a Board Culture Committee, designed to tap the expertise and leadership experience of two Board
17
members who are expert in employee engagement, training and brand development in developing a service
oriented culture, committed to employee diversity, recruitment, training and motivation. We also have adopted a
formal corporate governance policy, a copy of which is available on our website at www.centerstatebanks.com.
Item 1A. Risk Factors
An investment in our common stock is subject to risks inherent in our business. The following discussion
highlights the risks that management believes are material for our Company, but do not necessarily include all
the risks that we may face. You should carefully consider the risk factors and uncertainties described below and
elsewhere in this Annual Report on Form 10-K (“Report”) in evaluating an investment in our common stock.
Risks relating to our Business and Business Strategy
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. Our ability to continue to grow successfully will depend on a variety of factors including economic
conditions in the markets in which we operate as well as in the U.S. and globally, continued availability of
desirable business opportunities, the competitive responses from other financial and non-financial institution
competitors in our market areas, 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 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 and other
resources and internal systems in place to successfully manage our future growth, and we are expanding those
resources and systems as we continue to grow, 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. Particularly in light of prevailing economic and competitive 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.
We may face risks with respect to future expansion.
Our business growth, profitability and market share has been enhanced by us engaging in strategic mergers
and acquisitions and de novo branching either within or contiguous to our existing footprint. We may acquire
other financial institutions or parts of those institutions in the future and engage in additional de novo branching.
We may also consider and enter into or acquire new lines of business or offer new products or services. As part
of our acquisition strategy, we seek companies that are culturally similar to us, have experienced management
and are in markets in which we operate or close to those markets so we can achieve economies of scale. We also
may receive future inquiries and have discussions with potential acquirers of us or potential companies in which
we may engage in a so-called “merger of equals.” 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;
18
•
•
•
•
•
•
•
•
•
•
•
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 also face litigation risks with respect to potential mergers and acquisitions. Such litigation is common.
After the mailing of the joint proxy statement/prospectus on February 4, 2019 in connection with our proposed
merger with NCC, two lawsuits by purported NCC stockholders (Paul Parshall v. National Commerce
Corporation, et al., No. 1:19-cv-00355-UNA (D. Del.)) and Stephen Bushansky v. National Commerce
Corporation, et al., No. 1:19-cv-00379 (D. Del.)) were filed in the United States District Court, District of
Delaware against NCC and its directors, alleging inadequate disclosures in the joint proxy statement/prospectus
and associated violations of the Securities Exchange Act of 1934. These complaints generally seek, among other
things, an injunction enjoining the stockholder vote and the closing of the proposed transaction, rescission of the
proposed merger if it closes, or an award of rescissory damages, an order directing the NCC board of directors to
disseminate a new joint proxy statement/prospectus, a declaration that the defendants violated the securities laws
and an award of the plaintiffs’ costs of the actions including a reasonable allowance for the plaintiffs’ attorneys’
and experts’ fees. CenterState and NCC believe that the claims in these complaints are without merit and intend
to defend these actions vigorously.
We expect to continue to evaluate merger and acquisition opportunities that are presented to us in our
current and expected markets and conduct due diligence related to those opportunities, as well as negotiate to
acquire or merge with other institutions. If we announce a transaction, we may issue equity securities, including
common stock and securities convertible into shares of our common stock in connection with future acquisitions.
We also may issue debt to finance one or more transactions, including subordinated debt issuances. Generally,
acquisitions of financial institution involve the payment of a premium over book and market values, resulting in
dilution of our book value and fully diluted earnings per share, as well as dilution to our existing shareholders.
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 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 increased revenues
comparable to or better than our historical experience, and failure to .realize such expected revenue increases,
cost savings, increases in market presence or other benefits could have a material adverse effect on our financial
conditions and results of operations.
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, we anticipate continuing to evaluate merger and acquisition
opportunities presented to us in our core markets and beyond. The number of financial institutions headquartered
19
in Florida, Georgia, Alabama, else ware in the Southeastern United States, and across the country continues to
decline through merger and other activity. 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, as the number of appropriate merger targets decreases, could increase prices for potential
acquisitions which could reduce our potential returns, and reduce the attractiveness of these opportunities to us.
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, including with respect
to AML obligations, consumer protection laws and CRA obligations 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.
We may not be able to successfully integrate our latest mergers or to realize the anticipated benefits of
them.
We completed the acquisitions of HCBF and Sunshine on January 1, 2018, and completed the acquisition of
Charter on September 1, 2018. In addition, we entered into an Agreement and Plan of Merger with NCC on
November 23, 2018, which, if completed, would be the largest merger undertaken by CenterState as of this date.
We integrated the systems of Sunshine in February 2018, the systems of Jefferson (which was previously
acquired by HCBF) in April 2018, the systems of HCBF in May 2018, and the systems of Charter in February
2019. If the proposed merger with NCC is completed, we will also integrate the systems and operations of NCC,
including by combining the executive management teams of CenterState and NCC.
A successful integration of these banks’ operations with our operations so that the Company operates as one
entity will depend substantially on our ability to successfully consolidate operations, management teams,
corporate cultures, systems and procedures and to eliminate redundancies and costs. While we have substantial
experience in successfully integrating institutions we have acquired, we may encounter difficulties during
integration, such as:
•
•
•
•
•
•
•
•
the loss of key employees and customers;
the disruption of operations and businesses;
inability to maintain and increase competitive presence;
loan and deposit attrition, customer loss and revenue loss;
inconsistencies in standards, control procedures and policies;
unexpected issues with expected branch closures;
unexpected issues with costs, operations, personnel, technology and credit; and/or
problems with the assimilation of new operations, sites or personnel, which could divert resources from
regular banking operations;
all of which could divert resources from regular banking operations. Additionally, general market and economic
conditions or governmental actions affecting the financial industry generally may inhibit our successful
integration of these entities.
In addition, the attention and effort devoted to the integration of NCC with CenterState’s existing
operations, to the continued integration of Charter with CenterState, or to the continued integration of Landmark
and Premier with NCC or the combined company, may divert management’s attention away from one merger
integration to another, or away from other important issues, each of which could seriously harm the combined
company’s business.
20
Further, we acquired HCBF, Sunshine and Charter and are proposing to acquire NCC with the expectation
that these mergers will result in various benefits including, among other things, benefits relating to enhanced
revenues, a strengthened market position for the combined company, cross selling opportunities, technology, cost
savings and operating efficiencies. Achieving the anticipated benefits of these mergers is subject to a number of
uncertainties, including whether we integrate these institutions in an efficient and effective manner, and general
competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in a reduction in
the price of our shares as well as in increased costs, decreases in the amount of expected revenues and diversion
of management’s time and energy and could materially and adversely affect our business, financial condition and
operating results.
The loss of any member of our management team may adversely affect us.
We have a management team that has substantial experience in banking and financial services in the
markets we serve. We rely on our management team to achieve and sustain our profitability. This management
team anticipated to be expanded as part of the NCC merger, which includes the addition of Richard Murray, IV,
the current Chairman and CEO of NCC, becoming Chief Executive Officer of CenterState Bank, William E.
Matthews, V, the current President and CFO of National Bank of Commerce, becoming Chief Financial Officer
of CenterState and CenterState Bank, and Jennifer L. Idell (CenterState’s current Chief Financial Officer)
becoming the Chief Administrative Officer of CenterState. Our future success and profitability are substantially
dependent upon this management and banking abilities of our senior executives. Although we currently have
employment agreements in place with our executive management team and our regional presidents, and have
negotiated employment agreements with Messrs. Murry and Matthews that will become effective upon
completion of the NCC merger, we cannot guarantee that our executives will remain with us. Changes in key
personnel and their responsibilities may be disruptive to our business because of their skills, customer
relationship and/or the potential difficulty of promptly replacing them with successors.
The continued implementation of our mortgage and SBA lines of business may subject us to additional
risk.
We continue to build our mortgage line of business in 2018, and in so doing, invested significant time and
resources to continue to expand the mortgage business within our market areas in both Florida and Georgia,
including by acquiring a team of lenders from State Bank in Georgia, and in launching a third party origination or
TPO channel. We also continued to build our SBA business in 2018 by continuing to hire experienced SBA
lenders and support personnel. Our price and profitability targets for these businesses may not prove feasible, due
to unexpected delays in the continued implementation of these strategies, as well as external factors, such as
compliance with regulations, competitive alternatives, changing tax rates and strategies, interest rates, economic
conditions, and shifting market preferences, which could impact the profitability of these lines of business and
have a material adverse effect on our businesses, and, in turn, our financial condition and results of operations.
The implementation of other new lines of business or new products and services may subject us to
additional risk.
We continuously evaluate our service offerings and may implement new lines of business or offer new
products and services within existing lines of business in the future. There are substantial risks and uncertainties
associated with these efforts. In developing and marketing new lines of business and/or new products and
services, we undergo a new product process to assess the risks of and resources needed for the initiative, and
invest significant time and resources to build internal controls, policies and procedures to mitigate those risks,
including hiring experienced management to oversee the implementation of the initiative. Initial timetables for
the introduction and development of new lines of business and/or new products or services may not be achieved
and price and profitability targets may not prove feasible. External factors, such as compliance with regulations,
competitive alternatives, and shifting market preferences, may also impact the successful implementation of a
new line of business and/or a new product or service. Furthermore, any new line of business and/or new product
21
or service could require the establishment of new key and other controls and have a significant impact on our
existing system of internal controls. Failure to successfully manage these risks in the development and
implementation of new lines of business and/or new products or services could have a material adverse effect on
our business and, in turn, our financial condition and results of operations.
Our size and 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. These capital requirements disallow the Company’s trust preferred securities from qualifying as
Tier 1 capital once the Company exceeds $15 billion in assets, which the Company will do upon completion of
its merger with NCC. While we have successfully raised approximately $63 million in capital in January 2017,
our ability to raise capital, if needed, in the future to meet capital requirements or otherwise 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 total consolidated assets increased to over $10 billion during 2018, which will reduce our revenue due
to the Durbin Amendment limits on interchange, and increase our costs due to increased regulatory
expectations and FDIC insurance assessment increases, and that will impact our earnings.
As of December 31, 2018, the Company and the Bank had total assets of approximately $12 billion and
$12 billion, respectively.
Beginning on July 1, 2019, the Bank will be subject to certain limits on the amounts of interchange fees. In
addition, as of January 1, 2019, the Bank became subject to a different calculation methodology for deposit
insurance assessments, and the CFPB also became our federal supervisor with respect to federal consumer
protection laws.
Anticipating that we would cross the $10 billion threshold, since 2017, we have expended and will continue
to expend resources to meet increased regulatory expectations. Increased deposit insurance assessments could
result in increased expense related to our use of deposits as a funding source. Likewise, a reduction in the amount
of interchange fees we receive for electronic debit interchange will reduce our revenues.
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.
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.
A substantial majority 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, declines in local economic conditions
will adversely affect the values of our real estate collateral. Consequently, a decline in local economic conditions
may have a greater effect on our earnings and capital than on the earnings and capital of other financial
institutions whose real estate loan portfolios are more geographically diverse.
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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, 2018, approximately 84% 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.
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, 2018 and 2017 were $5.64 billion and
$3.24 billion, respectively, or 69% and 70% 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. 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.
As a result, banking regulators 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 maintain higher capital levels and loss
allowances. The Guidance states that the following metrics may indicate a concentration of commercial real
estate loans, but that these metrics are neither limits nor a safe harbor:
1)
2)
total reported loans for construction, land development, and other land equal 100% or more of total risk
based capital (as of December 31, 2018, our consolidated ratio was 55%); and
total reported loans secured by multifamily and non-farm nonresidential properties and loans for
construction, land development, and other land equal 300% or more of total risk-based capital (as of
December 31, 2018, our consolidated ratio was 279%).
Regulators may require 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 downturn in our local real estate markets. See
Part I Item 1. “Supervision and Regulation – Lending Standards and Guidance” for further details on the
Guidance.
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 profitability is vulnerable to interest rate fluctuations.
Our profitability depends substantially upon our net interest income. That net 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). Interest rates are highly sensitive to many factors, including governmental monetary policies and
domestic and international economic and political conditions. Conditions such as inflation, deflation, recession,
unemployment, money supply, and other factors beyond our control may also affect interest rates. In addition,
during 2018m the Federal Reserve has started to reduce the size of its balance sheet by selling securities, which
might also affect interest rates.
23
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 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.
We have ongoing policies and procedures designed to manage the risks associated with changes in market
interest rates, including prepayment risks, and we model expected customer behavior based on historical
experience of other interest rate cycles. Notwithstanding these policies and procedures, our customers may not
react to changes in interest rates in the same manner in which they historically have reacted, resulting in a larger
outflow of deposits or a higher level of loan prepayments than we expect. Such reaction could require us to
increase interest rates to retain or acquire deposits, or lower loan rates to retain or attract loans. In either case, our
deposit costs may increase and our loan interest income may decline, either or both of which may have an
adverse effect on our financial results.
The results of our most recent credit stress tests may not accurately predict the impact on our financial
condition if the economy were to deteriorate.
We perform credit stress testing on our capital position no less than annually, using the economic data and
stress testing assumptions provided by the regulators for the CCAR stress tests. Under the stress test, we estimate
our loan losses (loan charge-offs), resources available to absorb those losses and any necessary additions to
capital that would be required under the “more adverse” stress test scenario. The results of these stress tests
involve many assumptions about the economy and future loan losses and default rates, and may not accurately
reflect the impact on our financial condition if the economy were to deteriorate. Any deterioration of the
economy could result in credit losses significantly higher, with a corresponding impact on our financial condition
and capital, than those predicted by our internal stress test.
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,
cybersecurity risk, corporate governance and legal risk, 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.
24
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 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. 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. Many
environmental laws can impose liability regardless of whether the Company knew of, or were responsible for, the
contamination.
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. In June 2016, the FASB issued a new current expected credit
loss rule, which will be effective for us in 2020 and which will change our accounting for credit losses by
requiring us to record, at the time of origination, credit losses expected throughout the life of loans,
held-to-maturity securities, and certain other assets and off-balance sheet credit exposures as opposed to the
current practice of recording losses when it is probable that a loss event has occurred. We expect to recognize a
one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting
period in which the new standard is effective, but has not yet determined the magnitude of any such one-time
adjustment or the overall impact on our Financial Statements.
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.
The uncertainty in the amount and timing of the resolution of purchase impaired loans may create a
negative impact on our profitability.
As required by applicable accounting standards, we have accounted for our purchased impaired loan
portfolio under ASC 310-30, which requires us to periodically re-estimate the expected cash flow of these
loans. Lower expected cash flow, whether due to changes in projected cash flow estimates, reduction in payoffs
due to rising interest rates, increases in loss estimates, or defaults, may result in impairment of the carrying value
of these loans. Any such impairment must be taken in the period in which the change in cash flow estimate
occurs. Any such impairment will reduce our earnings and results of operations.
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.
25
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.
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
core deposits, 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, a secured line of credit
we have with NexBank, 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.
Uncertainty about the future of LIBOR may adversely affect our business.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR,
announced that it intended to stop persuading or compelling banks to submit rates for the calculation of LIBOR
to the administrator of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the
current basis cannot be guaranteed after 2021. While there is no consensus on what rate or rates may become
accepted alternatives to LIBOR, a group of large banks, the Alternative Reference Rate Committee (ARRC),
selected and the Federal Reserve Bank of New York started in April 2018 to publish the Secured Overnight
Finance Rate or SOFR as an alternative to LIBOR. SOFR is a broad measure of the cost of borrowing cash
overnight collateralized by Treasury securities, given the depth and robustness of the U.S. Treasury repurchase
market. Furthermore, the Bank of England has commenced publication of a reformed Sterling Overnight Index
Average (SONIA), comprised of a broader set of overnight Sterling money market transactions, as of April 23,
2018. The SONIA has been recommended as the alternative to Sterling LIBOR by the Working Group on
Sterling Risk-Free Reference Rates. At this time, it is impossible to predict whether SOFR and SONIA will
become accepted alternatives to LIBOR.
The market transition away from LIBOR to an alternative reference rate, including SOFR or SONIA, is
complex and could have a range of adverse effects on our business, financial condition and results of operations.
In particular, any such transition could:
•
•
•
adversely impact the value of LIBOR-based securities, including certain of our floating rate corporate
debentures or our hedging instruments, or other securities or financial arrangements given LIBOR’s
role in determining market interest rates globally;
although the Bank has implemented language in in its hedging and loan documents to accommodate a
change from LIBOR to an alternative pricing benchmark, including SOFR or SONIA, we may be
required to make further changes to existing LIBOR-based products;
prompt inquiries or other actions from regulators in respect of our preparation and readiness for the
replacement of LIBOR with an alternative reference rate;
26
•
•
result in disputes, litigation or other actions with counterparties regarding the interpretation and
enforceability of certain fallback language in LIBOR-based securities; and
require the transition and/or development of appropriate systems and analytics to effectively transition
our risk management processes from LIBOR-based products to those based on the applicable
alternative pricing benchmark, such as SOFR or SONIA.
The manner and impact of this transition, as well as the effect of these developments on our funding costs,
loan and investment and trading securities portfolios, asset-liability management, and business, is uncertain.
Our business could suffer if we fail to maintain our culture and attract and retain skilled people.
Our success depends, in large part, on our ability to attract and retain competent, experienced people. Our
strategic goals in particular require that we be able to attract qualified and experienced retail and commercial
lending officers, mortgage loan officers, and SBA lenders in our existing markets as well as those markets in
which we may want to expand who share our relationship banking philosophy and have those customer
relationships that will allow us to successfully expand. We also need to attract and retain qualified and
experienced technology, risk and back-office personnel to operate our business. Many of our competitors are
pursuing the same relationship banking strategy in our markets, and also are looking to hire and retain qualified
technology, risk and back-office personnel, which increases the competition to identify, hire and retain talented
employees.
We have focused our strategic attention on our employees and our corporate culture, including on enhancing
our employee orientation, ongoing general and management training, mentoring and employee work environment
as well as diversity and employee advancement. Our failure to maintain our culture and attractive working
environment, through competitive compensation packages that reward initiative, as well as mentoring, training,
and advancement opportunities in order to successfully compete for experienced, qualified employees may have
an adverse effect on our ability to meet our financial goals and thus adversely affect our future results of
operations.
If we are unable to offer our key management personnel long-term incentive compensation, including
restricted stock units and performance share units, as part of their total compensation package, we may
have difficulty retaining such personnel, which would adversely affect our operations and financial
performance.
We have historically granted equity awards under an equity compensation plan, which includes granting
performance share units and restricted stock awards or restricted stock units, to key management personnel as
part of a competitive compensation package. Our ability to grant these awards has been vital to attracting,
retaining and aligning shareholder interest with a talented management team in a highly competitive marketplace.
Shareholder advisory groups have implemented guidelines and issued voting recommendations related to
how much equity companies should be able to grant to employees. The factors used to formulate these guidelines
and voting recommendations include the volatility of a company’s share price and are influenced by broader
macro-economic conditions that can change year to year. The variables used by shareholder advisory groups to
formulate equity plan recommendations may limit our ability to adopt new equity plans in the future. In addition,
the federal banking regulators have issued guidance on executive compensation and have also, along with the
SEC, proposed rules that would prohibit certain incentive compensation arrangements. We do not believe that the
guidance or proposal will impact our current compensation arrangements.
If we are limited in our ability to grant equity compensation awards, we would need to explore offering
other compelling alternatives to supplement our compensation, including long-term cash compensation plans or
significantly increased short-term cash compensation, in order to continue to attract and retain key management
27
personnel. If we used these alternatives to long-term equity awards, our compensation costs could increase and
our financial performance could be adversely affected. If we are unable to offer key management personnel
long-term incentive compensation, including stock options, restricted stock or restricted stock units, or
performance share units, as part of their total compensation package, we may have difficulty attracting and
retaining such personnel, which would adversely affect our operations and financial performance.
Technological changes, including online and mobile banking, have the potential of disrupting our business
model, 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, including mobile and online banking services. Changes in
customer behaviors have increased the need to offer these options to our customers. 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 invest in and use technology to provide
products and services that provide convenience to customers and to create additional efficiencies in operations.
One of our 2019 strategic goals is to focus on technological change and digital transformation of our product and
service channels, which will impact how we deliver our products and services in the future. We will need to
make significant additional capital investments in technology to implement this strategic goal, and we may not be
able to effectively implement new technology-driven products and services in a timely manner in response to
changes in customer behaviors, thus adversely impacting our operations. Many competitors have substantially
greater resources to invest in technological improvements than the Company.
We rely on other companies to provide key components of our business infrastructure.
Third parties provide key components of our business infrastructure, such as our loan and deposit
documents, underwriting software, compliance software, product and service offerings, core 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 our clients and otherwise to conduct business. Technological or financial
difficulties of one or our third party service providers or their sub-contractors could adversely affect our business
to the extent those difficulties result in the interruption or discontinuation of services provided by that party. In
addition, one or more of our third party service providers may become subject to cyber-attacks or information
security breaches that could result 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. While we have processes in place to monitor our third party
service providers’ data and information security safeguards, we do not control such service providers’ day to day
operations and a successful attack or security breach at one or more of such third party service providers is not
within our control. The occurrence of any such breaches or failures 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.
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, third party breaches, or other
disruptions. Failures in our business structure or in the structure of one or more of our third party service
providers 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.
The potential for operational risk exposure exists throughout our business and, as a result of our interactions
with, and reliance on, third parties, is not limited to our own internal operational functions. We depend on our
28
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 data security, 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.
We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as a result
of human error, misconduct, malfeasance or failure, or breach of our or of third-party systems or infrastructure,
expose us to risk. For example, our ability to conduct business may be adversely affected by any significant
disruptions to us or to third parties with whom we interact or upon whom we rely. In addition, our ability to
implement backup systems and other safeguards with respect to third-party systems is more limited than with
respect to our own systems. Our financial, accounting, data processing, backup or other operating or security
systems and infrastructure may fail to operate properly or become disabled or damaged as a result of a number of
factors, including events that are wholly or partially beyond our control, which could adversely affect our ability
to process transactions or provide services. Such events may include sudden increases in customer transaction
volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters such as
earthquakes, tornadoes, hurricanes and floods; disease pandemics; and events arising from local or larger scale
political or social matters, including wars and terrorist acts. In addition, we may need to take our systems offline
if they become infected with malware or a computer virus or as a result of another form of cyber-attack. In the
event that backup systems are utilized, they may not process data as quickly as our primary systems and some
data might not have been saved to backup systems, potentially resulting in a temporary or permanent loss of such
data. We frequently update our systems to support our operations and growth and to remain compliant with all
applicable laws, rules and regulations. This updating entails significant costs and creates risks associated with
implementing new systems and integrating them with existing ones, including business interruptions.
Implementation and testing of controls related to our computer systems, security monitoring and retaining and
training personnel required to operate our systems also entail significant costs. Operational risk exposures could
adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption.
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.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our
colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could
result in the disclosure of confidential information, adversely affect our business or reputation, and create
significant legal and financial exposure.
Our computer systems and network infrastructure and those of third parties, on which we are highly
dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service
attacks, hacking, terrorist activities or identity theft. Our business relies on the secure processing, transmission,
storage and retrieval of confidential, proprietary and other information in our computer and data management
systems and networks, and in the computer and data management systems and networks of third parties. In
addition, to access our network, products and services, our customers and other third parties may use personal
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mobile devices or computing devices that are outside of our network environment and are subject to their own
cybersecurity risks.
We, our customers, regulators and other third parties, including other financial services institutions and
companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-
attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of
service or information, ransomware, improper access by employees or vendors, attacks on personal email of
employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties
or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or
destruction of confidential, proprietary and other information of ours, our employees, our customers or of third
parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network
access or business operations. As cyber threats continue to evolve, we may be required to expend significant
additional resources to continue to modify or enhance our protective measures or to investigate and remediate
any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and
implement controls, processes, policies and other protective measures, we may not be able to anticipate all
security breaches, nor may we be able to implement guaranteed preventive measures against such security
breaches. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and
could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of
the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct
financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our
mobile-payment and other internet-based product offerings and expand our internal usage of web-based products
and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the
increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign
governments, disgruntled employees or vendors, activists and other external parties, including those involved in
corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise.
Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are
extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues,
customers or other users of our systems to disclose sensitive information in order to gain access to its data or that
of its clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive.
The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be
recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a
vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-
attacks or security breaches at third-party vendors with access to our data may not be disclosed to us in a timely
manner.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and
other third parties with whom we do business or upon whom we rely to facilitate or enable our business
activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such
as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity
of financial entities and technology systems, a technology failure, cyber-attack or other information or security
breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities
could have a material impact on counterparties or other market participants, including us. This consolidation,
interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide
bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology
failure, cyber-attack or other information or security breach, termination or constraint could, among other things,
adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our
business. In addition, we, our employees and our customers, are increasingly transitioning our and their
computing infrastructure to cloud-based computing, storage, data processing, networking and other services,
which may increase these security risks.
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Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in
a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our
systems has been successful, whether or not this perception is correct, may damage our reputation with customers
and third parties with whom we do business. Hacking of personal information and identity theft risks, in
particular, could cause serious reputational harm. A successful penetration or circumvention of system security
could cause us serious negative consequences, including our loss of customers and business opportunities,
significant business disruption to our operations and business, misappropriation or destruction of our confidential
information and/or that of our customers, or damage to our or our customers’ and/or third parties’ computers or
systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory
fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement
or other compensatory costs, additional compliance costs, and could adversely impact our results of operations,
liquidity and financial condition.
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 controls 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.
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. In addition, properly integrating our acquisitions into our disclosure
controls and procedures in a timely manner presents challenges. 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 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,
31
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.
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 and
providing growth opportunities for 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, including as a
result of a successful cyberattack against us or other unauthorized release or loss of customer information, our
business and, therefore, our operating results may be materially adversely affected.
Risks relating to the Regulatory Environment
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 and the FDIC and will be subject to the
supervision of the CFPB. This regulation is imposed primarily to protect depositors, the FDIC deposit insurance
fund, consumers, and the banking system as a whole. We also are regulated by the SEC and the Financial
Industry Regulatory Authority or FINRA, which regulation is designed to protect investors. Our compliance with
these regulations is costly and potentially restricts certain of our activities, including payment of dividends,
mergers and acquisitions, investments, loans and interest rates charged, interest rates paid and deposits and
locations of our offices. We are also subject to capital 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.
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.
The Company and the Bank each 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. In recent years, these market and regulatory expectations have increased
substantially and have resulted in higher and more stringent capital requirements for us and the Bank. For
example, current capital requirements will disallow the Company’s trust preferred securities from qualifying as
Tier 1 capital once the Company exceeds $15 billion in assets, which the Company will do upon completion of
its merger with NCC.
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
32
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. At December 31, 2018, we had approximately $262 million in wholesale brokered deposits,
$4 million of in-market CDARs deposits, $155 million of ICS deposits and approximately $50 million of
deposits related to our prepaid card business, which are considered brokered deposits for regulatory purposes.
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, consumer compliance, 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.
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 and
have material impact on our business strategy.
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 AML program and file suspicious activity
and currency transaction reports when appropriate. The Bank is also subject to increased scrutiny of compliance
with the rules enforced by OFAC 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. Please see Item I – Part 1 – Supervision and Regulation – Anti-
Money Laundering Rules and Item 1 – Part 1 – Supervision and Regulation – OFAC Regulation for further
information regarding the Bank’s obligations under applicable AML laws and regulations and sanctions,
respectively.
If the Bank’s policies, procedures, and systems are deemed deficient, or the policies, procedures and
systems of the financial institutions that we have already acquired or may acquire in the future are 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 and ability to obtain regulatory approvals to proceed with certain
aspects of its business plan, including acquisition plans. Failure to maintain and implement adequate programs to
combat money laundering and terrorist financing could also have serious reputational consequences for the Bank.
33
Any of these results could have a material adverse effect on the Bank’s business, financial condition, results of
operations, and future prospects.
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 material
penalties and other sanctions.
The 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.
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. The assessment base on which the
Bank’s deposit insurance premiums is paid to the FDIC has been calculated based on its average consolidated
total assets less its average equity. However, effective July 1, 2019, which is following the fourth consecutive
quarter where the Bank’s total consolidated assets equal or exceed $10 billion, the FDIC will use a performance
score and loss-severity score to calculate the Bank’s initial FDIC assessment rate. An institution’s risk
classification is assigned based on its capital levels and the level of supervisory concern the institution poses to
its regulators. While our risk management processes are designed to reduce risk by maintaining capital levels and
mitigating any supervisory concerns, we may be unable to control the amount of premiums that we are required
to pay for FDIC insurance in the event of a new economic downturn and an increase in financial institution
failures. Any future increases in assessments 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.
Risks relating to our Common Stock
We have provisions in our articles of incorporation that could impede a takeover of the Company.
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 the Company 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
34
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, tax 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. For
information on these regulatory restrictions on the right of the Bank to pay dividends to us and on the right of the
Company to pay dividends to its shareholders, see Part I – Item 1 – “Supervision and Regulation – Dividend
Restrictions.” 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.
Holders of our junior subordinated debentures have rights that are senior to those of our common
shareholders
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, 2018, we had outstanding trust preferred securities and accompanying junior subordinated
debentures totaling $38.5 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, 2018, our shareholders include two funds owning approximately 15% 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, 2018, our shareholders include two funds that
collectively own approximately 15% of the outstanding shares of our common stock. Top ten institutional owners
collectively own approximately 38% 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
35
financial holding company’s outstanding voting shares desire to act in concert, these institutional owners
nonetheless 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.
Risk relating to Economic Conditions and other Outside Forces
The political and economic environment could materially impact our business operations and financial
performance.
The political and economic environment in the United States and elsewhere has resulted in some
uncertainty. In the past year, the enactment of a tax bill resulted in lower costs for businesses in general and
banks in particular, which in turn resulted in various benefits including, among other things, enhanced revenues
and operating efficiencies, lower loan rates, increased dividend payments and increased employee compensation,
but also decreased the value of our deferred tax asset by $18.6 million, as well as the value of our tax advantaged
loans and investments we have made, and the impact overall has diminished. The enactment of a regulatory relief
bill reduced some requirements for the Company, including the Dodd Frank Act regulator directed stress test.
Changes in policy by the regulators also have reduced some regulatory requirements, but those policy changes
may not be permanent. Because of the political environment, there may be changes in law or regulation in the
future that could alter the anticipated benefits (and costs) of recent legal or policy changes, which could result in
a reduction in the price of our shares due to perceived changes in our regulatory and compliance costs or
decreases in the amount of expected revenues, all of which could materially and adversely affect our business,
financial condition and operating results.
A slowdown in economic growth or a resumption of recessionary economic conditions could have an
adverse effect on our business in the future.
The economic crisis of 2008 caused many financial institutions to seek additional capital, to reduce or
eliminate dividends, to merge with larger and stronger institutions and to fail. The 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
normalized and growth has been stronger than in previous years, future political and 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 current and future law and regulations that may be imposed in
response to future market developments also could negatively affect us by restricting our business operations,
including our ability to originate or sell loans, and adversely impact our financial performance.
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.
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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. If the communities in which we operate do not grow or if prevailing
economic conditions locally or nationally become challenging, our business may be adversely affected. 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, while our core markets in the last year have expanded to Georgia
and Alabama, and we have benefited from such growth, we cannot give any assurance we will continue to benefit
from market growth or favorable economic conditions in our primary market areas if they do occur.
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.
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 and fintech or e-commerce
companies that operate 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 or more advanced
technology may possess an advantage by being capable of maintaining numerous and more convenient banking
locations, easy to use and available mobile and computer apps or Internet platforms, operating more ATMs and
conducting extensive promotional and advertising campaigns.
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 and credit unions. 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, sophisticated Internet or mobile
applications, and inability to spread our marketing costs across a broader market. Although we compete by
37
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.
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. Our Georgia and Alabama markets may experience tornados and other types of strong storms. These
type of storms may increase in intensity because of changes in weather patterns and other factors including
climate change. 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. Storms during 2018 only minimally
impacted our operations but 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 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, tropical storms, or tornados 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.
Item 1B. Unresolved Staff Comments
None
Item 2.
Properties
Our holding company owns no real property. Our corporate office is located at 1101 First Street South, Suite
202, Winter Haven, Florida 33880. At the end of 2018, our Company, through the Bank, operated a total of 126
38
full service banking offices. 109 of these offices are located in 32 counties in central, southeast, northeast and the
panhandle area of Florida. 13 of these offices are located in 7 counties in Georgia and 4 of these offices are
located in 2 counties in Alabama. We own 97 offices and lease 29 of these offices. We also have two loan
production offices of which we own 1 and lease 1. 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, and office space for our Mortgage banking division, primarily in Atlanta and Macon, Georgia. See
Note 8 to the “Notes to Consolidated Financial Statements” included in this Report and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Bank Premises and Equipment,” for
additional information regarding our premises and equipment.
Item 3.
Legal Proceedings
We or 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 its 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]
39
PART II
Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
The shares of our Common Stock are traded under the symbol “CSFL” on the NASDAQ Global Select
Market. As of December 31, 2018, there are 95,679,596 shares of common stock outstanding. As of this same
date we have approximately 2,166 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 2018 and 2017.
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.10
$0.10
$0.10
$0.10
$0.06
$0.06
$0.06
$0.06
2018
2017
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. For information on regulatory restrictions on the right of the Bank to pay
dividends to us and on the right of the Company to pay dividends to its shareholders, see Part I - Item 1
“Supervision and Regulation - Dividend Restrictions.” There are various statutory and contractual limitations on
the ability of our Bank to pay dividends to us.
Share Repurchases
A summary of our common stock repurchases during the fourth quarter of 2018 is set forth in the table
below.
Period
Beginning
Ending
Total
Number of
Shares
Purchased
Average
Price paid
per Share
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
October 1, 2018
October 31, 2018
November 1, 2018
November 30, 2018
December 1, 2018
December 31, 2018
Total for quarter ending December 31, 2018
—
—
—
—
—
—
—
—
—
—
—
—
3,000,000
3,000,000
3,000,000
3,000,000
We did not repurchase any shares of our common stock during the fourth quarter of 2018 pursuant to our stock
repurchase plan currently in place nor did we repurchase any shares from our employees during the fourth quarter
of 2018 for settlement of certain tax withholding obligations related to certain equity based compensation
awards.
40
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 2018 Annual Meeting of Shareholders is incorporated herein by reference.
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, 2013
(assuming a $100 investment on December 31, 2013 and reinvestment of all dividends).
CENTERSTATE BANK CORPORATION
Five Year Performance Index
400
300
200
X
E
D
N
I
100
0
2013
2014
2015
2016
2017
2018
CENTERSTATE BANK CORPORATION
SNL SOUTHEAST BANK INDEX
S&P 500
CenterState Bank Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SNL Southeast Bank Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
100
100
118
114
113
156
115
111
252
129
147
260
157
182
216
150
150
2013
2014
2015
2016
2017
2018
41
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 nonrecurring expenses, such as loss on termination of FDIC loss share agreements. 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) by total taxable-equivalent net
interest income and non-interest income (less nonrecurring items). 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 market place 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 financial holding companies. Management compensates for these limitations by providing detailed
reconciliations between GAAP information and the non-GAAP financial measures.
42
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)
2018
2017
2016
2015
2014
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 . . . . . . . . . . . . . . . . . . . .
$369,937
35,944
42,723
6,399
5,629
$187,584
32,388
22,598
5,324
3,432
$129,619
34,006
18,920
3,909
2,211
$101,051
40,645
16,460
2,641
1,523
$ 87,094
34,168
13,991
1,435
1,539
Total Interest income (GAAP) . . . . . . . . . . . . . . . . . . . . . .
460,632
251,326
188,665
162,320
138,227
Tax equivalent adjustment
Non PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt . . . . . . . . . . . . . . . . . . . . . . . .
Total tax equivalent adjustment
. . . . . . . . . . . . . . . . . . . . .
1,442
1,079
2,521
3,185
2,531
5,716
1,487
1,972
3,459
819
1,379
2,198
Interest income—tax equivalent
Loans excluding PCI loans . . . . . . . . . . . . . . . . . . . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . .
371,379
35,944
42,723
7,478
5,629
190,769
32,388
22,598
7,855
3,432
131,106
34,006
18,920
5,881
2,211
101,870
40,645
16,460
4,020
1,523
628
746
1,374
87,722
34,168
13,991
2,181
1,539
. . . . . . . . . . . . . . . .
Total interest income—tax equivalent
Total Interest expense (GAAP) . . . . . . . . . . . . . . . . . . . . . .
463,153
(47,550)
257,042
(15,783)
192,124
(9,340)
164,518
(7,286)
139,601
(7,356)
Net interest income—tax equivalent . . . . . . . . . . . . . . . . . .
$415,603
$241,259
$182,784
$157,232
$132,245
Net interest income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . .
$413,082
$235,543
$179,325
$155,034
$130,871
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 deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trust department . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Gain on extinguishment of debt
5.14%
5.50%
3.55%
4.86%
4.89%
0.76%
4.10%
4.13%
4.36%
4.39%
4.59%
5.16%
4.33%
4.46%
4.56%
0.44%
4.02%
4.13%
4.18%
4.28%
4.47%
5.26%
4.61%
4.33%
4.41%
0.33%
4.00%
4.08%
4.12%
4.20%
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%
$105,127
(611)
—
—
$ 65,175
—
(1,224)
—
$ 64,369
—
—
(308)
$ 37,450
—
—
—
$ 26,226
—
—
—
26,226
130,871
1,374
Adjusted non-interest income . . . . . . . . . . . . . . . . . . . . . . .
Net interest income before provision (GAAP) . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Total tax equivalent adjustment
104,516
413,082
2,521
63,951
235,543
5,716
64,061
179,325
3,459
37,450
155,034
2,198
Adjusted net interest income . . . . . . . . . . . . . . . . . . . . . . . .
415,603
241,259
182,784
157,232
132,245
43
Income Statement Non-GAAP measures and ratios (continued)
continued from previous page
2018
2017
2016
2015
2014
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonrecurring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$312,467
—
$186,485
—
$174,481
(17,560)
$126,082
—
$136,181
—
Adjusted non-interest expense . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
312,467
186,485
156,921
126,082
136,181
60%
61%
64%
65%
86%
Years ended December 31,
Analysis of changes in interest income and expense
Loans—tax equivalent
Securities—tax-exempt—tax equivalent
Total interest income—tax equivalent
Net interest income—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168,546
1,163
188,674
169,280
$15,620
(1,540)
17,437
5,064
$184,166
(377)
206,111
174,344
Analysis of changes in interest income and expense
Net change Dec. 31, 2018 versus 2017
Volume
Rate
Net change
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax-exempt—tax equivalent
Total interest income—tax equivalent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income—tax equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$61,231
2,348
64,804
62,023
$(3,186)
(374)
114
(3,548)
$58,045
1,974
64,918
58,475
(Dollars in thousands, except per share data)
2018
2017
2016
2015
2014
Years ended December 31,
Net change Dec. 31, 2017 versus 2016
Volume
Rate
Net change
Balance Sheet Non-GAAP measures
and ratios
Total assets . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . .
Tangible assets . . . . . . . . . . . . . . . . . . .
Common stockholders’ equity . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . .
Tangible common stockholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per common share . . . . . . .
Effect of intangible assets . . . . . . . . . . .
Tangible book value per common
share . . . . . . . . . . . . . . . . . . . . . . . . .
Equity to total assets . . . . . . . . . . . . . . .
Effect of intangible assets . . . . . . . . . . .
Tangible common equity to tangible
assets . . . . . . . . . . . . . . . . . . . . . . . . .
$12,337,588
(802,880)
(69,178)
$11,465,530
1,971,344
(802,880)
(69,178)
$7,123,975
(257,683)
(24,614)
$6,841,678
$ 904,750
(257,683)
(24,614)
$5,078,559
(106,028)
(16,294)
$4,956,237
$ 552,457
(106,028)
(16,294)
$4,022,717
(76,739)
(13,001)
$3,932,977
$ 490,514
(76,739)
(13,001)
$3,776,869
(76,739)
(15,401)
$3,684,729
$ 452,477
(76,739)
(15,401)
$ 622,453
$ 1,099,286
15.04
20.60
$
$
(4.69)
(9.11) $
$
$ 430,135
11.47
$
(2.54)
$
$ 400,774
10.79
$
(1.97)
$
$ 360,337
9.98
$
(2.03)
$
$
$
11.49
15.98%
(6.39)%
$
10.35
12.70%
(3.60)%
$
8.93
10.88%
(2.20)%
$
8.82
12.19%
(2.00)%
7.95
11.98%
(2.20)%
9.59%
9.10%
8.68%
10.19%
9.78%
The selected consolidated financial data presented on the following page 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, 2018 and 2017, and
the three year period ended December 31, 2018, presented elsewhere herein. Operating results for prior periods
are not necessarily indicative of results that might be expected for any future period.
44
Selected Consolidated Financial Data
For the twelve month period ending or as of December 31
138,227
(7,356)
130,871
(826)
(Dollars in thousands except for share and per
share data)
SUMMARY OF OPERATIONS:
Total interest income . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . .
2018
2017
2016
2015
2014
460,632
(47,550)
$
251,326
(15,783)
$
188,665
(9,340)
$
162,320
(7,286)
$
Net interest income . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
413,082
(8,283)
235,543
(4,958)
179,325
(4,962)
155,034
(4,493)
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . .
Income from correspondent banking
capital markets division . . . . . . . . . . . . .
Net (loss) gain on sale of securities
available for sale . . . . . . . . . . . . . . . . . . .
Gain on sale of deposits . . . . . . . . . . . . . . .
Gain on sale of trust department
. . . . . . . .
Gain on extinguishment of debt . . . . . . . . .
Loss on termination of FDIC loss share
agreements . . . . . . . . . . . . . . . . . . . . . . .
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
404,799
71,150
230,585
35,617
174,363
30,363
150,541
9,883
130,045
6,027
33,388
28,341
33,685
27,563
20,153
(22)
611
—
—
—
(7)
—
1,224
—
—
(312,467)
(186,485)
197,459
(41,024)
156,435
1.78
1.76
20.60
11.49
0.40
95,679,596
$
$
$
$
$
$
109,275
(53,480)
55,795
0.97
0.95
15.04
10.35
0.24
60,161,334
$
$
$
$
$
$
$
$
$
$
$
$
13
—
—
308
(17,560)
(156,921)
64,251
(21,910)
42,341
0.89
0.88
11.47
8.93
0.16
48,146,981
4
—
—
—
—
46
—
—
—
—
(126,082)
(136,181)
61,909
(22,571)
39,338
0.87
0.85
10.79
8.82
0.07
45,459,195
$
$
$
$
$
$
$
$
$
$
$
$
20,090
(7,126)
12,964
0.32
0.31
9.98
7.95
0.04
45,323,553
outstanding . . . . . . . . . . . . . . . . . . . . . . .
87,641,220
57,244,698
47,409,142
45,182,224
40,852,002
Diluted weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . .
88,758,853
58,340,813
48,191,523
45,788,632
41,235,552
BALANCE SHEET DATA:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . .
Common stockholders’ equity . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . .
Tangible capital
. . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible (CDI) . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . .
Average total assets . . . . . . . . . . . . . . . . . .
$12,337,588
8,340,504
39,770
9,477,336
713,132
32,415
1,971,344
1,971,344
1,099,286
802,880
66,225
2,953
10,950,654
$ 7,123,975
4,773,221
32,825
5,560,523
558,570
26,192
904,750
904,750
622,453
257,683
24,063
551
6,341,159
$ 5,078,559
3,429,747
27,041
4,152,544
290,413
25,958
552,457
552,457
430,135
106,028
15,510
784
4,864,151
$ 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
$ 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
45
Selected Consolidated Financial Data—continued
For the twelve month period ending or as of December 31
2018
2017
2016
2015
2014
Average loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,407,765
Average interest earning assets . . . . . . . . . . . . . . . . . . . . 9,475,205
Average deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,545,623
Average interest bearing deposits . . . . . . . . . . . . . . . . . . . 5,627,353
Average interest bearing liabilities . . . . . . . . . . . . . . . . . . 6,247,314
Average total stockholders’ equity . . . . . . . . . . . . . . . . . . 1,662,815
SELECTED FINANCIAL RATIOS:
Return on average assets . . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout
Efficiency ratio (1)
. . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin, tax equivalent basis (2) . . . . . .
Net interest spread, tax equivalent basis (3) . . . . . .
1.43%
9.41%
23%
60%
4.39%
4.13%
4,326,325
5,631,772
5,107,495
3,271,415
3,612,651
819,626
3,140,343
4,356,455
3,991,078
2,568,605
2,834,392
531,734
2,518,572
3,484,739
3,178,569
2,038,955
2,278,427
471,130
2,160,155
2,995,845
2,891,459
1,942,299
2,046,061
391,574
0.88%
6.81%
25%
61%
4.28%
4.13%
0.87%
7.96%
18%
64%
4.20%
4.08%
1.00%
8.35%
8%
65%
4.51%
4.40%
0.38%
3.31%
13%
86%
4.41%
4.30%
CAPITAL RATIOS: (4)
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 . . . . . . . . . . . . . . .
10.04%
9.82%
9.11%
10.53%
10.11%
11.86%
12.27%
12.70%
9.59%
11.46%
11.96%
12.57%
9.10%
11.27%
11.83%
12.54%
8.68%
14.39%
14.99%
15.79%
10.19%
—
14.36%
15.14%
9.78%
0.02%
0.48%
168%
0.22%
(0.02)%
0.71%
188%
0.30%
126
2,113
78
1,200
— %
0.82%
140%
0.52%
67
952
0.09%
0.93%
106%
0.56%
57
784
0.07%
0.90%
76%
0.92%
58
785
(1) Efficiency ratio is non-interest expense (less non-recurring items such as the gain on sale of deposits, gain
on sale of trust department and gain on early extinguishment of debt) 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 such as the loss on termination of FDIC loss share agreements).
(2) Net interest margin is net interest income divided by total average earning assets.
(3) Net interest spread is the difference between the average yield on earning assets and the average yield on
average interest bearing liabilities.
(4) Capital and leverage ratios for 2014 were calculated under the capital rules that were in effect prior to
January 1, 2015.
(5) Excludes purchased credit-impaired loans.
46
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 Sunshine, HCBF and Charter
acquisitions in 2018 and Platinum and Gateway acquisitions in 2017. 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)
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
2018
2017
Interest income . . . . . . . . . . . . $132,181 $114,663 $110,629 $103,159 $ 68,422 $ 67,057 $ 64,744 $ 51,103
(2,782)
Interest expense . . . . . . . . . . .
(16,499)
(10,100)
(12,810)
(4,471)
(8,141)
(3,727)
(4,803)
Net interest income . . . . . . . .
Provision for loan losses . . . .
115,682 101,853
(1,950)
(2,100)
100,529
(2,933)
95,018
(1,300)
63,619
(968)
62,586
(1,096)
61,017
(1,899)
48,321
(995)
Net interest income after
provision for loan losses . .
Non-interest income . . . . . . . .
Correspondent banking and
capital markets division
income . . . . . . . . . . . . . . . .
Gain on sales of securities
113,582
22,503
99,903
18,808
97,596
15,513
93,718
14,937
62,651
10,349
61,490
9,528
59,118
8,387
47,326
8,053
9,893
8,296
7,076
8,123
6,616
7,213
8,587
6,449
available for sale . . . . . . . .
Non-interest expenses . . . . . .
—
(79,520)
—
(77,339)
—
(79,612)
(22)
(75,996)
(7)
(49,011)
—
(44,622)
—
(54,809)
—
(38,043)
Income before income tax . . .
Income tax expense . . . . . . . .
66,458
(15,807)
49,668
(11,683)
40,573
(8,410)
40,760
(5,124)
30,598
(28,686)
33,609
(11,559)
21,283
(6,050)
23,785
(7,185)
Net income . . . . . . . . . . . . . . . $ 50,651 $ 37,985 $ 32,163 $ 35,636 $ 1,912 $ 22,050 $ 15,233 $ 16,600
Basic earnings per common
share . . . . . . . . . . . . . . . . . . $
0.53 $
0.43 $
0.38 $
0.43 $
0.03 $
0.37 $
0.26 $
0.33
Diluted earnings per common
share . . . . . . . . . . . . . . . . . . $
0.52 $
0.43 $
0.38 $
0.42 $
0.03 $
0.36 $
0.26 $
0.32
The 2018 results were impacted by the merger and acquisition related expenses due to the 2018 acquisitions
of Sunshine, HCBF and Charter as reflected in the table above. The 2017 results were impacted by the merger
and acquisition related expenses due to the 2017 acquisitions of Platinum and Gateway. The acquisitions resulted
in continuous 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. As result of the Tax Act
signed into law on December 22, 2017, the Company evaluated its deferred tax asset to account for the future
impact of lower corporate tax rates on its deferred tax asset. The reduction in the federal corporate tax rate
resulted in a one-time charge to the Company’s earnings and reduction to its net deferred tax assets of
approximately $18,575 during the fourth quarter of 2017. The further improvement of the quarters 2018 results
compared to the quarters 2017 are primarily a reflection of the benefits of the additional acquisitions noted
above.
47
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.)
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, 2018 and 2017, and the results of
operations for the years ended December 31, 2018, 2017 and 2016. 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 Bank Corporation (the “Parent
Company,” “Company,” “Corporate,” “CenterState,” “Holding Company”, “CSFL”, “we” or “our”), our wholly
owned subsidiary bank, CenterState Bank, N.A. (“CSB” or the “Bank”), our non bank subsidiary R4ALL, Inc.
(“R4ALL”) and our non bank subsidiary CSFL Insurance Corp (“CSFL IC”).
CenterState, incorporated under the laws of the State of Florida on September 20, 1999, is a financial
holding company whose principal subsidiary is the Bank. Headquartered in Winter Haven, Florida, we provide
traditional retail, commercial, mortgage, wealth management and SBA services throughout our Florida, Georgia
and Alabama branch network and customer relationships in neighboring states. CenterState is among the largest
Florida-based community banking organizations in terms of publicly available deposit data.
We also operate a correspondent banking and capital markets service division through our Bank for over
600 small and medium sized community banks throughout the United States. Based primarily in Atlanta, Georgia
and Birmingham, Alabama, this division earns commissions on fixed income security sales, fees from hedging
services, loan brokerage fees and consulting fees for services related to these activities.
• Gulfstream Bancshares, Inc. (“Gulfstream”), in January 2014, which added approximately $479 million
in deposits;
•
First Southern Bancorp, Inc. (“First Southern”), in June 2014, which added approximately $853 million
in deposits;
• Community Bank of South Florida, Inc. (“Community”), in March 2016, which added approximately
$453 million in deposits;
• Hometown of Homestead Banking Company (“Hometown”), in March 2016, which added
approximately $253 million in deposits;
•
Platinum Bank Holding Company (“Platinum”), in April 2017, which added approximately
$520 million in deposits;
• Gateway Financial Holdings of Florida, Inc. (“Gateway”) in May 2017, which added approximately
$708 million in deposits;
• HCBF Holding Company, Inc. (“HCBF”), in January 2018, which added approximately $719 million
in deposits;
•
Sunshine Bancorp, Inc. (“Sunshine”), also in January 2018, which added approximately $1.8 billion in
deposits; and
• Charter Financial Corporation (“Charter”), in September 2018, which added approximately $1.3 billion
in deposits.
48
On November 23, 2018, CenterState entered into an Agreement and Plan of Merger with National
Commerce Corporation (“NCC”), a financial holding company headquartered in Birmingham, Alabama, which
engages in the business of banking through National Bank of Commerce (“NBC”). NBC operates branches
throughout Florida (including under the trade names United Legacy Bank, Reunion Bank of Florida, Patriot
Bank, Premier Bank and FirstAtlantic Bank), in the Atlanta, Georgia area (including under the trade names
(including under the trade names First Landmark Bank, Private Bank of Buckhead, Private Bank of Decatur and
PrivatePlus Mortgage) and in Birmingham, Huntsville, Auburn-Opelika and Baldwin County, Alabama. NCC
also engages in the business of factoring commercial receivables of transportation companies and automotive
parts and service providers through the United States and parts of Canada through a subsidiary, CBI Holding
Company, LLC, and its subsidiary Corporate Billing, LLC. Upon completion of the merger, which is subject to
receipt of regulatory and shareholder approvals and other customary closing conditions, CenterState will have on
a pro forma basis, excluding purchase accounting adjustments, assets of $16.4 billion, deposits of $12.8 billion,
loans of $11.5 billion and total shareholders’ equity of $2.9 billion.
We also own R4ALL, Inc., which acquires and disposes of troubled assets and CSFL IC, which operates as
a captive insurance subsidiary pursuant to section 831(b) of the U.S. Tax Code.
At December 31, 2018, we had total consolidated assets of $12.3 billion, total consolidated loans of
$8.3 billion, total consolidated deposits of $9.5 billion, and total consolidated shareholders’ equity of
$2.0 billion.
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 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 Bank.
A Condensed Consolidating Balance Sheet at December 31, 2018 and a Condensed Consolidating Statement
of Operations for the year ending December 31, 2018 are presented below.
49
Condensed Consolidating Balance Sheet
At December 31, 2018
CSB
INS. CORP R4ALL
CSFL
PARENT
COMPANY
Eliminations
Consolidated
Cash and due from banks . . . . . .
Federal funds sold and Federal
$
135,102
$3,211
$ 128
$
1,338
$
(4,427) $
135,352
Reserve deposits . . . . . . . . . . .
231,981
Cash and cash equivalents . . . . . .
Investment securities . . . . . . . . . .
Loans held for sale . . . . . . . . . . .
Purchase credit-impaired (“PCI”)
loans . . . . . . . . . . . . . . . . . . . . .
Loans, excluding PCI loans . . . . .
Allowance for loan losses . . . . . .
Bank premises and equipment,
. . . . . . . . . . . . . . . . . . . . . .
net
Goodwill
. . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . .
Other repossessed real estate
owned . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . .
All other assets . . . . . . . . . . . . . .
367,083
1,945,918
40,399
158,971
8,181,459
(39,767)
227,111
802,880
69,178
2,909
—
570,721
—
3,211
—
—
—
—
—
—
—
—
—
—
1,345
—
128
—
—
—
74
(3)
—
—
—
—
—
2
—
1,338
—
—
—
—
—
343
—
—
—
2,002,724
12,503
—
(4,427)
—
—
—
—
—
—
—
—
—
(2,002,724)
(3,788)
231,981
367,333
1,945,918
40,399
158,971
8,181,533
(39,770)
227,454
802,880
69,178
2,909
—
580,783
Total assets . . . . . . . . . . . . . . . . .
$12,326,862
$4,556
$ 201
$2,016,908
$(2,010,939) $12,337,588
Deposits . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . .
All other liabilities . . . . . . . . . . . .
Total stockholders’ equity . . . . . .
$ 9,481,763
702,132
143,005
1,999,962
$ —
—
1,995
2,561
$ — $
— $
—
—
201
43,415
2,149
1,971,344
(4,427) $ 9,477,336
745,547
143,361
1,971,344
—
(3,788)
(2,002,724)
Total liabilities and stockholders’
equity . . . . . . . . . . . . . . . . . . . .
$12,326,862
$4,556
$ 201
$2,016,908
$(2,010,939) $12,337,588
Condensed Consolidating Statement of
Operations
For the twelve month period ending
December 31, 2018
Interest income . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . .
$
Net interest income . . . . . . . . . . .
Provision for loan losses . . . . . . .
Net interest income after loan
loss provision . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . .
Non-interest expense . . . . . . . . . .
Net income before income tax
provision . . . . . . . . . . . . . . . . .
. .
Income tax (provision) benefit
CSB
INS. CORP R4ALL
CSFL
PARENT
COMPANY
Eliminations
Consolidated
460,632
(44,135)
416,497
(8,287)
$ —
—
—
—
408,210
107,293
(311,463)
—
1,146
(336)
$ — $
— $
—
—
4
4
—
—
(3,415)
(3,415)
—
(3,415)
156,540
(3,988)
— $
—
—
—
—
(159,852)
3,320
460,632
(47,550)
413,082
(8,283)
404,799
105,127
(312,467)
204,040
(48,319)
810
(2)
4
(1)
149,137
7,298
(156,532)
—
197,459
(41,024)
Net income . . . . . . . . . . . . . . . . .
$
155,721
$ 808
$
3
$ 156,435
$ (156,532) $
156,435
Through our 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.
50
Our strategy is to grow organically and by acquisition in our market areas or close to it. In pursuing this
strategy, we seek lending teams and companies that are culturally similar to us, that are experienced and are
located in our markets or in markets close to us so we can achieve economies of scale. To that end, during 2016,
we established a new mortgage line of business led by an experienced mortgage lending team, and an SBA
business and intend to grow those business lines in our markets, thus increasing our non-interest income. We also
closed two acquisitions in 2016, closed two more acquisitions during the second quarter of 2017, closed an
additional three acquisitions in 2018, and one acquisition announced in 2018 with an expected closing date of
sometime during the second quarter of 2019.
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.
Correspondent banking division
The correspondent banking and capital markets division is integrated with and part of our Bank, although
the majority of our bond salesmen, traders and operations personnel are physically housed in 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 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
51
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 and portfolio managers assign a loan grade to newly originated loans in accordance with
the standard loan grades. Throughout the lending relationship, the loan officer and portfolio manager is
responsible for periodic reviews, and if warranted 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 the Bank’s Chief Credit Officer, Director of Credit Administration (“DCS”),
Controller, Special Assets Manager (“SAM”) and Special Assets officers. Our loan review department, which is
independent of the lending function periodically reviews loan portfolios and lending relationships. The loan
review department may disagree with the Bank’s grade on a particular loan and subsequently downgrades or
upgrades such loan(s) based on the department’s risk analysis.
Our DCS and SAM and their teams are responsible for identifying and reporting all impaired loans,
non-accrual loans, troubled debt restructures or TDRs and other real estate owned or OREO. They hold monthly
meetings with our Controller and Special Assets Credit Administration (“SACA”) who along with the SAM, 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 DCS, SAM and their teams make sure
that all non-performing loans subject to FASB Accounting Standards Codification No. 310 (“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. The
purpose of the meetings is to allow the sharing of information with senior management.
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 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
52
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 $803 million of goodwill on our consolidated balance sheet at December 31, 2018. Other acquired
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.
Goodwill and intangible assets are described further in Note 9 of the “Notes to 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
$51.5 million in our consolidated balance sheet at December 31, 2018. For additional discussion of income taxes,
see Notes 1 and 15 of “Notes to Consolidated Financial Statements.”
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 elect to account for loans acquired with deteriorated credit
quality since origination due to certain conditions including loans on non-accrual status, loans with insufficient
cash flow, loans that are delinquent, loans with high loan-to-value ratios, loans in process of foreclosure or any
TDR with loss potential in accordance with guidance outlined in ASC 310-30. For each acquisition, these PCI
53
loans are aggregated into pools based on common risk characteristics and each pool then is accounted as a single
asset with a single composite interest rate and an aggregate expectation of cash flow. For the loan portfolios
acquired through the FDIC-assisted failed bank acquisitions, we aggregated commercial, consumer, and
residential loans into pools of loans with common risk characteristics for each failed institution acquired.
As the PCI loans are recorded at fair value at the acquisition date, any losses after the acquisition are
recognized through the allowance for loan losses. We estimate the timing and amount of expected cash flows for
each loan pool. The expected cash flows in excess of the amount paid is accreted into interest income over the
remaining life of the loan pools (accretable yield). The excess of contractual amounts over the total cash flows
expected to be collected from the loans (non-accretable yield) is not accreted into income.
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 each acquired pool as frequently as on a quarterly, no less than on an annual
basis. The review frequency is determined based on our discretion.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018 AND
DECEMBER 31, 2017
Net Income
Our net income for the year ended December 31, 2018 was $156,435 or $1.78 and $1.76 per share basic and
diluted, respectively, compared to $55,795 or $0.97 and $0.95 per share basic and diluted for the year ended
December 31, 2017. The increase of $100,640 between both years was primarily due to the increase in income
producing assets from the acquisitions of Sunshine and HCBF on January 1, 2018 and Charter on September 1,
2018. In addition, as a result of the Tax Act signed into law on December 22, 2017, the Federal corporate income
tax rate applicable to the Company decreased from 35% to 21% resulting in lower income tax expense during
2018 compared to the prior year.
Net Interest Income/Margin
Net interest income consists of interest income generated by earning assets, less interest expense.
Net interest income increased $177,539, or 75% to $413,082 during the year ended December 31, 2018
compared to $235,543 for the same period in 2017. The increase was the result of a $209,306 increase in interest
income and a $31,767 increase in interest expense.
Interest earning assets averaged $9,475,205 during the year ended December 31, 2018 as compared to
$5,631,772 for the same period in 2017, an increase of $3,843,433, or 68%. The yield on average interest earning
assets increased 40 basis points (“bps”) to 4.86% (33 bps to 4.89% tax equivalent basis) during the year ended
December 31, 2018, compared to 4.46% (4.56% tax equivalent basis) for the same period in 2017. The combined
net effects of the $3,843,433 increase in average interest earning assets and the increase in yields on average
interest earning assets resulted in the $209,306 ($206,111 tax equivalent basis) increase in interest income
between the two years.
Interest bearing liabilities averaged $6,247,314 during the year ended December 31, 2018 as compared to
$3,612,651 for the same period in 2017, an increase of $2,634,663, or 73%. The cost of average interest bearing
liabilities increased 32 bps to 0.76% during the year ended December 31, 2018, compared to 0.44% for 2017.
The combined net effects of the $2,634,663 increase in average interest bearing liabilities and the 32 bps increase
in cost of average interest bearing liabilities resulted in the $31,767 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.
54
Average Balances (8) – Yields & Rates
Years Ended December 31,
2018
2017
Average
Balance
Interest
Inc / Exp
Average
Rate
Average
Balance
Interest
Inc / Exp
Average
Rate
ASSETS:
4.30%
4.65%$2,586,907 $111,208
Originated loans, excluding PCI (1) (2) (7) . . . . . $ 3,505,332 $162,906
79,561
208,473
Acquired loans, excluding PCI (1) (2) (7) . . . . . .
5.08%
5.60% 1,565,533
32,388 18.63%
35,944 20.36% 173,885
Purchased credit-impaired loans (9) . . . . . . . . . . .
1.76%
2.70% 195,431
42,723
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . .
2.43%
3.55% 928,494
7,478
Securities—tax exempt (7) . . . . . . . . . . . . . . . . . .
4.33%
2.04% 181,522
5,629
Federal funds sold and other . . . . . . . . . . . . . . . . .
3,725,861
176,572
1,580,506
210,905
276,029
3,432
22,598
7,855
TOTAL INTEREST EARNING ASSETS . . . . . . $ 9,475,205 $463,153
Allowance for loan losses . . . . . . . . . . . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,887)
1,511,336
4.89%$5,631,772 $257,042
(29,505)
738,892
4.56%
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $10,950,654
$6,341,159
LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,531,007 $
Money market . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . .
Other borrowed funds (3) . . . . . . . . . . . . . . . . . . .
Corporate debenture (4) . . . . . . . . . . . . . . . . . . . .
1,900,642
703,021
1,492,683
54,344
250,499
280,313
34,805
3,367
10,571
877
18,444
632
5,062
6,384
2,213
0.22%$ 956,331 $
0.56% 1,091,550
0.12% 472,890
1.24% 750,644
1.16%
43,850
2.02% 263,669
7,642
2.28%
26,075
6.36%
1,058
3,487
479
6,055
246
2,989
119
1,350
0.11%
0.32%
0.10%
0.81%
0.56%
1.13%
1.56%
5.18%
TOTAL INTEREST BEARING
LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,247,314 $ 47,550
0.76%$3,612,651 $ 15,783
0.44%
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . .
2,918,270
122,255
1,662,815
TOTAL LIABILITIES AND
1,836,080
72,802
819,626
STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . $10,950,654
$6,341,159
NET INTEREST SPREAD (tax equivalent
basis) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (tax equivalent
4.13%
4.13%
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$415,603
$241,259
NET INTEREST MARGIN (tax equivalent
basis) (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.39%
4.28%
(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 $2,531 and $1,536 for the years ended
December 31, 2018 and 2017, respectively.
Includes short-term (usually overnight) Federal Home Loan Bank advances and other borrowings.
Includes net amortization of origination costs and amortization of purchase accounting adjustment of $351
and $234 during year ended December 31, 2018 and 2017, respectively.
(5) Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing
liabilities.
55
(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 non-accrual 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 non-accrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful. Non-accrual 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 non-accrual, 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, 2018 versus 2017
Volume
Rate
Net
Change
INTEREST INCOME
Loans (tax equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt
. . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other
$168,546
17,386
1,163
1,579
$15,620
2,739
(1,540)
618
$184,166
20,125
(377)
2,197
TOTAL INTEREST INCOME (tax equivalent basis) . . . . . . . . . .
$188,674
$17,437
$206,111
INTEREST EXPENSE
Deposits
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
873
3,542
270
8,055
70
(156)
6,185
555
$ 1,436
3,542
128
4,334
316
2,229
80
308
$
2,309
7,084
398
12,389
386
2,073
6,265
863
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,394
$12,373
$ 31,767
NET INTEREST INCOME (tax equivalent basis)
. . . . . . . . . . . .
$169,280
$ 5,064
$174,344
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 $3,325 to $8,283 during the year ending December 31, 2018
compared to a provision of $4,958 for the comparable period in 2017. Our policy is to maintain the allowance for
56
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. Net changes resulting from a mixture of decreases and increases in the Company’s various two-year
historical loss factors and qualitative factors affected the net change. 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, 2018 was $105,127 compared to $65,175 for the
comparable period in 2017. This increase of $39,952 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 . . . . . . . . . . . . . . .
Gain on sale of bank properties held for sale . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of deposits . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trust department . . . . . . . . . . . . . . . . .
2018
2017
$ 28,884
4,504
2,657
22,831
$23,520
4,821
3,554
14,986
16,243
5,976
2,675
12,610
8,158
(22)
104,516
611
—
9,035
3,293
340
1,511
2,898
(7)
63,951
—
1,224
$
increase
(decrease)
$ 5,364
(317)
(897)
7,845
7,208
2,683
2,335
11,099
5,260
(15)
40,565
—
(1,224)
%
increase
(decrease)
22.8%
(6.6)%
(25.2)%
52.3%
79.8%
81.5%
686.8%
734.5%
181.5%
214.3%
63.4%
NM
(100.0)%
Total non-interest income . . . . . . . . . . . . . . . . . .
$105,127
$65,175
$39,952
61.3%
As shown in the table above, the increase in non-interest income year to year is in part due to an increase in
mortgage banking revenue. This particular business line experienced higher volume in mortgage loan sales as a
result of the acquisitions of Charter and the mortgage team both completed in September 2018.
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 is mainly due to
greater brokerage revenue from interest rate swaps in 2018. This line of business produced $20,799 of gross
revenue during the current year compared to $13,618 in 2017.
The increase in all other non-interest income is in part due to the acquisitions of Sunshine and HCBF on
January 1, 2018 and Charter on September 1, 2018.
57
Non-Interest Expense
Non-interest expense for the year ended December 31, 2018 increased $125,982, or 67.6%, to $312,467,
compared to $186,485 for 2017. The table below breaks down the individual components.
2018
2017
$
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 . . . . . . . . . . . . . . . . . . .
Total salaries, wages and employee benefits . . . . . . . . . . . . . . . . . .
Gain on sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on repossessed assets other than real estate . . . . . . . . .
Foreclosure and repossession related expenses . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internet and telephone banking . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational write-offs and losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent accounts and Federal Reserve charges . . . . . . . . . . .
Conferences/Seminars/Education/Training . . . . . . . . . . . . . . . . . . .
Director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on bank property held for sale . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$133,945
13,131
4,193
3,444
641
12,237
9,180
5,396
(9,849)
172,318
(1,933)
482
138
2,815
$ 82,348
10,456
4,580
2,249
568
7,229
5,458
1,930
(5,406)
109,412
(876)
682
(23)
2,252
$ 51,597
2,675
(387)
1,195
73
5,008
3,722
3,466
(4,443)
62,906
(1,057)
(200)
161
563
1,502
20,897
9,788
2,498
6,235
14,308
6,163
4,885
2,961
4,253
10,018
3,178
2,284
1,077
1,379
1,281
1,051
2,667
8,812
2,035
12,777
7,247
1,610
3,929
8,436
3,644
3,051
1,938
2,746
4,066
2,231
687
854
820
897
760
519
5,780
(533)
8,120
2,541
888
2,306
5,872
2,519
1,834
1,023
1,507
5,952
947
1,597
223
559
384
291
2,148
3,032
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger, acquisition and conversion related expenses . . . . . . . . . . .
277,555
34,912
173,439
13,046
104,116
21,866
62.7%
25.6%
(8.4)%
53.1%
12.9%
69.3%
68.2%
179.6%
82.2%
57.5%
120.7%
(29.3)%
(700.0)%
25.0%
(26.2)%
63.6%
35.1%
55.2%
58.7%
69.6%
69.1%
60.1%
52.8%
54.9%
146.4%
42.4%
232.5%
26.1%
68.2%
42.8%
38.3%
413.9%
52.5%
60.0%
167.6%
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$312,467
$186,485
$125,982
67.6%
Excluding merger, acquisition and conversion related expenses, total non-interest expense increased
$104,116 or 60.0% year to year as shown in the above table. The increase is primarily due to our acquisitions of
Sunshine and HCBF on January 1, 2018 and Charter on September 1, 2018.
58
Income Tax Provision
As a result of the Tax Act signed into law on December 22, 2017, the Federal corporate tax rate applicable
to the Company changed from 35% to 21% effective January 1, 2018. As a result, we recognized an income tax
expense for the year ended December 31, 2018 of $41,024 (an effective tax rate of 20.8%) compared to $53,480
(an effective tax rate of 48.9%) for the year ended December 31, 2017. Also as a result of the Tax Act signed into
law on December 22, 2017, we evaluated our deferred tax asset at December 31, 2017 to account for the future
impact of lower corporate tax rates on our deferred tax asset. The lower corporate tax rate resulted in a one-time
charge to our deferred tax asset of $18,575 which was booked as additional income tax expense in 2017.
Excluding the one-time charge to our deferred tax asset of $18,575, the effective tax rate was 31.9% for the year
ended December 31, 2017. In addition, we implemented ASU 2016-09, Stock Compensation Improvements to
Employee Share-Based Payment Activity, on January 1, 2017 which resulted in excess tax benefits on stock
awards of $6,149 and $3,007 during the years ended December 31, 2018 and 2017, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2017 AND
DECEMBER 31, 2016
Net Income
Our net income for the year ended December 31, 2017 was $55,795 or $0.97 and $0.95 per share basic and
diluted, respectively, compared to $42,341 or $0.89 and $0.88 per share basic and diluted for the year ended
December 31, 2016. The increase of $13,454 was primarily due to the increase in income producing assets from
the acquisitions of Platinum and Gateway on April 1, 2017 and May 1, 2017, respectively.
Net Interest Income/Margin
Net interest income consists of interest income generated by earning assets, less interest expense.
Net interest income increased $56,218, or 31% to $235,543 during the year ended December 31, 2017
compared to $179,325 for the same period in 2016. The increase was the result of a $62,661 increase in interest
income and a $6,443 increase in interest expense.
Interest earning assets averaged $5,631,772 during the year ended December 31, 2017 as compared to
$4,356,455 for the same period in 2016, an increase of $1,275,317, or 29%. The yield on average interest earning
assets increased 13 basis points (“bps”) to 4.46% (15 bps to 4.56% tax equivalent basis) during the year ended
December 31, 2017, compared to 4.33% (4.41% tax equivalent basis) for the same period in 2016. The combined
net effects of the $1,275,317 increase in average interest earning assets and the increase in yields on average
interest earning assets resulted in the $62,661 ($64,918 tax equivalent basis) increase in interest income between
the two years.
59
Interest bearing liabilities averaged $3,612,651 during the year ended December 31, 2017 as compared to
$2,834,392 for the same period in 2016, an increase of $778,259, or 27%. The cost of average interest bearing
liabilities increased 11 bps to 0.44% during the year ended December 31, 2017, compared to 0.33% for 2016.
The combined net effects of the $778,259 increase in average interest bearing liabilities and the 11 bps increase
in cost of average interest bearing liabilities resulted in the $6,443 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
Years Ended December 31,
2017
2016
Average
Balance
Interest Average
Inc / Exp
Rate
Average
Balance
Interest Average
Inc / Exp
Rate
ASSETS:
Loans, excluding PCI (1) (2) (7)
Purchased credit-impaired loans (9) . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt (7) . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . $4,152,440 $190,769
4.59%$2,930,213 $131,106
173,885
928,494
181,522
195,431
32,388 18.63% 210,130
2.43% 859,453
22,598
4.33% 127,702
7,855
1.76% 228,957
3,432
4.47%
34,006 16.18%
2.20%
18,920
4.61%
5,881
0.97%
2,211
TOTAL INTEREST EARNING ASSETS . . . . . . . $5,631,772 $257,042
Allowance for loan losses . . . . . . . . . . . . . . . . . . . .
All other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,505)
738,892
4.56%$4,356,455 $192,124
(23,925)
531,621
4.41%
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $6,341,159
$4,864,151
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 956,331 $
Money market . . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds (3) . . . . . . . . . . . . . . . . . . . .
Corporate debenture (4) . . . . . . . . . . . . . . . . . . . . .
1,091,550
472,890
750,644
43,850
263,669
7,642
26,075
1,058
3,487
479
6,055
246
2,989
119
1,350
TOTAL INTEREST BEARING LIABILITIES . . . $3,612,651 $ 15,783
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . .
1,836,080
72,802
819,626
0.11%$ 785,651 $
0.32% 880,305
0.10% 332,747
0.81% 569,902
0.56%
29,435
1.13% 210,276
1,411
1.56%
24,665
5.18%
721
2523
236
3,454
103
1147
7
1149
0.09%
0.29%
0.07%
0.61%
0.35%
0.55%
0.50%
4.66%
0.44%$2,834,392 $
9,340
0.33%
1,422,473
75,552
531,734
TOTAL LIABILITIES AND
SHAREHOLDERS’ . . . . . . . . . . . . . . . . . . . . . . $6,341,159
$4,864,151
NET INTEREST SPREAD (tax equivalent basis)
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (tax equivalent
4.13%
4.08%
basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$241,259
$182,784
NET INTEREST MARGIN (tax equivalent basis)
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.28%
4.20%
(1) Loan balances are net of deferred origination fees and costs. Non-accrual loans are included in total loan
balances.
60
(2)
(3)
(4)
Interest income on average loans includes loan fee recognition of $1,536 and $683 for the years ended
December 31, 2017 and 2016, respectively.
Includes short-term (usually overnight) Federal Home Loan Bank advances and other borrowings.
Includes net amortization of origination costs and amortization of purchase accounting adjustment of $234
and $212 during year ended December 31, 2017 and 2016, 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 non-accrual 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 non-accrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful. Non-accrual 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 non-accrual, 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, 2017 versus 2016
Volume
Rate
Net
Change
INTEREST INCOME
Loans (tax equivalent basis) . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities—tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST INCOME (tax equivalent basis) . . . . . . . . .
$33,247
3,650
2,209
349
$39,455
$(10,650)
(1,190)
(348)
339
$22,597
2,460
1,861
688
$(11,849)
$27,606
INTEREST EXPENSE
Deposits
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
143
435
57
765
(8)
97
7
31
$
$
58
134
50
(214)
(75)
428
(4)
150
201
569
107
551
(83)
525
3
181
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (tax equivalent basis) . . . . . . . . . . . .
$ 1,527
$37,928
$
527
$ 2,054
$(12,376)
$25,552
61
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 decreased $4 to $4,958 during the year ending December 31, 2017 compared
to a provision of $4,962 for the comparable period in 2016. 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. Net changes resulting from a mixture of decreases and increases in the Company’s various two-year
historical loss factors and qualitative factors affected the net change. 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, 2017 was $65,175 compared to $64,369 for the
comparable period in 2016. This increase of $806 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 . . . . . . . . . . . . . . . .
Gain on sale of bank properties held for sale . . . . . . . .
Gain on sale of residential loans held for sale . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . . .
(Loss) gain on sale of securities . . . . . . . . . . . . . . . . . .
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trust department . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Gain on extinguishment of debt
FDIC indemnification asset- amortization . . . . . . . . . .
FDIC indemnification income . . . . . . . . . . . . . . . . . . . .
2017
2016
$23,520
4,821
3,554
14,986
$28,817
4,868
3,237
13,564
9,035
3,293
340
1,511
2,898
(7)
63,951
1,224
—
—
—
8,254
2,534
797
983
2,064
13
65,131
—
308
(1,166)
96
$
increase
(decrease)
$(5,297)
(47)
317
1,422
781
759
(457)
528
834
(20)
(1,180)
1,224
(308)
1,166
(96)
%
increase
(decrease)
(18.4)%
(1.0)%
9.8%
10.5%
9.5%
30.0%
(57.3)%
53.7%
40.4%
(153.8)%
(1.8)%
NM
(100.0)%
(100.0)%
(100.0)%
Total non-interest income . . . . . . . . . . . . . . . . . . .
$65,175
$64,369
$
806
1.3%
As shown in the table above, the primary reason for the increase in non-interest income year to year is due
an increase in services charges on deposit accounts and gain on sale of the trust department completed in
December 2017.
62
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 decrease in revenue is mainly due to
lower bond sale revenue in 2017. This line of business produced $9,216 of gross revenue during the current year
and compared to $14,158 in 2016.
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. On February 3, 2016, the FDIC bought out our remaining FDIC loss share agreements which
resulted in no further FDIC indemnification asset amortization and an increase in non-interest income of $1,070
during the current year compared to 2016.
The increase in other non-interest income is in part due to the acquisitions of Platinum and Gateway on
April 1, 2017 and May 1, 2017, respectively.
Non-Interest Expense
Non-interest expense for the year ended December 31, 2017 increased $12,004, or 6.9%, to $186,485,
compared to $174,481 for 2016. The table below breaks down the individual components.
63
2017
2016
$
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 . . . . . . . . . . . . . . . . . . . .
Total salaries, wages and employee benefits . . . . . . . . . . . . . . . . . .
Gain on sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on repossessed assets other than real estate . . . . . . . . . . . . . . .
Foreclosure and repossession related expenses . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internet and telephone banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational write-offs and losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondent accounts and Federal Reserve charges . . . . . . . . . . .
Conferences/Seminars/Education/Training . . . . . . . . . . . . . . . . . . .
Director fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on bank property held for sale . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 82,348
10,456
4,580
2,249
568
7,229
5,458
1,930
(5,406)
109,412
(876)
682
(23)
2,252
$ 68,467
7,185
4,423
1,849
609
5,722
4,493
1,303
(3,170)
$ 13,881
3,271
157
400
(41)
1,507
965
627
(2,236)
90,881
(1,528)
871
46
2,392
18,531
652
(189)
(69)
(140)
2,035
12,777
7,247
1,610
3,929
8,436
3,644
3,051
1,938
2,746
4,066
2,231
687
854
820
897
760
519
5,780
1,781
9,805
6,373
1,340
3,125
6,867
3,657
3,420
1,684
2,850
3,074
2,402
490
756
592
643
509
1,150
4,078
254
2,972
874
270
804
1,569
(13)
(369)
254
(104)
992
(171)
197
98
228
254
251
(631)
1,702
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on termination of FDIC loss share agreements . . . . . . . . . . . .
Merger, acquisition and conversion related expenses . . . . . . . . . . . .
173,439
—
13,046
145,477
17,560
11,444
27,962
(17,560)
1,602
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$186,485
$174,481
$ 12,004
20.3%
45.5%
3.5%
21.6%
(6.7)%
26.3%
21.5%
48.1%
70.5%
20.4%
(42.7)%
(21.7)%
(150.0)%
(5.9)%
14.3%
30.3%
13.7%
20.1%
25.7%
22.8%
(0.4)%
(10.8)%
15.1%
(3.6)%
32.3%
(7.1)%
40.2%
13.0%
38.5%
39.5%
49.3%
(54.9)%
41.7%
19.2%
—
14.0%
6.9%
Excluding merger, acquisition and conversion related expenses and loss on termination of FDIC loss share
agreements, total non-interest expense increased $27,962 or 19.2% year to year as shown in the above table. The
increase is primarily due to our acquisitions of Platinum and Gateway on April 1, 2017 and May 1, 2017,
respectively.
Income Tax Provision
We recognized an income tax expense for the year ended December 31, 2017 of $53,480 (an effective tax
rate of 48.9%) compared to $21,910 (an effective tax rate of 34.1%) for the year ended December 31, 2016. As a
result of the Tax Act signed into law on December 22, 2017, we evaluated our deferred tax asset to account for
64
the future impact of lower corporate tax rates on our deferred tax asset. The lower corporate tax rates resulted in
a one-time charge to our deferred tax asset of $18,575 which was booked as additional income tax expense in
2017. Excluding the one-time charge to our deferred tax asset of $18,575, the effective tax rate was 31.9% for the
year ended December 31, 2017. In addition, we implemented ASU 2016-09, Stock Compensation Improvements
to Employee Share-Based Payment Activity, on January 1, 2017 which resulted in excess tax benefits on stock
awards of $3,007 during the current year.
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 2018 AND DECEMBER 31, 2017
Overview
Our total assets grew by $5,213,613, or 73.2%, from $7,123,975 at December 31, 2017 to $12,337,588 at
December 31, 2018, primarily due to the acquisitions of Sunshine and HCBF on January 1, 2019 and Charter on
September 1, 2018.
Investment Debt Securities Available for Sale
We have an available for sale debt 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 debt portfolio totaled $1,727,348 at December 31, 2018 and $1,060,143 at
December 31, 2017, or 14% and 15%, respectively, of total assets. See Note 3 in our “Notes to 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 92% of investment debt 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 debt portfolio is carried at fair
market value and had a net unrealized loss of approximately $30,032 (which includes gross unrealized gains of
$4,659) at December 31, 2018, compared to a net unrealized loss of approximately $9,383 at December 31, 2017.
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
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
65
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 not 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 Other Non-interest Income in our Consolidated
Statements of Income 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 “Notes to Consolidated Financial
Statements” for a summary of purchases, sales and revenue recognized for the year ending December 31, 2018
and 2017.
Investment Debt Securities Held to Maturity
During 2014, we initiated a held to maturity debt securities portfolio. At December 31, 2018, the portfolio
had securities of $216,833 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, 2018, these securities had gross unrecognized gains of approximately $799 and $5,453 of gross
unrecognized losses. Similar to our available for sale debt 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 “Notes to Consolidated Financial Statements” for a summary of
security type, maturity, estimated fair value, gross unrecognized gains and gross unrecognized losses.
Loans held for sale
We have a mortgage line of business whereby we originate single-family home loans and sell the majority
of those mortgages into the secondary market of which the majority are sold with servicing rights released. For
periods prior to December 31, 2017, mortgage loans held for sale were valued at the lower of cost or fair value.
Effective January 1, 2018, the Company elected to account for these loans under the fair value option with
changes in fair value recognized in current period earnings. At the date of funding of the loan, the funded amount
of the loan, the relative derivative asset or liability of the associated interest rate lock commitment, less direct
costs, becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value
of the loan. This change was accounted for on a prospective basis. Gains and losses on the sale of mortgage loans
held for sale and changes in fair value are included as components of Mortgage Banking Revenue which are
reported in Non-interest Income in our “Consolidated Statement of Income and Comprehensive Income”. For
more information, See Note 4 in our “Notes to Consolidated Financial Statements” on loans held for sale.
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
66
than securities and other earning assets. Average loans during the year ended December 31, 2018, were
$7,407,765, or 78% of average earning assets, as compared to $4,326,325, or 77% of average earning assets, for
the year ending December 31, 2017. Total loans at December 31, 2018 and 2017 were $8,340,504 and
$4,773,221, respectively, an increase of $3,567,283, or 75%. This also represents a loan to total asset ratio of
68% and 67% and a loan to deposit ratio of 88% and 86%, at December 31, 2018 and 2017, respectively.
In the aggregate, approximately 84% are collateralized by real estate, 14% are commercial non real estate
loans and the remaining 2% 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
$1,760,918 representing approximately 21% of our total loans. Approximately $58,804 of this total amount is
included in our PCI loan portfolio. Of the remaining $1,702,114 that are not PCI loans, approximately $11,488 or
0.7% are non-performing (non-accrual) at December 31, 2018.
Commercial real estate loans: This is the largest category ($4,541,434) of our loan portfolio representing
approximately 55% 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 commercial
real estate loans are owner occupied. Approximately $87,336 of total commercial real estate loans are included in
our PCI loan portfolio. Of the remaining $4,454,098 that are not PCI loans, approximately $8,445 or 0.2% are
non-performing (non-accrual) at December 31, 2018.
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 8% ($642,590) of our total loan portfolio. The majority of this amount is land
development, lots, and other land loans. Approximately $7,028 of these loans are included in our PCI loan
portfolio. Of the remaining $635,562 that are not PCI loans, approximately $795 or 0.1% are non-performing
(non-accrual) at December 31, 2018.
67
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
2018
2017
2016
2015
2014
Residential . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . .
$1,702,114
4,454,098
635,562
$1,025,303
2,546,143
235,816
$ 816,304
1,755,922
142,044
$ 647,496
1,254,782
105,276
$ 589,068
1,132,933
79,002
Total real estate loans . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . .
Total loans—gross . . . . . . . . . . . . . . . . . . . . .
Less: unearned fees/costs . . . . . . . . . . . . . . .
6,791,774
1,183,380
203,686
8,178,840
2,693
3,807,262
693,501
107,480
4,608,243
820
2,714,270
439,540
89,538
3,243,348
475
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 . . . . . . . . . .
8,181,533
4,609,063
3,243,823
2,383,248
2,152,759
PCI loans
Real estate loans:
Residential . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . .
Total real estate loans . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . .
Total PCI loans . . . . . . . . . . . . . . . . . . . . . . .
58,804
87,336
7,028
153,168
5,594
209
158,971
59,975
92,791
6,656
159,422
4,444
292
164,158
72,179
99,566
9,944
181,689
3,825
410
185,924
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,340,504
$4,773,221
$3,429,747
$2,593,776
$2,429,525
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, 2018, excluding unearned net fees and costs.
Loan Maturity Schedule
December 31, 2018
0 – 12
Months
1 – 5
Years
Over 5
Years
Total
All loans other than construction, development, land . . . . . .
Real estate—land, development and construction . . . . . . . . .
$713,662
207,169
$1,983,922
153,742
$4,997,637
281,679
$7,695,221
642,590
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$920,831
$2,137,664
$5,279,316
$8,337,811
Fixed interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$446,337
474,494
$1,592,951
544,713
$1,582,049
3,697,267
$3,621,337
4,716,474
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$920,831
$2,137,664
$5,279,316
$8,337,811
68
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.
• 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.
• Levels of and trends in charge-offs and recoveries.
• Changes in the nature and volume of the portfolio and in the terms of loans.
• 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.
• Changes in the experience, ability, and depth of our lending management and other relevant staff.
• Changes in international, national, regional, and local economic and business conditions and
developments that affect the collectability of the portfolio, including the condition of various market
segments (national and local economic trends and conditions).
69
• 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).
• The existence and effect of any concentrations of credit, and changes in the level of such
concentrations.
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, 2018 and 2017.
December 31, 2018
December 31, 2017
increase (decrease)
Loan
balance
ALLL
balance
%
Loan
balance
ALLL
balance
%
Loan
balance
ALLL
balance
$4,096,828
$36,105
0.88% $2,902,904
$29,385
1.01% $1,193,924 $6,720
(13) bps
11,828
878
7.42%
16,446
804
4.89%
(4,618)
74
253 bps
Originated non
impaired loans . .
Impaired originated
loans . . . . . . . . . .
Total originated
loans . . . . . . . . . .
4,108,656
36,983
0.90% 2,919,350
30,189
1.03% 1,189,306
6,794
(13) bps
Acquired loans
(note 1) . . . . . . . .
4,069,005
1,858
0.05% 1,685,814
2,341
0.14% 2,383,191
(483)
(9) bps
Impaired acquired
loans (note 2) . . .
Total Non-PCI
loans . . . . . . . . . .
PCI loans . . . . . . . .
3,872
738 19.06%
3,899
— — %
(27)
738 1,906 bps
4,072,877
2,596
0.06% 1,689,713
2,341
0.14% 2,383,164
255
(8) bps
8,181,533
158,971
39,579
191
4,609,063
164,158
32,530
295
3,572,470
(5,187)
7,049
(104)
Total loans . . . . . . .
$8,340,504
$39,770
$4,773,221
$32,825
$3,567,283 $6,945
Note 1: These are performing acquired loans that were recorded at estimated fair value on the related
acquisition dates. The total net unamortized fair value adjustment at December 31, 2018 was
approximately $48,355 or 1.2% of the aggregate outstanding related loan balances. Acquired loans
currently include performing loans acquired from the TD Bank acquisition (year 2011), the Federal
Trust acquisition (year 2011), the Gulfstream Bank acquisition (year 2014), the First Southern Bank
acquisition (year 2014), the Community Bank acquisition (year 2016), the Hometown of Homestead
Banking Company acquisition (year 2016), the Platinum Bank acquisition (year 2017), the Gateway
Bank acquisition (year 2017), the Sunshine Bank acquisition (year 2018), the Harbor Bank acquisition
(year 2018) and the CharterBank acquisition (year 2018).
Note 2: These are loans that were acquired as performing loans that subsequently became impaired.
70
The general loan loss allowance (non-impaired loans) relating to originated loans increased by $6,720
resulting primarily from the increase in loans outstanding. Net changes resulting from a mixture of decreases and
increases in the Company’s various two-year historical loss factors and qualitative factors also slightly affected
the net change.
The general loan loss allowance (non-impaired loans) relating to acquired loans decreased by $483 resulting
primarily from a decrease in loans outstanding, excluding the three bank acquisitions (Sunshine, Harbor and
Charter) which occurred during the year 2018. At December 31, 2018 the non-impaired loans acquired from
these three acquisitions were equal to approximately $2,703,518. These loans were recorded at estimated fair
value at acquisition date. As such, there is no allowance for loan losses associated with these loans as of
December 31, 2018. The unamortized acquisition date fair value adjustment related to these loans at
December 31, 2018 was approximately $35,277, or 1.3% of the related aggregate outstanding loan balances.
The specific loan loss allowance (impaired loans) for both originated loans and acquired loans is the
aggregate of the results of individual analyses prepared for each one of the impaired loans, excluding PCI loans.
Total impaired loans at December 31, 2018 are equal to $15,700 ($11,828 originated impaired loans plus $3,872
acquired impaired 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 $892 to $15,700 ($14,085 when
the $1,616 specific allowance is considered) from their legal unpaid principal balance outstanding of $16,593. In
the aggregate, total impaired loans have been written down to approximately 85% of their legal unpaid principal
balance when the related specific allowance is considered and non-performing impaired loans have been written
down to approximately 76% 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, $23,567 at December 31, 2018) have been written down to approximately 78% of their
legal unpaid principal balance, when the related specific allowance is also considered.
Approximately $8,177 of the Company’s impaired loans (52%) 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.
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, 2018. 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.
71
Activity in Allowance for Loan Losses
December 31,
2018
2017
2016
2015
2014
Loans excluding PCI loans
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans charged-off:
$32,530
$26,569
$22,143
$19,384
$19,694
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction & land development . . . . . . . . . . . . . . . . .
Commercial & industrial
. . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(516)
(13)
(126)
(1,474)
(1,706)
(254)
(74)
—
(677)
(994)
(290)
(1,190)
(232)
(186)
(849)
(1,283)
(173)
(461)
(1,121)
(853)
(1,382)
(353)
(124)
(699)
(879)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net recoveries (charge-offs) . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses charged to expense . . . . . . . . . . . . .
(3,835)
(1,999)
(2,747)
(3,891)
(3,437)
1,027
679
39
360
327
2,432
(1,403)
8,452
950
662
596
334
217
2,759
760
5,201
1,220
625
269
325
189
2,628
(119)
4,545
901
485
5
344
156
1018
763
106
85
184
1,891
(2,000)
4,759
2,156
(1,281)
971
Allowance for loan losses for loans that are not PCI loans . .
$39,579
$32,530
$26,569
$22,143
$19,384
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net recoveries (charge-offs) . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses charged to expense . . . . . . . . . . . . .
$
295
$
472
$
121
$
514
$
760
—
—
—
(10)
—
(10)
—
—
—
75
—
75
65
(169)
—
—
—
—
—
—
—
66
—
—
—
66
66
(243)
—
—
(66)
—
—
(66)
—
—
—
—
—
—
(66)
417
—
(77)
—
—
(50)
(127)
—
—
—
—
—
—
—
—
(101)
—
(101)
—
—
—
—
—
—
(127)
(266)
—
(101)
(145)
Allowance for loan losses on PCI loans . . . . . . . . . . . . . . . . .
$
191
$
295
$
472
$
121
$
514
Total allowance at end of period . . . . . . . . . . . . . . . . . . . . . .
$39,770
$32,825
$27,041
$22,264
$19,898
72
2018
2017
2016
2015
2014
Loans at year end (note 1) . . . . . . . . . . . . . . .
Average loans outstanding (note 1) . . . . . . . .
Net charge-offs (note 1)
. . . . . . . . . . . . . . . .
Allowance for loan losses as percentage of
$8,181,533
$7,231,193
1,403
$
$4,609,063
$4,152,440
$
(760) $
$3,243,823
$2,930,213
119
$2,383,248
$2,270,525
2,000
$
$2,152,759
$1,869,859
1,281
$
year end loans (note 1)
. . . . . . . . . . . . . . .
0.48%
0.71%
0.82%
0.93%
0.90%
Net charge-offs as a percentage of average
loans outstanding (note 1) . . . . . . . . . . . . .
0.02%
(0.02)%
— %
0.09%
0.07%
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. 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. 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, 2018
totaled $23,567 (218 loans). This amount is further delineated by loan category as follows:
Non-accrual loans at 12/31/18
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
aggregate
loan
amounts
$11,488
8,445
795
2,274
565
% of
non-accrual
by category
number
of loans
49%
36%
3%
10%
2%
103
27
12
34
42
218
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,567
100%
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, 2018, total OREO was $2,909 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 Statements of Income and Comprehensive Income. OREO is
further delineated in the following table.
Description of repossessed real estate (OREO)
carrying amount
at Dec 31, 2018
7 single family homes . . . . . . . . . . . . . . . . . . . . . . . . . .
3 commercial buildings . . . . . . . . . . . . . . . . . . . . . . . . .
Land / various acreages . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 940
492
1,477
$2,909
At December 31, 2018, we also had repossessed assets other than real estate with an aggregate estimated fair
value of approximately $350. Interest income not recognized on non-accrual loans was approximately $1,213,
$787 and $1,017 for the years ended December 31, 2018, 2017 and 2016, respectively. The table below
summarizes non-performing loans and assets for the periods provided.
73
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) . . . . . . . . .
December 31,
2018
2017
2016
2015
2014
$23,567
$17,288
$19,003
$20,833
$25,595
—
23,567
2,909
350
—
17,288
3,987
147
—
19,003
7,090
114
—
20,833
1,567
145
—
25,595
8,896
87
Total non-performing assets (note 1)
$26,826
$21,422
$26,207
$22,545
$34,578
OREO covered by FDIC loss share agreements (note 2):
80% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0% covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-performing assets including FDIC covered
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,828
—
—
4,742
59
7,264
606
1,755
9,779
—
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,826
$21,422
$26,207
$32,174
$53,982
Non-performing loans as percentage of total loans excluding
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-performing assets as percentage of total assets
0.29%
0.38%
0.59%
0.87%
1.19%
Excluding FDIC covered OREO . . . . . . . . . . . . . . . . . .
0.22%
0.30%
0.52%
0.56%
0.92%
Including FDIC covered OREO (note 2) . . . . . . . . . . . .
0.22%
0.30%
0.52%
0.80%
1.43%
Non-performing assets as percentage of loans and OREO
plus other repossessed assets (note 1)
Excluding FDIC covered OREO . . . . . . . . . . . . . . . . . .
0.33%
0.46%
0.81%
0.95%
1.60%
Including FDIC covered OREO (note 2) . . . . . . . . . . . .
0.33%
0.46%
0.81%
1.34%
2.47%
Loans past due 30 thru 89 days and accruing interest as a . . .
percentage of total loans (note 1) . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses as a percentage of non-
. . . . . . . .
performing loans (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.45%
0.30%
0.58%
0.62%
0.61%
168%
188%
140%
106%
76%
Note 1: Excludes PCI loans.
Note 2: On February 3, 2016, we terminated the loss share agreements with the FDIC.
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
74
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 $461, $469 and $467 for the years ended
December 31, 2018, 2017 and 2016, respectively. The average recorded investment in impaired loans during
2018, 2017 and 2016 were $18,211, $19,327 and $23,644, 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, 2018, we had approximately $9,477 of troubled debt restructures
(“TDRs”). Of this amount $8,475 were performing pursuant to their modified terms, and $1,002 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”)
2018
2017
2016
2015
2014
December 31,
Performing TDRs . . . . . . . . . . . . .
Non-performing TDRs . . . . . . . . .
$ 8,475
1,002
$12,081
698
$11,030
2,075
$10,254
4,873
$11,418
3,648
Total TDRs . . . . . . . . . . . . . . . . . .
$ 9,477
$12,779
$13,105
$15,127
$15,066
Impaired loans that are not
TDRs . . . . . . . . . . . . . . . . . . . .
Impaired loans that are TDRs . . . .
6,223
9,477
$ 7,566
12,779
$ 7,148
13,105
$ 8,048
15,127
$10,184
15,066
Recorded investment in impaired
loans . . . . . . . . . . . . . . . . . . . . .
$15,700
$20,345
$20,253
$23,175
$25,250
Allowance for loan losses related
to impaired loans . . . . . . . . . . .
$ 1,616
$
804
$
695
$ 1,080
$ 1,115
TDRs as of December 31, 2018 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 . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,848
1,837
77
7,762
577
136
$ 386
566
41
993
—
9
$6,234
2,403
118
8,755
577
145
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,475
$1,002
$9,477
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.
75
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 89% of our TDRs at December 31, 2018 were current pursuant to their modified terms, and about
$1,002, or approximately 11% 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 PCI loans. The increase in past due loans reported below between years 2017 and
2018 is primarily due to the acquisitions of Sunshine, Harbor and Charter.
2018
2017
2016
2015
2014
December 31,
past due loans 30-89 days . . . . . . .
as percentage of total loans . . . . .
$36,502
$13,665
$18,826
$14,723
$13,108
0.45%
0.30%
0.58%
0.62%
0.55%
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.
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,
. . . . . . . . . .
. . . . . . . . .
2018
2017
2016
2015
2014
December 31,
$ 5,518
22,978
21% $ 6,003
55% 19,304
22% $ 5,640
56% 14,713
25% $ 6,015
54% 10,559
27% $ 6,743
53% 8,269
construction . . . . . . .
1,781
8% 1,179
5%
883
4%
936
4%
752
Total real estate loans . . . . . .
Commercial loans . . . . . . . . .
Consumer and other loans . .
30,277
6,414
2,888
84% 26,486
14% 4,130
2% 1,914
83% 21,236
15% 3,785
2% 1,548
83% 17,510
14% 3,212
3% 1,421
84% 15,764
13% 2,330
3% 1,290
27%
53%
4%
84%
14%
2%
Total . . . . . . . . . . . . . . . . . . .
$39,579
100% $32,530
100% $26,569
100% $22,143
100% $19,384
100%
76
Bank Premises and Equipment
Bank premises and equipment was $227,454 at December 31, 2018 compared to $141,886 at December 31,
2017, an increase of $85,568 or 60%. The primary component of the increase is $71,340 of branch real estate
acquired during 2018 with the purchases of Sunshine, Harbor and Charter. In addition, we transferred $3,465 of
branch real estate that is no longer in use to bank properties held for sale at estimated fair value less estimated
cost to sell. We recognized an impairment charge of $1,120 related to these properties resulting in a net transfer
to bank properties held for sale of $2,345. A summary of the activity for 2018 is presented in the table below.
Balance at 12/31/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Sunshine, Harbor and Charter real estate . . . .
Branch real estate transferred to bank properties held for
sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other additions, net of disposals . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$141,886
71,340
(3,465)
27,481
(9,788)
Balance at 12/31/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$227,454
At December 31, 2018, we operated from 126 full service banking offices in 41 counties throughout Florida,
Georgia and Alabama. We also have two loan production offices of which we own 1 and lease 1. 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, and office spaces for our Mortgage banking division,
primarily in Atlanta, Georgia.
During 2018, we transferred $2,345, after an impairment charge of $1,120, of branch real estate to bank
properties held for sale. At December 31, 2018, we have 28 pieces of bank property, of which 18 properties were
acquired pursuant to the acquisitions of Sunshine, Harbor and Charter included in our bank property held for sale
with an aggregate carrying balance of $16,093.
Deposits
Total deposits increased $3,916,813, or 70%, to $9,477,336 as of December 31, 2018, compared to
$5,560,523 at December 31, 2017. We assumed deposits of approximately $3,796,164 pursuant to the
acquisitions of Sunshine and Harbor on January 1, 2018 and Charter on September 1, 2018. 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 represent only 19% of our total deposits at
December 31, 2018, compared to 15% at December 31, 2017. In addition, our total checking accounts represent
approximately 50% of our total deposits at December 31, 2018. Our cost of deposits, including non-interest
bearing checking accounts, was approximately 0.51% during the fourth quarter of 2018. The tables below
summarize selected deposit information for the periods indicated.
2018
December 31,
2017
2016
Non time deposits . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . .
$7,655,376
1,821,960
81% $4,727,840
832,683
19%
85% $3,607,107
545,437
15%
87%
13%
Total deposits . . . . . . . . . . . . . . . . .
$9,477,336
100% $5,560,523
100% $4,152,544
100%
77
Average deposit balance by type and average interest rates
2018
2017
2016
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 . . . . . . . . .
$2,918,270
1,531,007
— % $1,836,080
956,331
0.22%
— % $1,422,473
785,651
0.11%
1,900,642
703,021
1,492,683
0.56%
0.12%
1.24%
1,091,550
472,890
750,644
0.32%
0.10%
0.81%
880,305
332,747
569,902
Total
. . . . . . . . . . . . . . . .
$8,545,623
0.39% $5,107,495
0.22% $3,991,078
— %
0.09%
0.29%
0.07%
0.61%
0.17%
Maturity of time deposits of $100,000 or more
December 31,
2018
2017
2016
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Three through six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six through twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$162,283
156,980
345,705
285,949
$ 60,473
71,422
140,235
176,206
$ 54,278
50,875
77,746
132,346
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$950,917
$448,336
$315,245
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,
2018, 2017 and 2016, was approximately $54,344, $43,850 and $29,435, respectively. Interest expense for the
same periods was approximately $632, $246 and $103, respectively, resulting in an average rate paid of 1.16%,
0.56% and 0.35% for the years ended December 31, 2018, 2017, and 2016, respectively. The following table
summarizes our repurchase agreements for the periods presented.
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,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$59,751
$52,080
$35,500
$54,344
$43,850
$29,435
1.16% $57,772
0.56% $52,080
0.35% $28,427
1.66%
0.88%
0.33%
(1) Consist of securities sold under agreements to repurchase
78
Other Borrowed Funds
From time to time, we borrow on a short-term basis, usually overnight, either through Federal Home Loan
Bank (“FHLB”) advances, Federal Reserve Bank discount window or Federal Funds Purchased. Included in
Federal Funds Purchased are overnight deposits including deposits from correspondent banks. We began
accepting correspondent bank deposits in September 2008 pursuant to the initiation of our correspondent banking
division. At December 31, 2018, we had $244,360 in overnight Federal Funds Purchased correspondent bank
deposits and $50,000 in other overnight Federal Funds Purchased. During the year, these deposits had a daily
average balance of approximately $250,499. At December 31, 2018, the Company had $350,000 in FHLB
advances. During the year, the daily average balance of FHLB advances was $258,405. In addition to Federal
Funds Purchased and FHLB advances, the Company had $11,000 in Subordinated Notes, which were assumed
pursuant to the Sunshine acquisition completed on January 1, 2018. These accounts are included with FHLB
advances and other borrowings in the table below, which summarizes our other borrowings for the periods
presented. For additional information refer to Notes 11 and 12 in our “Notes to Consolidated Financial
Statements.”
Schedule of FHLB advances and other borrowings (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,
2018 . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . .
$655,360
$506,490
$277,982
$530,812
$271,311
$210,276
2.16%
1.15%
0.55%
655,360
$506,490
$261,986
2.22%
1.62%
0.72%
(1) Consist of FHLB advances, Federal Funds Purchased and Subordinated Notes
Corporate Debentures
We have formed and assumed through various acquisitions seven statutory trust entities and the related
corporate debentures as listed in the table below. See Note 14 of our “Notes to 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 . . . . . . . . . . .
Homestead Statutory Trust I . . . . . . . . . . . . . . . . . . . .
BSA Financial Statutory Trust I . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
MRCB Statutory Trust II
Amount
$10,000
2,500
5,000
3,000
10,000
5,000
3,000
Interest Rate
Maturity
3 Mo LIBOR + 3.05% Sep. 2033
3 Mo LIBOR + 2.70% Sep. 2034
3 Mo LIBOR + 2.95% Sep. 2033
3 Mo LIBOR + 1.70% Mar. 2037
3 Mo LIBOR + 1.65% Jul. 2036
3 Mo LIBOR + 1.55% Dec. 2035
3 Mo LIBOR + 1.60% Sep. 2036
In January 2018, the Company assumed BSA Financial Statutory Trust I (“BSA”) and MRCB Statutory
Trust II (“MRCB”) from its acquisition of HCBF. The issued floating rate corporate debentures related to BSA
and MRCB were in the amount of $5,000 and $3,000, respectively.
In September 2018, the Company assumed CBS Financial Capital Trust I (“CBS Trust I”) & CBS Financial
Capital Trust II (“CBS Trust II”) from its acquisition of Charter, in the amounts of $4,000 and $5,000,
respectively. CBS Trust I and CBS Trust II were subsequently redeemed in December 2018 at par value with no
gains or losses realized on the extinguishments of debt.
79
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 is the risk that the Bank’s financial condition or overall safety and soundness is adversely
affected by an inability (or perceived inability) to meet its obligations. 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.
We define interest rate risk as the risk to earnings and equity arising from the behavior of interest rates.
These behaviors include increases and decreases in interest rates as well as continuation of the current interest
rate environment.
Our interest rate risk principally consists of reprice, option, basis, and yield curve risk. Reprice risk results
from differences in the maturity or repricing characteristics of asset and liability portfolios. Option risk arises
from embedded options in the investment and loan portfolios such as investment securities calls and loan
prepayment options. Option risk also exists since deposit customers may withdraw funds at their discretion in
response to general market conditions, competitive alternatives to existing accounts or other factors. The exercise
of such options may result in higher costs or lower revenue. Basis risk refers to the potential for changes in the
underlying relationship between market rates or indices, which subsequently result in narrowing spreads on
interest-earning assets and interest-bearing liabilities. Basis risk also exists in administered rate liabilities, such as
interest-bearing checking accounts, savings accounts and money market accounts where the price sensitivity of
such products may vary relative to general markets rates. Yield curve risk refers to the adverse consequences of
nonparallel shifts in the yield curves of various market indices that impact our assets and liabilities.
We use simulation analysis as a primary method to assess earnings at risk and equity at risk due to assumed
changes in interest rates. Management uses the results of its various simulation analyses in combination with
other data and observations to formulate strategies designed to maintain interest rate risk within risk tolerances.
Earnings at risk is defined as the change in net interest income due to assumed changes in interest rates.
Earnings at risk is generally used to assess interest rate risk over relatively short time horizons. We compute
earnings at risk on a quarterly basis over one and two-year time horizons.
Equity at risk is defined as the change in the net economic value of assets and liabilities due to changes in
interest rates compared to a base net economic value. The discounted present value of all cash flows represents
our economic value of equity. Equity at risk is generally considered a measure of the long-term interest rate
exposures of the balance sheet at a point in time. We compute equity at risk on a quarterly basis.
We conduct scenario analyses across a range of ramped, parallel, and sustained interest rate shocks and
measure the percent of change in earnings and equity relative to a base case scenario assuming no change in
interest rates. The range of interest rate shocks includes upward and downward movements of rates through 300
basis points in 100 basis point increments, subject to market conditions that may render certain rate shocks
impracticable. This series of scenario analysis is referred to as the Core Scenarios. The size and composition of
the balance sheet is held constant for the Core Scenarios. 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.
80
Measures of earnings at risk computed over a one-year time horizon and equity at risk produced from the
Core Scenarios are defined as key risk indicators and are compared to risk tolerances established by the Asset/
Liability Committee (“ALCO”) and the Board. The ALCO also considers the analysis of earnings at risk over a
two-year time horizon.
Simulation analysis involves the use of several assumptions including, but not limited to, the timing of cash
flows such as investment security calls, loan prepayment speeds, deposit attrition rates, the interest rate
sensitivity of loans and deposits relative to general market rates, and the behavior of interest rates and spreads.
Furthermore, equity at risk simulation uses assumptions regarding discount rates that value cash flows.
Simulation analysis is highly dependent on model assumptions that may vary from actual outcomes. For
example, higher levels of interest rate sensitivity of deposits to upward movements in interest rates may
adversely impact net interest income. Additionally, slower prepayment speeds of loans may adversely impact the
economic value of equity in a rising interest rate environment. Key simulation assumptions are subject to stress
testing to assess the impact of assumption changes on earnings at risk and equity at risk.
The table below summarizes the results of the Core Analysis as of December 31, 2018.
Ramped Change of Interest Rates
1-12 months
13-24 months
% Change in Baseline Net Interest Income
% Change in
Economic Value of
Equity
+ 300 bps
+200 bps
+100 bps
-100 bps
-200 bps
-300 bps
2.29%
1.64%
0.67%
-0.93%
-3.61%
-5.50%
7.20%
4.94%
2.40%
-3.02%
-8.96%
-12.62%
-9.53%
-6.29%
-2.95%
1.86%
1.38%
2.69%
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, 2018
Due in
one year or
less
Total
Due
over one
year and
less than
three years
Due
over three
years and
less than
five years
Contractual commitments:
Deposit maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . .
$9,477,336
57,772
32,415
294,360
40,815
40,288
$8,993,064
57,772
—
294,360
21,982
7,113
$410,367
$73,905
—
—
—
1,221
10,691
—
—
—
2,272
7,437
Due
over five
Years
$ —
—
32,415
—
15,340
15,047
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,942,986
$9,374,291
$422,279
$83,614
$62,802
81
Primary Sources and Uses of Funds
Our primary sources and uses of funds during the year ended December 31, 2018 are summarized in the
table below.
Sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities pay-downs . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of securities . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of bank property held for sale . . . . . . . . . . . . . . .
Proceeds from sale of bank premises and equipment, net
. . . . . . . . .
Proceeds from calls of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 391,896
229,689
232,094
12,591
61,000
16,001
2,661
1,210
193,438
97,083
14,707
5,339
25,341
Total sources of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,283,050
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Net decrease in federal funds purchased . . . . . . . . . . . . . . . . . . . . . . .
Purchases of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in payable to shareholders for acquisitions . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 647,710
363,401
86,714
37,130
24,025
77,920
9,000
35,906
217
1,027
Total uses of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,283,050
Capital Resources
Total shareholders’ equity at December 31, 2018 was $1,971,344, or 16% of total assets compared to
$904,750, or 13% of total assets at December 31, 2017. The $1,066,594 increase was the result of the following
items: net income of $156,435, plus $19,550 stock based compensation, including stock options exercised and
restricted stock awards, plus $942,958 stock issued pursuant to the acquisitions of Sunshine, HCBF and Charter,
including the fair value of assumed stock options converted to CenterState stock options, less $15,416 net change
in unrealized losses in securities available for sale, less $1,027 in stock repurchases and less $35,906 cash
dividends paid on our common stock.
The bank regulatory agencies have established risk-based and leverage capital requirements for banks that
are applicable to the Company and the Bank. Under these requirements, the Company and the Bank are required
to maintain certain capital standards based on ratios of capital to total assets and capital to risk-weighted assets.
Adherence to these requirements has not had an adverse impact on our Company. For more information
regarding regulatory capital requirements applicable to us, refer to Part I – “Supervision and Regulation - Capital
Requirements.”
Effects of Inflation and Changing Prices
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
82
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.
Mortgage banking derivatives used in the ordinary course of business consist of forward sales contracts and
interest rate lock commitments on residential mortgage loans. Forward sales contracts represent future
commitments to deliver loans at a specified price and by a specified date and are used to manage interest rate risk
on loan commitments and mortgage loans held for sale. Rate lock commitments represent commitments to fund
loans at a specific rate and by a specified expiration date. These derivatives involve underlying items, such as
interest rates, and are designed to mitigate risk. For additional information, see Note 4 in our “Notes to
Consolidated Financial Statements.”
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 26 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.
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 the 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 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.
83
Item 8. Financial Statements and Supplementary Data
The financial statements of our Company as of December 31, 2018 and 2017 and for the years ended
December 31, 2018, 2017 and 2016 are set forth in this Form 10-K beginning at page 75.
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, 2018, 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, 2018, 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, 2018. As permitted, the Company has excluded the
operations of Charter Financial Corporation acquired during 2018, which is described in Note 26 of the
“Notes to Consolidated Financial Statements”, from the scope of management’s report on internal
control over financial reporting. As such, it has also been excluded from the scope of the audit of
internal control over financial reporting. The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2018 has been audited by Crowe LLP, an independent
registered public accounting firm, as stated in their report which is included herein.
Item 9B. Other Information
Not applicable.
84
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, Risk 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 “Board
Leadership Structure and the Board’s Role in Risk Oversight,” “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 25, 2019, 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 “Board Leadership Structure and the Board’s Role in
Risk Oversight” and “Director Compensation,” under “Proposal One – Election of Directors,” and the sections
captioned “Compensation Discussion and Analysis,” 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 Shareholder
Matters
Information contained in the section captioned “Management and Principal Stock Ownership” and under the
table captioned “Equity Compensation Plan Information” 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 captioned “Director Independence” under “Proposal One –
Election of Directors” and the section captioned “Certain Related Transactions” in the Proxy Statement is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information contained in the section captioned “Proposal Three – 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, 2018 and 2017
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2018,
2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2018,
2017 and 2016
Notes to Consolidated Financial Statements
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.
85
3.
–
–
–
–
–
–
3.1
3.2
3.3
3.4
3.5
3.6
3.7
–
3.8
–
3.9
4.1
–
–
10.1 –
10.2 –
10.3 –
10.4 –
10.5 –
10.6 –
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 filed on March 4, 2010)
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)
Articles of Amendment to the Articles of Incorporation increasing the number of authorized
common shares from 100,000,000 to 200,000,000 (Incorporated by reference to Exhibit 4.7 to the
Company’s Form S-8 dated May 30, 2018)
Articles of Amendment to the Articles of Incorporation changing the Company’s legal name to
CenterState Bank Corporation (Incorporated by reference to Exhibit 3.7 to the Company’s Form
10K filed on February 28, 2018)
Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.7 to the Company’s Form
10-K filed on March 2, 2017)
Specimen Stock Certificate of CenterState Bank Corporation (formerly CenterState Banks, Inc.)
(Incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-8, dated
January 2, 2018)
Form of CenterState Bank Corporation (formerly 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 Bank Corporation (formerly 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 (Incorporated by reference to Exhibits 10.1 to the Company’s Form 8-K dated July 14,
2010.)*
Employment Agreements between the Company and John C. Corbett (Incorporated by reference to
Exhibits 10.4 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
filed on March 16, 2011.)*
86
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
14.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Employment Agreement between the Company and Stephen D. Young, its Chief Operating
Officer and Executive Vice President of the Company’s subsidiary bank, CenterState Bank,
N.A. (Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on
March 16, 2011.)*
Employment Agreement between the Company and Ernest S. Pinner, its 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 Bank Corporation (formerly 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 filed on 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 Jennifer L. Idell, its Chief Financial
Officer (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated May 2, 2016.)*
Amendment to Employment Agreement between the Company and Ernest S. Pinner, its
Executive Chairman of the Board (Incorporated by reference to Exhibit 10.1 to our Form 8-K,
dated September 12, 2016)*
Employment Agreement between CenterState Bank, N.A. and Mark W. Thompson, the
Company’s subsidiary bank President (Incorporated by reference to Exhibit 10.1 to our Form
8-K, dated January 2, 2018)*
CenterState Bank Corporation 2018 Equity Incentive Plan (Incorporated by reference to Exhibit
10.1 to the Company’s Form S-8 filed on May 30, 2018)*
Agreement and Plan of Merger by and between CenterState Bank Corporation and National
Commerce Corporation (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K
filed on November 26, 2018)
Code of Ethics (Incorporated by reference to Exhibit 14.1 to the Company’s December 31,
2003 Form 10-K filed on March 26, 2004)
List of Subsidiaries of CenterState Bank Corporation
Consent of Crowe 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
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL 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.
87
CENTERSTATE BANKS, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
91
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2018,
2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2018, 2017
and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
95
97
88
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of CenterState Bank Corporation
Winter Haven, Florida
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CenterState Bank Corporation (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income and
comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Company’s internal control over financial reporting as of December 31,
2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2018 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 of December 31, 2018, based on criteria
established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated 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 the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an
opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. 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. As
permitted, the Company has excluded the operations of Charter Financial Corporation acquired during 2018,
which is described in Note 26 of the consolidated financial statements, from the scope of management’s report on
internal control over financial reporting. As such, it has also been excluded from the scope of our audit of
internal control over financial reporting. 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.
89
Definition and Limitations of Internal Control Over Financial Reporting
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 unauthorized 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.
/s/ Crowe LLP
Crowe LLP
We have served as the Company’s auditor since 2006.
Franklin, Tennessee
February 28, 2019
90
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and 2017
(in thousands of dollars, except per share data)
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits in other financial institutions (restricted cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and FRB deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale debt securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Held to maturity debt securities (fair value of $212,179 and $231,615 at December 31,
2018 and 2017, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale (see Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, excluding purchased credit impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB, FRB and other stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap derivatives, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expense and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand – non-interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Demand – interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings and money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap derivatives, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payables and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
Common stock, $.01 par value: 200,000,000 shares authorized; 95,679,596 and
60,161,334 shares issued and outstanding at December 31,2018 and 2017,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
$
107,007
28,345
231,981
367,333
1,737
1,727,348
$
68,571
16,991
195,057
280,619
6,777
1,060,143
216,833
40,399
8,181,533
158,971
(39,770)
8,300,734
227,454
33,143
79,584
802,880
66,225
2,953
267,820
2,909
51,462
25,080
92,475
31,219
$12,337,588
232,399
19,647
4,609,063
164,158
(32,825)
4,740,396
141,886
18,628
34,876
257,683
24,063
551
146,739
3,987
37,725
11,354
42,480
64,022
$ 7,123,975
$ 2,923,640
1,811,006
2,920,730
1,821,960
9,477,336
57,772
294,360
361,000
32,415
2,627
92,892
47,842
10,366,244
$ 1,999,901
1,058,985
1,668,954
832,683
5,560,523
52,080
331,490
175,000
26,192
1,169
43,259
29,512
6,219,225
957
1,699,031
293,777
(22,421)
1,971,344
$12,337,588
602
737,905
173,248
(7,005)
904,750
$ 7,123,975
See accompanying Notes to the Consolidated Financial Statements
91
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31, 2018, 2017 and 2016
(in thousands of dollars, except per share data)
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . .
Federal funds purchased and other borrowings . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after loan loss provision . . . . . . .
Non-interest income:
Correspondent banking capital markets revenue . . . . . . . . . . . .
Other correspondent banking related revenue . . . . . . . . . . . . . . .
Mortgage banking revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small business administration loans 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 . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trust department . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) gain on sale of debt securities available for sale . . . .
Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105,127
Non-interest expense:
Salaries, wages and employee benefits . . . . . . . . . . . . . . . . . . . .
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of premises and equipment
. . . . . . . . . . . . . . . . . .
Supplies, stationary and printing . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal, audit and other professional fees . . . . . . . . . . . . . . . . . . .
172,318
20,897
9,788
2,498
6,235
14,308
6,163
2018
2017
2016
$
405,881
$
219,972
$
163,625
42,723
6,399
5,629
22,598
5,324
3,432
18,920
3,909
2,211
460,632
251,326
188,665
33,260
632
11,445
2,213
47,550
413,082
8,283
404,799
28,884
4,504
12,610
3,532
22,831
16,243
2,657
—
—
5,976
611
—
(22)
7,301
11,079
246
3,108
1,350
15,783
235,543
4,958
230,585
23,520
4,821
1,511
775
14,986
9,035
3,554
—
—
3,293
—
1,224
(7)
2,463
65,175
109,412
12,777
7,247
1,610
3,929
8,436
3,644
6,934
103
1,154
1,149
9,340
179,325
4,962
174,363
28,817
4,868
833
150
13,564
8,254
3,237
96
(1,166)
2,534
—
—
13
3,169
64,369
90,881
9,805
6,373
1,340
3,125
6,867
3,657
92
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31, 2018, 2017 and 2016
(in thousands of dollars, except per share data)
2018
2017
2016
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage and delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM, debit and merchant card related expenses . . . . . . . . . . . .
Bank regulatory expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of repossessed real estate (“OREO”) . . . . . . . . . . .
. . .
Valuation write down of repossessed real estate (“OREO”)
Loss (gain) on repossessed assets other than real estate . . . . . . .
Foreclosure related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on bank property held for sale . . . . . . . . . . . . . . . . .
Loss on termination of FDIC loss share agreements . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,018
2,961
4,253
4,885
(1,933)
482
138
2,815
34,912
2,667
—
19,062
4,066
1,938
2,746
3,051
(876)
682
(23)
2,252
13,046
519
—
12,029
312,467
197,459
41,024
186,485
109,275
53,480
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
156,435
$
55,795
$
3,074
1,684
2,850
3,420
(1,528)
871
46
2,392
11,444
1,150
17,560
9,470
174,481
64,251
21,910
42,341
Other comprehensive (loss) gain income, net of tax:
Unrealized available for sale debt securities holding (loss) gain,
net of income taxes of ($5,233), $1,765 and ($6,288),
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reclassified adjustments for (loss) gain included in net
income, net of income tax (benefit) expense of ($6), ($3) and
$5, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized (loss) gain on available for sale debt
$
(15,432) $
2,806
$
(10,004)
16
4
(8)
securities, net of income taxes . . . . . . . . . . . . . . . . . . . .
(15,416)
2,810
(10,012)
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . .
$
141,019
$
58,605
$
32,329
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.78
1.76
$
$
0.97
0.95
$
$
0.89
0.88
Common shares used in the calculation of earnings per share:
Basic (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,641,220
88,758,853
57,244,698
58,340,813
47,409,142
48,191,523
(1) Excludes participating securities.
See accompanying Notes to the Consolidated Financial Statements
93
Balances at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . 48,146,981
$482
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2018, 2017 and 2016
(in thousands of dollars, except per share data)
Number
of
common
shares
Common
stock
Additional
paid in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
$ 1,438
Total
stockholders’
equity
$ 490,514
42,341
Balances at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . 45,459,195
$455
$ 393,191 $ 95,430
42,341
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding loss on available for sale debt
securities, net of deferred income tax of $6,288 . . .
. . . . . . . . . . .
Dividends paid – common ($0.16 per share)
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to Community Bank acquisition . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gain on available for sale debt
securities, net of deferred income tax of $1,765 . . .
Reclassification of the disproportionate tax effect on
unrealized losses on available for sale securities
resulting from the change in federal tax rate . . . . . .
Dividends paid – common ($0.24 per share)
. . . . . . . . . . .
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to Platinum Bank acquisition . . . . . .
Stock issued pursuant to Gateway Bank acquisition . . . . . .
Stock options acquired and converted pursuant to Gateway
acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to public offering, net of costs of
232,489
229,583
(50,328)
2,276,042
2
3
(1)
23
198
4,423
1,766
(961)
31,842
(10,012)
(7,681)
(10,012)
(7,681)
200
4,423
1,769
(962)
31,865
$ 430,459 $130,090
55,795
$ (8,574)
$ 552,457
55,795
2,810
2,810
1,241
(13,878)
(1,241)
242,854
598,039
(45,236)
4,279,255
4,244,441
2
6
(1)
43
43
401
4,586
6,709
(1,130)
110,790
107,044
15,811
—
(13,878)
403
4,586
6,715
(1,131)
110,833
107,087
15,811
63,262
$529 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,695,000
27
63,235
Balances at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . 60,161,334
$602
$ 737,905 $173,248
$ (7,005)
$ 904,750
156,435
(35,906)
(15,416)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding loss on available for sale debt
securities, net of deferred income tax of $5,233 . . .
Dividends paid – common ($0.40 per share)
. . . . . . . . . . .
Stock grants issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to Sunshine acquisition . . . . . . . . . .
Stock options acquired and converted pursuant to
Sunshine acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
236,921
1,793,339
(38,496)
7,050,645
3
18
(1)
70
Stock issued pursuant to HCBF acquisition . . . . . . . . . . . . 15,051,639
Stock options acquired and converted pursuant to HCBF
151
acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued pursuant to Charter acquisition . . . . . . . . . . . 11,424,214
114
647
4,193
14,689
(1,026)
181,343
6,432
387,128
18,025
349,695
156,435
(15,416)
(35,906)
650
4,193
14,707
(1,027)
181,413
6,432
387,279
18,025
349,809
Balances at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . 95,679,596
$957
$1,699,031 $293,777
$(22,421)
$1,971,344
See accompanying Notes to the Consolidated Financial Statements
94
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2018, 2017 and 2016
(in thousands of dollars)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
$ 156,435
$ 55,795
$ 42,341
activities:
2018
2017
2016
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 loss (gain) on sale of available for sale debt securities . . . . . .
Trading securities revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of trading securities . . . . . . . . . . . . . . . . . . . . .
Repossessed real estate owned valuation write down . . . . . . . . . .
Gain on sale of repossessed real estate owned . . . . . . . . . . . . . . . .
Loss (gain) on repossessed assets other than real estate . . . . . . . .
Gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of residential loans held for sale . . . . . . . . . . . . . . . .
Residential loans originated and held for sale . . . . . . . . . . . . . . . .
Proceeds from sale of residential loans held for sale . . . . . . . . . . .
Change in fair value of residential loans held for sale . . . . . . . . . .
(Gain) loss 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 . . . . . . . . . . . . . . . . . .
Gain on sale of small business administration loans . . . . . . . . . . .
Small business administration loans originated for sale . . . . . . . .
Proceeds from sale of small business administration loans . . . . . .
Gain on sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trust department
. . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax deduction in excess of book deduction for stock awards . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance income . . . . . . . . . . . . . . . . . . . . . . . .
FDIC indemnification asset amortization . . . . . . . . . . . . . . . . . . .
Loss from termination of FDIC loss share agreements . . . . . . . . .
Net cash from changes in:
Net changes in accrued interest receivable, prepaid
8,283
9,788
(51,131)
12,449
1,873
22
(57)
(254,555)
259,652
482
(1,933)
138
—
(10,803)
(403,492)
403,583
(1,081)
(762)
(2,675)
2,667
(3,532)
(35,693)
39,225
(611)
—
21,511
(6,149)
4,193
(5,976)
—
—
4,958
7,247
(34,264)
9,954
345
7
(242)
(230,074)
235,922
682
(876)
(23)
—
(1,511)
(93,642)
77,791
—
(225)
(340)
519
(775)
(12,268)
13,043
—
(1,224)
31,192
(3,007)
4,586
(3,293)
—
—
4,962
6,373
(37,972)
11,509
(398)
(13)
(519)
(186,150)
176,393
871
(1,528)
46
(308)
(833)
(39,748)
40,557
—
1
(797)
1,150
(150)
(2,672)
2,822
—
—
3,647
—
4,423
(2,534)
1,166
17,560
expenses, and other assets . . . . . . . . . . . . . . . . . . . . . . . . .
61,575
(48,145)
(3,585)
Net change in accrued interest payable, accrued expense,
and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,988)
Net cash provided by operating activities . . . . . . . . . . .
193,438
10,625
22,757
131
36,745
Cash flows from investing activities:
Available for sale debt securities:
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . .
Purchases of mortgage backed securities . . . . . . . . . . . . . . . .
Proceeds from pay-downs of mortgage backed securities . . .
Proceeds from sales of investment securities . . . . . . . . . . . . .
(40,788)
(539,807)
217,862
58,768
(56,673)
(444,146)
123,917
104,260
(10,054)
(294,209)
130,773
79,657
95
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2018, 2017 and 2016
(in thousands of dollars)
Proceeds from sales of mortgage backed securities . . . . . . . .
Proceeds from called investment securities . . . . . . . . . . . . . .
Proceeds from maturities of investment securities . . . . . . . .
296,884
1,210
61,000
208,432
865
1,000
62,418
10,890
615
2018
2017
2016
Held to maturity debt 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 FHLB, FRB and other stock . . . . . . . . . . . . . . . . . . .
Proceeds from sales of FHLB, FRB and other stock . . . . . . . . . . .
Net increase 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 premises and equipment, net
. . . . . . . . . . .
Proceeds from sale of bank property held for sale . . . . . . . . . . . . .
Net cash from bank acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in securities sold under agreement to repurchase . . .
Net (decrease) increase in federal funds purchased . . . . . . . . . . . .
Net (decrease) increase in other borrowings . . . . . . . . . . . . . . . . .
Extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in payable to shareholders for
—
—
—
14,232
(67,115)
36,244
(363,401)
—
—
(24,025)
12,591
2,661
16,001
229,689
(87,994)
97,083
25,341
5,339
(37,130)
(77,920)
—
(2,693)
(1,695)
—
20,874
(15,919)
5,572
(286,110)
—
(30,000)
(10,289)
6,811
556
7,437
86,530
(281,271)
180,744
—
18,084
69,504
40,268
—
(71,316)
(3,730)
57,760
37,449
(666)
29
(287,901)
5,482
(10,000)
(6,683)
18,008
—
4,340
41,885
(235,253)
232,467
—
411
61,736
(57,418)
(8,680)
acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination of corporate debentures . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock offering, net of offering costs . . . . . . . . . . . .
Stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . .
Net increase in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . .
(217)
(9,000)
14,707
—
(1,027)
(35,906)
(18,730)
86,714
280,619
$ 367,333
(89)
—
6,715
63,262
(1,131)
(13,878)
363,479
104,965
175,654
$ 280,619
38
—
1,769
—
(962)
(7,681)
221,680
23,172
152,482
$ 175,654
Supplemental noncash disclosures:
Transfer of loans to other real estate owned . . . . . . . . . . . . . . . . .
Transfers of bank property to held for sale . . . . . . . . . . . . . . . . . .
$
$
4,661
4,302
$
$
3,108
4,534
Cash paid during the period for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,450
$ 17,493
$
$
$
7,959
4,936
8,920
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,624
$ 17,818
$ 20,519
See accompanying Notes to the Consolidated Financial Statements
96
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(1) Summary of Significant Accounting Policies
(a) Nature of operations and principles of consolidation
The Consolidated Financial Statements of CenterState Bank Corporation (the “Company”) include the
accounts of the Company, and its wholly owned subsidiaries CenterState Bank, N.A., R4ALL, Inc. and
CSFL Insurance Corp. All significant intercompany accounts and transactions have been eliminated in
consolidation.
At December 31, 2018, the Company, through its subsidiary bank, operated as a community bank
headquartered in the state of Florida, providing traditional retail, commercial, mortgage, wealth
management and SBA services throughout its Florida, Georgia and Alabama branch network and
customer relationships in neighboring states. 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 over 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, 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
97
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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.
(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)
Investment Debt 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. Debt 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 on securities are
amortized to the earliest call date. 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 an annual 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.
98
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(h) Loans held for sale
Effective January 1, 2018, mortgage loans originated and intended for sale in the secondary market are
carried at fair value with changes in fair value recognized in current period earning. For periods prior to
December 31, 2018, mortgage loans held for sale were 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 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 accruing or non-accruing 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 non-accrual loans.
A loan is moved to non-accrual 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 non-accrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful. Non-accrual 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 non-accrual
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
non-accrual status before it becomes 90 days past due.
99
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
All interest accrued but not received for loans placed on non-accrual 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
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, but not limited to
loans on non-accrual status, loans with insufficient cash flow, past due loans, high loan-to-value ratios,
loans in process of foreclosure, or any TDR with loss potential. The Company, as a purchaser, is
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, the Company aggregated the commercial, consumer, and residential loans into pools of loans
with common risk characteristics for each 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.
As frequently as quarter or as long as annually, 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 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 provision for loan losses. Probable and significant
100
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 over the life of the
pool. 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
over the life of the pool. 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.
(k) Concentration of credit risk
Most of the Company’s business activity is with customers located within Southeastern United States
largely in Florida, also in Alabama and Georgia. Therefore, the Company’s exposure to credit risk is
significantly affected by changes in the economy and the real estate market within Southeast, primarily
in 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
101
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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. 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-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.
102
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, First Southern, Community Bank,
First National, Platinum and Gateway acquisitions that were not PCI loans as individual loan portfolio
segments. 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 and impaired
loans in arriving at its estimate. The general loan loss allowance recorded for these performing loans
acquired from Gulfstream is allocated between the five portfolio segments described above in Note 5.
(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.
(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
103
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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), Federal Reserve Bank (FRB) and other 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, FRB and other 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 or acquired through various bank acquisitions. 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.
As a part of normal business operations, the Company originates residential mortgage loans that have
been pre-approved by secondary investors. The terms of the loans are set by the secondary investors,
and the purchase price that the investor will pay for the loan is agreed to prior to the commitment of the
loan by the Company. Generally within three weeks after funding, the loans are transferred to the
investor in accordance with the agreed-upon terms. The Company records gains from the sale of these
loans on the settlement date of the sale equal to the difference between the proceeds received and the
carrying amount of the loan. The gain generally represents the portion of the proceeds attributed to
servicing release premiums received from the investors and the realization of origination fees received
104
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
from borrowers which were deferred as part of the carrying amount of the loan. Between the initial
funding of the loans by the Company and the subsequent reimbursement by the investors, the Company
carries the loans on its balance sheet at the lower of cost or market. The fair value of the underlying
commitment is not material to the Consolidated Financial Statements. The standard structure of
mortgage loan sales provides for the Company to retain a portion of the cash flow from the interest
payments received on the loan. Fees for servicing loans for investors are based on the outstanding
principal balance of the loans serviced and are recognized as income when earned. This cash flow is
commonly known as a servicing spread. The servicing spread is recognized as a servicing asset to the
extent the spread exceeds adequate compensation for the servicing function and recorded as a
component of Other Intangible Assets in the Consolidated Balance Sheets. The fair value of the
servicing asset is measured on a recurring basis at the present value of future cash flows using market-
based discount assumptions. The future cash flows for each asset are based on their unique
characteristics and market-based assumptions for prepayment speeds, default and voluntary
prepayments. Adjustments to fair value are recorded as a component of Mortgage Banking Revenue.
The value of our servicing portfolio is periodically independently evaluated.
(t) FDIC Indemnification Asset
The FDIC Indemnification Asset represented 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. 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
105
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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
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.
On December 22, 2017, the U.S. federal government enacted a tax bill, H.R1 (“Tax Act”) which
reduced the federal corporate tax rates effective for fiscal year 2018. As a result of this new tax bill, the
Company evaluated its deferred tax assets and deferred tax liabilities to account for the future impact of
lower corporate tax rates on its deferred tax assets. The reduction in the federal corporate tax rate
resulted in a one-time charge to the Company’s 2017 earnings and reduction to its net deferred tax
assets. See Note 14 for more details regarding Income Taxes.
(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.
106
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(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. Cash is required to be pledged as collateral to the third party dealers
for the interest rate swap derivatives.
(ad) Dividend restriction
Banking regulations require maintaining certain capital levels and may limit the dividends paid by the
bank to the holding company or by the holding company to shareholders.
(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, Georgia and Alabama. 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
107
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial
Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments by making targeted improvements to GAAP as
follows: (1) require equity investments (except those accounted for under the equity method of
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. However, an entity may choose to measure equity
investments that do not have readily determinable fair values at cost minus impairment, if any, plus or
minus changes resulting from observable price changes in orderly transactions for the identical or a
similar investment of the same issuer; (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 for public business entities to disclose the
method(s) 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 public business
entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; ( (5) 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; and (6) 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. ASU No. 2016-01 is effective for
interim and annual reporting periods beginning after December 15, 2017. Starting with the first quarter
of 2018, the Company began using an exit price notion when measuring the fair value of its loan
portfolio, excluding loans held for sale, for disclosure purposes. The new guidance did not impact the
Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” Under this guidance, lessees will be
required to recognize the following for all leases (with the exception of short-term leases): 1) a lease
liability, which is the present value of a lessee’s obligation to make lease payments, and 2) a
right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a
specified asset for the lease term. Lessor accounting under the new guidance remains largely
unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing
leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to
account for existing leveraged leases using the current accounting guidance. Other limited changes
108
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
were made to align lessor accounting with the lessee accounting model and the new revenue
recognition standard. All entities will classify leases to determine how to recognize lease-related
revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to
meet the objective of enabling users of financial statements to assess the amount, timing, and
uncertainty of cash flows arising from leases. The intention is to require enough information to
supplement the amounts recorded in the financial statements so that users can understand more about
the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual
reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are
required to use a modified retrospective approach for leases. Management is electing the effective date
method of the modified retrospective transition approach. Under the effective date method, all lease
accounting transitions to ASC 842 as of January 1, 2019 through a one-time recognition of previously
off-balance sheet leases as well as a one-time offset to retained earnings for measurement differences.
Under the effective date transition approach, all comparative periods presented prior to January 1, 2019
will remain in accordance with legacy lease accounting of ASC 840. The Company leases certain
properties and equipment under operating leases that will result in the recognition of right-of-use lease
assets of approximately $21 million and lease liabilities of approximately $24 million on the
Company’s Consolidated Balance Sheets. The one-time transition impact to retained earnings from
measurement differences is expected to be immaterial.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial
Instruments.” This ASU significantly changes how entities will measure credit losses for most financial
assets and certain other instruments that aren’t measured at fair value through net income. In issuing
the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit
losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The
new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial
assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit
exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan
commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”)
debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a
manner similar to what they do today, except that the losses will be recognized as allowances rather
than reductions in the amortized cost of the securities. As a result, entities will recognize improvements
to estimated credit losses immediately in earnings rather than as interest income over time, as they do
today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and
loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions,
models, and methods for estimating the allowance for loan and lease losses. In addition, entities will
need to disclose the amortized cost balance for each class of financial asset by credit quality indicator,
disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting
periods beginning after December 15, 2019; early adoption is permitted for interim and annual
reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in
which the guidance is effective (i.e., modified retrospective approach). The Company formed a CECL
committee to assist with the implementation process. It has selected a third-party vendor to assist with
the allowance for loan loss methodology as well as advisory services related to the implementation of
the amendments of ASU 2016-13. The Company continues to work with the third-party vendor to
develop the CECL model and evaluate the impact to the Company’s Consolidated Financial
109
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Statements. The standard will add new disclosures related to factors that influenced management’s
estimate, including current expected credit losses, the changes in those factors, and reasons for the
changes as well as the method applied to revert to historical credit loss experience, and the Company
expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the
beginning of the first reporting period in which the new standard is effective, but has not yet
determined the magnitude of any such one-time adjustment or the overall impact on the Company’s
Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment,”
to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the
goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair
value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the
implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair
value at the impairment testing date of its assets and liabilities (including unrecognized assets and
liabilities) following the procedure that would be required in determining the fair value of assets
acquired and liabilities assumed in a business combination. Instead, under the amendments in this
update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Additionally, an entity should consider income tax effects from any tax deductible goodwill on the
carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.
FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount
to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill
impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is
required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative
carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a
reporting unit to determine if the quantitative impairment test is necessary. The amendments in this
update become effective for annual periods and interim periods within those annual periods beginning
after December 15, 2019. The Company is currently evaluating the impact of adopting the new
guidance on the Consolidated Financial Statements, but it is not expected to have a material impact.
In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting,” to provide clarity
and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in
Topic 718, “Compensation—Stock Compensation,” to a change to the terms or conditions of a share-
based payment award. The amendments in this update provide guidance about which changes to the
terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. An entity should account for the effects of a modification unless all the following are
met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the modified award is the same as the fair value (or calculated value or intrinsic
value, if such an alternative measurement method is used) of the original award immediately before the
original award is modified. If the modification does not affect any of the inputs to the valuation
technique that the entity uses to value the award, the entity is not required to estimate the value
immediately before and after the modification; (2) the vesting conditions of the modified award are the
same as the vesting conditions of the original award immediately before the original award is modified;
110
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(3) the classification of the modified award as an equity instrument or a liability instrument is the same
as the classification of the original award immediately before the original award is modified. The
current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply
modification accounting under the amendments in this update. For public business entities, the
amendments in this update become effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2017. An entity should apply the amendments in this
update prospectively to an award modified on or after the adoption date. The Company evaluated the
impact of adopting the new guidance on the Consolidated Financial Statements, but it did not have a
material impact.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities.” The amendments in this update more closely
align the results of cash flow and fair value hedge accounting with risk management activities through
changes to both the designation and measurement guidance for qualifying hedging relationships and the
presentation of hedge results in the financial statements. The amendments address specific limitations
in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components
and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. Thus,
the amendments will enable an entity to report more faithfully the economic results of hedging
activities for certain fair value and cash flow hedges and will avoid mismatches in earnings by allowing
for greater precision when measuring changes in fair value of the hedged item for certain fair value
hedges. Additionally, by aligning the timing of recognition of hedge results with the earnings effect of
the hedged item for cash flow and net investment hedges, and by including the earnings effect of the
hedging instrument in the same income statement line item in which the earnings effect of the hedged
item is presented, the results of an entity’s hedging program and the cost of executing that program will
be more visible to users of financial statements. Overall, those amendments are an improvement
because an entity’s financial statements will reflect more accurately and comprehensively the intent
and outcome of its hedging strategies. The tabular disclosure related to effects on the income statement
of fair value and cash flow hedges and the disclosure of cumulative basis adjustments for fair value
hedges provide users with a more complete picture of the effect of hedge accounting on an entity’s
income statement and balance sheet. When considered together, the amendments to presentation and
disclosures are an improvement because they will provide users with more decision-useful information
about the effect of an entity’s risk management activities on the financial statements. Additionally, the
amendments in this Update should ease the operational burden of applying hedge accounting by
allowing more time to prepare hedge documentation and, allowing effectiveness assessments to be
performed on a qualitative basis after hedge inception. For public business entities, the amendments in
this update become effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018. Early adoption is permitted, including adoption in an interim period. All
transition requirements and elections should be applied to hedging relationships existing (that is,
hedging relationships in which the hedging instrument has not expired, been sold, terminated, or
exercised or the entity has not removed the designation of the hedging relationship) on the date of
adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption
(that is, the initial application date). For cash flow and net investment hedges existing at the date of
adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate
measurement of ineffectiveness to accumulated other comprehensive income with a corresponding
adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an
111
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
entity adopts the amendments in this Update. The amended presentation and disclosure guidance is
required only prospectively. The Company evaluated the impact of adopting the new guidance on the
Consolidated Financial Statements, but it does not have a material impact.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. On December 22, 2017, the U.S. federal government enacted the Tax Act. Stakeholders in the
banking and insurance industries expressed concern about the guidance in current generally accepted
accounting principles (GAAP) that requires deferred tax liabilities and assets to be adjusted for the
effect of a change in tax laws or rates with the effect included in income from continuing operations in
the reporting period that includes the enactment date. That guidance is applicable even in situations in
which the related income tax effects of items in accumulated other comprehensive income were
originally recognized in other comprehensive income (rather than in income from continuing
operations). Those stakeholders asserted that because the adjustment of deferred taxes due to the
reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate is
required to be included in income from continuing operations, the tax effects of items within
accumulated other comprehensive income (referred to as stranded tax effects) do not reflect the
appropriate tax rate. The amendments in this update affect any entity that is required to apply the
provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other
comprehensive income for which the related tax effects are presented in other comprehensive income
as required by GAAP. The amendments in this update allow a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act.
Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will
improve the usefulness of information reported to financial statement users. The amendments only
relate to the reclassification of the income tax effects of the Tax Act; the underlying guidance that
requires that the effect of a change in tax laws or rates be included in income from continuing
operations is not affected. The amendments in this update also require certain disclosures about
stranded tax effects. The amendments in this update are effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. The amendments in
this update should be applied either in the period of adoption or retrospectively to each period (or
periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act
is recognized. The Company early adopted this update which resulted in a reclassification of $1,241
from accumulated other comprehensive income to retained earnings for stranded tax effects for the year
ended December 31, 2017 as disclosed on the Company’s Consolidated Statements of Changes in
Shareholders’ Equity.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718)
– Improvements to Nonemployee Share-Based Payment Accounting,” to include share based payment
transactions for acquiring goods and services from nonemployees. An entity should apply the
requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment
awards vest and the pattern of cost recognition over that period). The amendments specify that Topic
718 applies to all share-based payment transactions in which a grantor acquires goods or services to be
used or consumed in a grantor’s own operations by issuing share-based payment awards. The
amendments also clarify that Topic 718 does not apply to share-based payments used to effectively
112
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services
to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with
Customers. The amendments in this update become effective for annual periods and interim periods
within those annual periods beginning after December 15, 2018 but no earlier than an entity’s adoption
date of Topic 606. The Company evaluated the impact of adopting the new guidance on the
Consolidated Financial Statements, but it does not have a material impact.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820)—Changes
to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements
on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including
the consideration of costs and benefits. The following disclosure requirements were removed from
Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value
hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3
fair value measurements; and (4) for nonpublic entities, the changes in unrealized gains and losses for
the period included in earnings for recurring Level 3 fair value measurements held at the end of the
reporting period. The following disclosure requirements were modified in Topic 820: (1) in lieu of a
rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into
and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities;
(2) for investments in certain entities that calculate net asset value, an entity is required to disclose the
timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse
only if the investee has communicated the timing to the entity or announced the timing publicly; and
(3) the amendments clarify that the measurement uncertainty disclosure is to communicate information
about the uncertainty in measurement as of the reporting date. The following disclosure requirements
were added to Topic 820: (1) the changes in unrealized gains and losses for the period included in other
comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting
period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3
fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative
information (such as the median or arithmetic average) in lieu of the weighted average if the entity
determines that other quantitative information would be a more reasonable and rational method to
reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The
amendments in this update are effective for annual periods and interim periods within those annual
periods beginning after December 15, 2019. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements, and the narrative description of measurement uncertainty should be applied
prospectively for only the most recent interim or annual period presented in the initial fiscal year of
adoption. All other amendments should be applied retrospectively to all periods presented upon their
effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early
adopt any removed or modified disclosures upon issuance of this update and delay adoption of the
additional disclosures until their effective date. The Company is currently evaluating the impact of
adopting the new guidance on the Consolidated Financial Statements, but it is not expected to have a
material impact.
(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.
113
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
A list of the activity in this portfolio for 2018 and 2017 is summarized below.
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark-to- market adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,777
254,555
(259,652)
20
37
$ 12,383
230,074
(235,922)
195
47
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,737
$
6,777
2018
2017
(3)
Investment Debt Securities
Available for Sale Debt Securities
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:
Corporate debt securities . . . . . . . . . . . . . . . . . .
Obligations of U.S. government sponsored
entities and agencies . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
6,265
$ 162
$ —
$
6,427
38,794
1,623,906
88,415
7
3,792
698
933
33,423
335
37,868
1,594,275
88,778
Total available for sale debt securities . . . . . . .
$1,757,380
$4,659
$34,691
$1,727,348
U.S. Treasury securities . . . . . . . . . . . . . . . . . . .
Obligations of U.S. government sponsored
entities and agencies . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
5,000
$ 200
$ —
$
5,200
10,000
982,565
71,961
—
752
863
426
10,706
66
9,574
972,611
72,758
Total available for sale debt securities . . . . . . .
$1,069,526
$1,815
$11,198
$1,060,143
114
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The cost of securities sold is determined using the specific identification method. The securities sold during
the first quarter of 2018 include some securities acquired through the acquisitions of Sunshine and Harbor
on January 1, 2018. These acquired securities were marked to fair value and subsequently sold after the
acquisition date, and no gain or loss was recognized from the sale of these securities. Sales of available for
sale securities were as follows:
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$355,652
68
$
90
$
$312,692
740
$
747
$
$142,075
$
13
$ —
2018
2017
2016
The tax provisions related to these net realized gains were $(6), $(3) and $5, respectively.
Available for sale debt securities pledged at December 31, 2018 and 2017 had a carrying amount (estimated
fair value) of $961,721 and $255,788, respectively. These securities were pledged primarily to secure public
deposits and repurchase agreements. At year-end 2018 and 2017, 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 shareholders’ equity.
The fair value and amortized cost of available for sale debt securities at year end 2018 by contractual
maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown
separately.
Available for sale debt securities:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair
Value
$
967
6,080
30,997
95,029
1,594,275
Amortized
Cost
$
966
6,038
31,396
95,074
1,623,906
Total available for sale debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,727,348
$1,757,380
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, 2018 and 2017.
December 31, 2018
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Obligations of U.S. government
sponsored entities and agencies . . . . . $ 25,104
647,923
25,031
Mortgage backed securities . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . .
$
332
10,782
316
$
9,398
635,172
3,381
$
601
22,641
19
$
34,502
1,283,095
28,412
$
933
33,423
335
Total temporarily impaired available for
sale debt securities . . . . . . . . . . . . . . . $698,058
$11,430
$647,951
$23,261
$1,346,009
$34,691
115
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
December 31, 2017
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$ — $ — $
477,925
11,698
3,298
66
9,574
316,066
—
$ 426
7,408
—
$
9,574
793,991
11,698
$
426
10,706
66
Obligations of U.S. government sponsored
entities and agencies . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . .
Total temporarily impaired available for
sale debt securities . . . . . . . . . . . . . . . . .
$489,623
$3,364
$325,640
$7,834
$815,263
$11,198
Mortgage-backed securities: At December 31, 2018, nearly 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, 2018.
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.
Held to Maturity Debt Securities
The following reflects the fair value of held to maturity securities and the related gross unrecognized gains
and losses as of December 31, 2018 and 2017.
Mortgage backed securities . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$ 84,983
131,850
Total held to maturity debt securities . . . . . . .
$216,833
Mortgage backed securities . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$100,039
132,360
Total held to maturity debt securities . . . . . . .
$232,399
December 31, 2018
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
$ —
799
$ 799
$2,462
2,991
$5,453
December 31, 2017
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
$ —
1,781
$1,781
$1,068
1,497
$2,565
Fair
Value
$ 82,521
129,658
$212,179
Fair
Value
$ 98,971
132,644
$231,615
116
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Held to maturity debt securities pledged at December 31, 2018 and 2017 had a carrying amount of $103,710
and $97,389. These securities were pledged primarily to secure public deposits and repurchase agreements.
At year-end 2018 and 2017, 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 shareholders’ equity.
The fair value and amortized cost of held to maturity debt securities at year end 2018 by contractual
maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown
separately.
Held to maturity debt securities
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years through thirty years . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value
$
2,051
127,607
82,521
Amortized
Cost
$
2,045
129,805
84,983
Total held to maturity debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,179
$216,833
The following tables show the Company’s held to maturity debt 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, 2018 and 2017.
December 31, 2018
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 . . . . . . . . . . . . . . . . . . .
$ —
22,560
$—
203
$ 82,521
47,807
$2,462
2,788
$ 82,521
70,367
$2,462
2,991
Total temporarily impaired held to maturity
debt securities . . . . . . . . . . . . . . . . . . . . .
$22,560
$203
$130,328
$5,250
$152,888
$5,453
December 31, 2017
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 . . . . . . . . . . . . . . . . . . .
$57,266
13,350
$451
186
$ 41,705
37,963
$ 617
1,311
$ 98,971
51,313
$1,068
1,497
Total temporarily impaired held to maturity
debt securities . . . . . . . . . . . . . . . . . . . . .
$70,616
$637
$ 79,668
$1,928
$150,284
$2,565
Mortgage-backed securities: At December 31, 2018, 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, 2018.
117
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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.
(4) Loans Held for Sale
For periods prior to December 31, 2017, mortgage loans held for sale were valued at the lower of cost or fair
value. Effective January 1, 2018, the Company elected to account for these loans under the fair value option
with changes in fair value recognized in current period earnings. At the date of funding of the loan, the
funded amount of the loan, the relative derivative asset or liability of the associated interest rate lock
commitment, less direct costs, becomes the initial recorded investment in the loan held for sale. Such
amount approximates the fair value of the loan. This change was accounted for on a prospective basis. Net
gains from changes in estimated fair value of mortgage loans held for sale were $1,081 at December 31,
2018. The total unpaid principal balance of loans held for sale was $39,318 at December 31, 2018. No loans
held for sale at December 31, 2018 were past due or on non-accrual.
The table below summarizes the activity in mortgage loans held for sale for the years ended December 31,
2018 and 2017.
December 31,
2018
2017
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,647
8,959
403,492
(403,583)
1,081
10,803
$ 2,285
—
93,642
(77,791)
—
1,511
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,399
$ 19,647
118
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
As loans are closed, they are typically sold at prices specified in the forward contracts. Gains or losses may
arise if the yields of the loans delivered vary from those specified in the forward contracts. Derivative
mortgage loan commitments, or interest rate locks, are also utilized and relate to the origination of a
mortgage that will be held for sale upon funding. The Company began utilizing these derivative financial
instruments on its loans held for sale in year 2018 to manage interest rate risk and not for speculative
purposes. The changes in fair value of $1,081, the net realized gain on sales of loans held for sale of
$10,803, and the net unrealized gain on mortgage banking derivatives of $614 are the main components of
Mortgage Banking Revenue as reported in the Company’s Consolidated Statements of Income and
Comprehensive Income. The table below summarizes the notional amounts for
rate lock
commitments, best efforts forward trades and MBS forward trades pertaining to loans held for sale at
December 31, 2018.
interest
Interest rate lock commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Best efforts forward trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MBS forward trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notional
$ 49,545
61,865
30,000
Total derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$141,410
Mortgage banking derivatives, which are included in Other Assets and Other Liabilities on the Company’s
Consolidated Balance Sheets, used in the ordinary course of business consist of forward sales contracts and
interest rate lock commitments on residential mortgage loans. Forward sales contracts represent future
commitments to deliver loans at a specified price and by a specified date and are used to manage interest
rate risk on loan commitments and mortgage loans held for sale. Rate lock commitments represent
commitments to fund loans at a specific rate and by a specified expiration date. These derivatives involve
underlying items, such as interest rates, and are designed to mitigate risk. Notional amounts are amounts on
which calculations and payments are based, but which do not represent credit exposure, as credit exposure is
limited to the amounts required to be received or paid.
119
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(5) Loans
The following table sets forth information concerning the loan portfolio by collateral
December 31, 2018 and 2017 are:
types as of
December 31, 2018
December 30, 2017
Loans excluding PCI loans
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . .
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans before unearned fees and deferred cost
. . . . . . . . . . . . . .
Net unearned fees and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans excluding PCI loans . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans (note 1)
Real estate loans
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development and construction . . . . . . . . . . . . . . . . . .
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,702,114
4,454,098
635,562
6,791,774
1,183,380
203,686
8,178,840
2,693
8,181,533
58,804
87,336
7,028
153,168
5,594
209
158,971
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses for loans that are not PCI loans . . . . .
Allowance for loan losses for PCI loans . . . . . . . . . . . . . . . . . . .
8,340,504
(39,579)
(191)
$1,025,303
2,546,143
235,816
3,807,262
693,501
107,480
4,608,243
820
4,609,063
59,975
92,791
6,656
159,422
4,444
292
164,158
4,773,221
(32,530)
(295)
Total loans, net of allowance for loan losses . . . . . . . . . . . . . . . .
$8,300,734
$4,740,396
Note 1: Purchased credit-impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30.
120
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The following tables present the activity in the allowance for loan losses by portfolio segment for the years
ended December 31, 2018, 2017 and 2016.
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,
2018
Beginning of the period . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . .
$ 6,003
(516)
1,027
(996)
$19,304
(13)
679
3,008
Balance at end of period . . . . . . . . . . . .
$ 5,518
$22,978
Twelve months ended December 31,
2017
Beginning of the period . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . .
$ 5,640
(254)
950
(333)
$14,713
(74)
662
4,003
Balance at end of period . . . . . . . . . . . .
$ 6,003
$19,304
Twelve months ended December 31,
2016
Beginning of the period . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . .
$ 6,015
(290)
1,220
(1,305)
$10,559
(1,190)
625
4,719
Balance at end of period . . . . . . . . . . . .
$ 5,640
$14,713
$1,179
(126)
39
689
$1,781
$ 883
—
596
(300)
$1,179
$ 936
(232)
269
(90)
$ 883
$ 4,130
(1,474)
360
3,398
$ 1,914
(1,706)
327
2,353
$32,530
(3,835)
2,432
8,452
$ 6,414
$ 2,888
$39,579
$ 3,785
(677)
334
688
$ 1,548
(994)
217
1,143
$26,569
(1,999)
2,759
5,201
$ 4,130
$ 1,914
$32,530
$ 3,212
(186)
325
434
$ 1,421
(849)
189
787
$22,143
(2,747)
2,628
4,545
$ 3,785
$ 1,548
$26,569
121
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Real Estate Loans
Residential Commercial
Land, develop.,
constr.
Comm. &
industrial
Consumer
& other
Total
Allowance for loan losses for loans that
are PCI loans:
Twelve months ended December 31, 2018
Beginning of the period . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . .
Twelve months ended December 31, 2017
Beginning of the period . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . .
Twelve months ended December 31, 2016
Beginning of the period . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . .
$—
—
—
—
$—
$ 54
—
—
(54)
$—
$—
—
—
54
$ 54
$ 59
—
—
(59)
$—
$ 92
—
66
(99)
$ 59
$103
—
—
(11)
$ 92
$222
—
—
(45)
$177
$312
—
—
(90)
$222
$
1
(66)
—
377
$312
$—
(10)
75
(65)
$—
$—
—
—
—
$—
$
3
—
—
(3)
$—
$ 14
—
—
—
$ 14
$ 14
—
—
—
$ 14
$ 14
—
—
—
$ 14
$ 295
(10)
75
(169)
$ 191
$ 472
—
66
(243)
$ 295
$ 121
(66)
—
417
$ 472
122
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018 and 2017. Accrued
interest receivable and unearned fees/costs are not included in the recorded investment because they are not
material.
As of December 31, 2018
Residential
Commercial
Land, develop.,
constr.
Comm. &
industrial
Consumer
& other
Total
Real Estate Loans
Allowance for loan losses:
Ending allowance balance
attributable to loans:
$
331
$
250
$ —
$
1,034
$
1
$
1,616
impairment
Individually evaluated for
. . . . . . . . .
Collectively evaluated for
. . . . . . . . .
impairment
Purchased
credit-impaired . . . . . .
—
—
Total ending allowance
5,187
22,728
1,781
177
5,380
2,887
37,963
—
14
191
balance . . . . . . . . . . . . . . . . .
$
5,518
$
22,978
$
1,958
$
6,414
$
2,902
$
39,770
Loans:
impairment
Individually evaluated for
. . . . . . . . .
Collectively evaluated for
. . . . . . . . .
impairment
Purchased
credit-impaired . . . . . .
Total ending loan balances . . .
$
6,234
$
7,496
$
117
$
1,708
$
145
$
15,700
1,695,880
4,446,602
635,445
1,181,672
203,541
8,163,140
58,804
87,336
7,028
5,594
209
158,971
$1,760,918
$4,541,434
$642,590
$1,188,974
$203,895
$8,337,811
123
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
As of December 31, 2017
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
. . . . . . . . . . . .
$
586
$
—
$
4
$
206 $
8 $
804
Collectively evaluated for
impairment
. . . . . . . . . . . .
Purchased credit-impaired . .
Total ending allowance
5,417
—
19,304
59
1,175
222
3,924
—
1,906
14
31,726
295
balance . . . . . . . . . . . . . . . . . . .
$
6,003
$
19,363
$
1,401
$
4,130 $
1,928 $
32,825
Loans:
Individually evaluated for
impairment
. . . . . . . . . . . .
$
8,101
$
8,218
$
331
$
3,497 $
198 $
20,345
Collectively evaluated for
impairment
. . . . . . . . . . . .
Purchased credit-impaired . .
1,017,202
59,975
2,537,925
92,791
235,485
6,656
690,004
4,444
107,282
292
4,587,898
164,158
Total ending loan balance . . . . . . .
$1,085,278
$2,638,934
$242,472
$697,945 $107,772 $4,772,401
The following is a summary of information regarding impaired loans at December 31, 2018 and 2017:
Performing TDRs (these are not included in non-performing loans (“NPLs”)) . . .
Non-performing TDRs (these are included in NPLs) . . . . . . . . . . . . . . . . . . . . . . .
$ 8,475
1,002
$12,081
698
Total TDRs (these are included in impaired loans) . . . . . . . . . . . . . . . . . . . . . . . . .
Impaired loans that are not TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,477
6,223
12,779
7,566
Total impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,700
$20,345
December 31,
2018
2017
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 $9,477 of TDRs. Of this amount $8,475 are performing pursuant to
their modified terms, and $1,002 are not performing and have been placed on non-accrual status and
included in our non-performing loans (“NPLs”).
124
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
TDRs as of December 31, 2018 and 2017 quantified by loan type classified separately as accrual
(performing loans) and non-accrual (non-performing loans) are presented in the table below.
As of December 31, 2018
Real estate loans:
Accruing
Non-Accrual
Total
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,848
1,837
77
7,762
577
136
$ 386
566
41
993
—
9
$6,234
2,403
118
8,755
577
145
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,475
$1,002
$9,477
As of December 31, 2017
Real estate loans:
Accruing
Non-Accrual
Total
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . .
Total real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,737
3,286
332
11,355
556
170
$ 364
306
—
670
—
28
$ 8,101
3,592
332
12,025
556
198
Total TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,081
$ 698
$ 12,779
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
$77, $265 and $454 and partial charge offs of $44, $72 and $209 on TDR loans during the periods ending
December 31, 2018, 2017 and 2016, 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 89% of the Company’s TDRs are current pursuant to their modified terms, and $1,002, or
approximately 11% 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.
Loans modified as TDRs during the twelve month periods ending December 31, 2018, 2017 and 2016 were
$1,830, $2,258 and $4,079. The Company recorded a loan loss provision of $9, $14 and $229 for loans
modified during the twelve-month periods ending December 31, 2018, 2017 and 2016.
125
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018, 2017 and 2016.
Period Ending
December 31, 2018
Period Ending
December 31, 2017
Period Ending
December 31, 2016
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 . . . . . . . . . . . . . . . . . . . . .
—
1
1
—
—
2
$—
433
49
—
—
$482
—
1
—
—
—
$—
177
—
—
—
2
2
$ 167
936
—
—
—
—
—
—
1
$177
4
$1,103
The Company recorded no provision for loan loss expense or partial charge offs during the year ending
December 31, 2018 on TDR loans that subsequently defaulted as described above. The Company recorded
$8 and $76 in provision for loan loss expense and $8 and $77 in partial charge offs during the years ending
December 31, 2017 and 2016, respectively, on TDR loans that subsequently defaulted as described above.
The Company has allocated $334 and $601 of specific reserves to customers whose loan terms have been
modified in troubled debt restructurings as of December 31, 2018 and 2017. The Company has not
committed to lend additional amounts to customers with outstanding loans that are classified as troubled
debt restructurings.
The following tables present
loans individually evaluated for impairment by class of loans as of
December 31, 2018 and 2017 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, 2018
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
Recorded
investment
$ 3,608
6,447
144
364
109
2,897
1,593
—
1,378
53
$ 3,485
5,906
117
353
108
2,749
1,590
—
1,355
37
Allowance
for loan
losses
allocated
$ —
—
—
—
—
331
250
—
1,034
1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,593
$15,700
$1,616
126
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
As of December 31, 2017
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
Recorded
investment
$ 4,945
8,973
260
3,374
142
3,426
—
140
531
78
$ 4,818
8,218
210
2,968
127
3,283
—
121
529
71
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,869
$20,345
Allowance
for loan
losses
allocated
$—
—
—
—
—
586
—
4
206
8
$804
December 31, 2018
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 . . . . . . . . . . . . . . . . . .
$ 7,492
7,876
588
15,956
2,081
174
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,211
$
$
$
308
104
8
420
33
8
461
$—
—
—
—
—
—
$—
December 31, 2017
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 . . . . . . . . . . . . . . . . . .
$ 7,731
8,956
432
17,119
1,968
240
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,327
$
$
267
145
18
430
29
10
469
$—
—
—
—
—
—
$—
127
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
December 31, 2016
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 . . . . . . . . . . . . . . . . . . . . . . .
$ 8,384
11,696
1,503
21,583
1,808
253
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,644
$257
131
24
412
44
11
$467
$—
—
—
—
—
—
$—
The following tables present the recorded investment in non-accrual loans and loans past due over 90 days
still on accrual by class of loans as of December 31, 2018 and 2017 excluding purchased credit-impaired
loans accounted for pursuant to ASC Topic 310-30:
As of December 31, 2018
Non-accrual
Loans past due over
90 days still accruing
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,488
8,445
795
2,274
565
$23,567
$—
—
—
—
—
$—
As of December 31, 2017
Non-accrual
Loans past due over
90 days still accruing
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, development, construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,107
6,549
138
3,121
373
$17,288
$—
—
—
—
—
$—
128
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The following tables present the aging of the recorded investment in past due loans as of December 31, 2018
and 2017, excluding purchased credit-impaired loans accounted for pursuant to ASC Topic 310-30:
As of December 31, 2018
Total
30-59
days past
due
60-89
days past
due
Accruing Loans
Greater
than 90 days
past
due
Total
Past
Due
Loans Not
Past Due
Non-accrual
Loans
Residential real estate . . . . $1,702,114 $ 5,730 $ 5,631
4,607
Commercial real estate . . .
4,022
Land/dev/construction . . .
878
Commercial
. . . . . . . . . . .
271
Consumer . . . . . . . . . . . . .
4,454,098
635,562
1,183,380
203,686
10,840
661
2,803
1,061
$8,178,840 $21,094 $15,408
$—
—
—
—
—
$—
$11,360 $1,679,266 $11,488
8,445
4,430,207
795
630,084
2,274
1,177,425
565
201,789
15,446
4,683
3,681
1,332
$36,502 $8,118,771 $23,567
As of December 31, 2017
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
Non-accrual
Loans
Residential real estate . . . . $1,025,303 $3,568 $1,821
2,272
Commercial real estate . . .
189
Land/dev/construction . . .
763
Commercial . . . . . . . . . . . .
48
Consumer . . . . . . . . . . . . .
2,546,143
235,816
693,501
107,480
1,158
2,807
568
471
$4,608,243 $8,572 $5,093
$—
—
—
—
—
$—
$ 5,389 $1,012,807 $ 7,107
6,549
2,536,164
138
232,682
3,121
689,049
373
106,588
3,430
2,996
1,331
519
$13,665 $4,577,290 $17,288
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.
129
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018 and 2017, 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 presented below. The increase in
loans categorized as special mention between the periods presented is due to the acquisitions of
Sunshine and Harbor on January 1, 2018 and Charter on September 1, 2018, respectively.
As of December 31, 2018
Loan Category
Residential real estate . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Land/dev/construction . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$1,633,810
4,246,687
610,631
1,137,272
202,701
Special
Mention
$ 41,522
160,981
20,586
40,836
247
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,831,100
$264,172
Substandard
Doubtful
$26,782
46,430
4,345
5,272
738
$83,568
$—
—
—
—
—
$—
As of December 31, 2017
Loan Category
Residential real estate . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Land/dev/construction . . . . . . . . . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pass
$ 987,472
2,411,085
217,555
674,764
106,735
Special
Mention
$ 20,435
115,942
17,699
14,186
139
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,397,611
$168,401
Substandard
Doubtful
$17,396
19,116
562
4,551
606
$42,231
$—
—
—
—
—
$—
130
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018 and
2017:
As of December 31, 2018
Residential
Consumer
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,690,626
11,488
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,702,114
203,121
565
203,686
As of December 31, 2017
Residential
Consumer
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,018,196
7,107
$107,107
373
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,025,303
$107,480
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,
2018, 2017 and 2016. Contractually required principal and interest payments have been adjusted for
estimated prepayments.
December 31,
2018
2017
2016
Contractually required principal and interest . . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$267,815
(38,602)
$248,283
(13,183)
$297,821
(18,372)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value of acquired loans . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229,213
(70,242)
158,971
(191)
235,100
(70,942)
164,158
(295)
279,449
(93,525)
185,924
(472)
Carrying value less allowance for loan losses . . . . . . . . . . . . . . .
$158,780
$163,863
$185,452
The Company recorded $(169), $(243) and $417 in loan loss provision (recovery) expense on PCI loans
during the years ending December 31, 2018, 2017 and 2016, respectively. The Company adjusted its
estimates of future expected losses, cash flows and renewal assumptions during the current year. These
adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the
131
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
non-accretable difference. The Company reclassified approximately $22,469, $4,707 and $6,220 from
non-accretable difference to accretable yield during the twelve-month periods ending December 31, 2018,
2017 and 2016, respectively, to reflect the adjusted estimates of future expected cash flows.
The Company recognized approximately $35,944 of accretion income during the twelve-month period
ending December 31, 2018. 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, 2018, 2017 and 2016.
Contractually required principal
and interest . . . . . . . . . . . . . . .
Non-accretable difference . . . . .
Cash flows expected to be
December 31,
2017
Effect of
acquisitions
income
accretion
all other
adjustments
December 31,
2018
$248,283
(13,183)
$122,392
(58,927)
$ —
—
$(102,860)
33,508
$267,815
(38,602)
collected . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . .
235,100
(70,942)
63,465
(7,770)
—
35,944
(69,352)
(27,474)
229,213
(70,242)
Carry value of acquired loans . .
$164,158
$ 55,695
$35,944
$ (96,826)
$158,971
Contractually required principal
and interest . . . . . . . . . . . . . . .
Non-accretable difference . . . . .
Cash flows expected to be
December 31,
2016
Effect of
acquisitions
income
accretion
all other
adjustments
December 31,
2017
$297,821
(18,372)
$31,334
(7,104)
$ —
—
$(80,872)
12,293
$248,283
(13,183)
collected . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . .
279,449
(93,525)
24,230
(4,185)
—
32,388
(68,579)
(5,620)
235,100
(70,942)
Carry value of acquired loans . .
$185,924
$20,045
$32,388
$(74,199)
$164,158
Contractually required principal
and interest . . . . . . . . . . . . . . .
Non-accretable difference . . . . .
Cash flows expected to be
December 31,
2015
Effect of
acquisitions
income
accretion
all other
adjustments
December 31,
2016
$ 332,570
(19,452)
$ 73,005
(9,295)
$ —
—
$(107,754)
10,375
$297,821
(18,372)
collected . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . .
313,118
(102,590)
63,710
(18,585)
—
34,006
(97,379)
(6,356)
279,449
(93,525)
Carry value of acquired loans . .
$ 210,528
$ 45,125
$34,006
$(103,735)
$185,924
132
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 861
482
(939)
$ 869
682
(690)
$ 1,297
871
(1,299)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 404
$ 861
$
869
2018
2017
2016
Expenses related to foreclosed real estate include:
Gain on sale of repossessed real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation write down of repossessed real estate . . . . . . . . . . . . . . . . . .
Operating expenses, net of rental income . . . . . . . . . . . . . . . . . . . . . . .
$(1,933)
482
2,815
(876)
682
2,252
(1,528)
871
2,392
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,364
$2,058
$ 1,735
2018
2017
2016
(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 available for sale debt securities 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 corporate debt securities are calculated using market indicators such as
broker quotes (Level 2).
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.
133
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The Company has the rights to service a portfolio of Fannie Mae (“FNMA”) and other loans sold on a
servicing retained basis. The fair value of mortgage servicing assets are measured when the loan is sold and
subsequently measured at fair value on a recurring basis. Management uses a model operated and
maintained by a third party to calculate the present value of future cash flows using the third party’s market-
based assumptions. The future cash flows for each asset are based on the asset’s unique characteristics and
the third party’s market-based assumptions for prepayment speeds, default and voluntary prepayments
(Level 2). Adjustments to fair value are recorded as a component of Mortgage Banking Revenue in the
Consolidated Statements of Income and Comprehensive Income.
Effective January 1, 2018, the Company elected to account for mortgage loans held for sale under the fair
value option with changes in fair value recognized in current period earnings. For periods prior to
December 31, 2017, these loans were valued at the lower of cost or fair value. These loans are intended for
sale and the Company believes that the fair value is the best indicator of the resolution of these loans (Level
2). In conjunction with the fair value election on loans held for sale, Mortgage banking uses derivative
forward sales contracts and interest rate lock commitments on residential mortgage loans. Fair values of
these mortgage derivatives are estimated based on changes in market prices for mortgage forward trades and
mortgage interest rates (Level 2) and estimated pull through percentages from the date the interest on the
loan is locked (Level 3).
The Company has the rights to service a portfolio of Fannie Mae (“FNMA”) and other government
guaranteed loans sold on a servicing retained basis. Mortgage servicing assets are measured at fair value
when the loan is sold and subsequently measured at fair value on a recurring basis utilizing Level 2 inputs.
Management uses a model operated and maintained by a third party to calculate the present value of future
cash flows using the third party’s market-based assumptions. The future cash flows for each asset are based
on the asset’s unique characteristics and the third party’s market-based assumptions for prepayment speeds,
default and voluntary prepayments. Adjustments to fair value are recorded as a component of Mortgage
Banking Revenue in the Consolidated Statements of Income and Comprehensive Income.
The fair value of interest rate swap derivatives is based on valuation models using observable market data as
of the measurement date (Level 2). The derivatives are traded in an over-the-counter market where quoted
market prices are not always available. Therefore, fair values of derivatives are determined using
quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative,
but could include interest rates, prices and indices to generate continuous yield or pricing curves,
prepayment rates, and volatility factors to value the position. The majority of market inputs are actively
quoted and can be validated through external sources, including brokers, market transactions and third-party
pricing services.
The fair value of impaired loans with specific valuation allowance for loan losses and other real estate
owned is based on recent real estate appraisals. For residential real estate impaired loans and other real
estate owned, appraised values are based on the comparative sales approach. For commercial and
commercial real estate impaired loans and other real estate owned, appraisers may use either a single
valuation approach or a combination of approaches such as comparative sales, cost or the income approach.
A significant unobservable input in the income approach is the estimated income capitalization rate for a
given piece of collateral. At December 31, 2018, 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.
134
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Assets and liabilities measured at fair value on a recurring basis are summarized below.
Fair value measurements using
Carrying
value
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
1,737
6,427
37,868
1,594,275
88,778
40,399
1,565
—
92,475
164
92,892
$
6,777
5,200
9,574
972,611
72,758
42,480
43,259
—
—
—
—
—
—
—
783
—
5
—
—
—
—
—
—
—
—
at December 31, 2018
Assets:
Trading securities . . . . . . . . . . . . . . . . .
Available for sale debt securities
Corporate debt securities . . . . . . .
Obligations of U.S. government
sponsored entities and
agencies . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . .
Municipal securities . . . . . . . . . . .
Loans held for sale, at fair value . . . . .
Mortgage servicing assets . . . . . . . . . .
Mortgage banking derivatives . . . . . . .
Interest rate swap derivatives . . . . . . . .
Liabilities:
Mortgage banking derivatives . . . . . . .
Interest rate swap derivatives . . . . . . . .
at December 31, 2017
Assets:
Trading securities . . . . . . . . . . . . . . . . .
Available for sale debt securities . . . . .
U.S. Treasury securities . . . . . . . .
Obligations of U.S. government
sponsored entities and
agencies . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . .
Municipal securities . . . . . . . . . . .
Interest rate swap derivatives . . . . . . . .
Liabilities:
Interest rate swap derivatives . . . . . . . .
$
1,737
6,427
37,868
1,594,275
88,778
40,399
1,565
783
92,475
169
92,892
$
6,777
5,200
9,574
972,611
72,758
42,480
43,259
135
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018
Assets:
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Land, land development and construction . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land, land development and construction . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . .
at December 31, 2017
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,811
5,614
90
1,274
40
867
5,805
$2,423
6,293
292
2,131
57
635
261
1,481
1,516
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$1,811
5,614
90
1,274
40
867
5,805
$2,423
6,293
292
2,131
57
635
261
1,481
1,516
Impaired loans measured at fair value had a recorded investment of $8,829 with a valuation allowance of
$1,463 at December 31, 2018, and a recorded investment of $11,673, with a valuation allowance of $477, at
December 31, 2017. The Company recorded a provision for loan loss expense of $1,363 and $842 on these
loans during the years ending 2018 and 2017, respectively.
Other real estate owned had a decline in fair value of $482 and $682 during the twelve-month periods
ending December 31, 2018 and 2017, respectively. Changes in fair value were recorded directly as an
adjustment to current earnings through non-interest expense.
Bank property held for sale represents certain branch office buildings which the Company has closed and
consolidated with other existing branches or acquired through various acquisitions. The real estate was
transferred out of the Bank Premises and Equipment category into Bank Property Held For Sale at the lower
of amortized cost or fair value less estimated costs to sell. The fair values were based upon appraisals. The
Company recorded an impairment charge, of $2,667 and $519 during the twelve month periods ending
December 31, 2018 and 2017 related to bank properties held for sale.
136
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, FRB and other stock: It is not practical to determine the fair value of FHLB, FRB and other 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, net: ASU 2016-1, “Recognition and Measurement of Financial Assets and Financial Liabilities,”
requires the Company to use the exit price notion when measuring fair value of financial instruments for
disclosure purposes effective January 1, 2018, therefore the fair value presented in the following table may
not be comparable to prior period. For performing loans, the fair value is determined based on a discounted
cash flow analysis (income approach). The discounted cash flow was based on contractual maturity of the
loan and market indications of rates, prepayment speeds, defaults and credit risk resulting in Level 3
classification. For non-performing loans, the fair value is determined based on the estimated values of the
underlying collateral or individual analysis of receipts (asset approach) resulting in Level 3 classification. At
December 31, 2017, the fair values of loans, excluding loans held for sale, were estimated as follows: for
variable rate loans that reprice frequently and with no significant change in credit risk, fair values were
based on carrying values resulting in a Level 3 classification. Fair values for other loans were 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 were valued as
described previously.
Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value
and classified as Level 2 for accrued interest receivable related to investment securities and Level 3 for
accrued interest receivable related to loans.
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.
Other Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase
agreements, and other borrowings (subordinated notes), 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.
137
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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.
The following table presents the carry amounts and estimated fair values of the Company’s financial
instruments:
at December 31, 2018
Financial assets:
Cash and cash equivalents . . .
Trading securities . . . . . . . . .
Available for sale debt
Carrying
amount
$ 367,333
1,737
securities . . . . . . . . . . . . . .
1,727,348
Held to maturity debt
securities . . . . . . . . . . . . . .
216,833
FHLB, FRB and other
stock . . . . . . . . . . . . . . . . .
79,584
Loans held for sale, at fair
value . . . . . . . . . . . . . . . . .
Loans, net
. . . . . . . . . . . . . . .
Mortgage servicing assets . . .
Mortgage banking
derivatives . . . . . . . . . . . . .
Interest rate swap
40,399
8,300,734
1,565
783
derivatives . . . . . . . . . . . . .
92,475
Accrued interest
receivable . . . . . . . . . . . . .
33,143
Financial liabilities:
Deposits- without stated
Fair value measurements
Level 1
Level 2
Level 3
Total
$ 367,333
$
— $
1,737
1,727,348
212,179
—
40,399
—
1,565
—
92,475
— $ 367,333
1,737
—
—
—
—
—
8,342,220
—
783
—
1,727,348
212,179
n/a
40,399
8,342,220
1,565
783
92,475
8,355
24,788
33,143
—
—
—
—
—
—
—
—
—
—
maturities . . . . . . . . . . . . . .
$7,655,376
$7,655,376
$
— $
— $7,655,376
Deposits- with stated
maturities . . . . . . . . . . . . . .
1,821,960
Securities sold under
agreement to repurchase . .
57,772
Federal funds purchased and
other borrowings . . . . . . . .
Corporate debentures . . . . . . .
Mortgage banking
derivatives . . . . . . . . . . . . .
Interest rate swap
derivatives . . . . . . . . . . . . .
Accrued interest payable . . . .
655,360
32,415
169
92,892
2,627
—
—
—
—
—
—
—
1,827,299
57,772
655,360
—
164
92,892
2,627
—
—
—
28,621
5
—
—
1,827,299
57,772
655,360
28,621
169
92,892
2,627
(Continued)
138
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Carrying
amount
Level 1
Level 2
Level 3
Total
Fair value measurements
$ 280,619
6,777
$ 280,619
—
$
—
6,777
$
at December 31, 2017
Financial assets:
Cash and cash
equivalents . . . . . . . . . . . .
Trading securities . . . . . . . .
Available for sale debt
securities . . . . . . . . . . . . .
1,060,143
Held to maturity debt
securities . . . . . . . . . . . . .
232,399
FHLB, FRB and other
stock . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . .
Loans, net
. . . . . . . . . . . . . .
Interest rate swap
34,876
19,647
4,740,396
derivatives . . . . . . . . . . . .
42,480
Accrued interest
receivable . . . . . . . . . . . .
18,628
Financial liabilities:
Deposits- without stated
—
—
—
—
—
—
—
—
—
—
—
—
—
4,731,514
$ 280,619
6,777
1,060,143
231,615
n/a
19,647
4,731,514
—
42,480
1,060,143
231,615
—
19,647
—
42,480
5,370
13,258
18,628
maturities . . . . . . . . . . . . .
$4,727,840
$4,727,840
$
—
$
Deposits- with stated
maturities . . . . . . . . . . . . .
832,683
Securities sold under
agreement to
repurchase . . . . . . . . . . . .
Federal funds purchased and
other borrowings . . . . . . .
Corporate debentures . . . . . .
Interest rate swap
derivatives . . . . . . . . . . . .
Accrued interest payable . . .
52,080
331,490
26,192
43,259
1,169
—
—
—
—
—
—
845,039
52,080
331,490
—
43,259
1,169
—
—
—
—
22,363
—
—
$4,727,840
845,039
52,080
331,490
22,363
43,259
1,169
139
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(8) Bank Premises and Equipment
A summary of bank premises and equipment as of December 31, 2018 and 2017 is as follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$ 72,487
1,381
130,424
13,655
45,056
15,491
278,494
51,040
$ 51,724
1,251
85,625
6,575
38,662
4,783
188,620
46,734
$227,454
$141,886
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,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,113
5,687
5,004
4,274
3,163
15,047
$40,288
Rent expense, net of rental income, for the years ended December 31, 2018, 2017 and 2016, was $5,642,
$2,996 and $1,955, respectively, and is included in Occupancy Expense in the accompanying Consolidated
Statements of Income and Comprehensive Income. Rental income for the years ended December 31, 2018,
2017 and 2016, was $1,183, $930, and $892, respectively, and is included in occupancy expense.
(9) Goodwill and Intangible Assets
Goodwill
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 2018, 2017 and 2016 is as follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired goodwill
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$257,683
545,197
—
$106,028
151,655
—
$ 76,739
29,289
—
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$802,880
$257,683
$106,028
2018
2017
2016
140
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018. 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.
Core Deposit and Trust Intangible Assets
Intangible assets consists of core deposit intangibles (“CDI”) and Trust intangible (“Trust”) which are from
either whole bank or branch acquisitions. Acquired CDI and Trust 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, an accelerated method in the case of the Trust intangible. In
December 2017, the Company sold its trust department resulting in the disposal of its related trust intangible
asset.
The change in balance for the CDI and Trust intangible assets during the years 2018, 2017 and 2016 is as
follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired CDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense on CDI and Trust . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposal of Trust intangible asset
$24,063
51,945
(9,783)
—
$16,209
12,424
(3,997)
(573)
$13,001
6,282
(3,074)
—
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,225
$24,063
$16,209
2018
2017
2016
CDI and Trust intangible assets for years ended December 31, 2018 and 2017 were as follows:
December 31, 2018
December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Core deposit intangibles . . . . . . . . . . . . . . . .
$93,964
Total acquired intangibles . . . . . . . . . . . . . . . . . .
$93,964
$27,739
$27,739
$42,019
$42,019
$17,956
$17,956
Estimated amortization expense for each of the next five years:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CDI
$10,479
9,111
7,923
7,245
7,165
(Continued)
141
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Mortgage and Small Business Administration Servicing Assets
Mortgage servicing assets (“MSA”) and small business administration (“SBA”) servicing assets are either
originated by the Company’s commercial and retail banking business or obtained from whole bank
acquisitions. The Company acquired a total of $1,828 MSA and SBA servicing assets through its acquisition
of Charter on September 1, 2018. As these servicing rights were acquired at fair value as of acquisition date,
no impairment charge has currently been assessed on these assets.
Mortgage Servicing Assets
Activity for MSA and the related valuation allowance follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$ —
1,602
(37)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,565
Fair value at year end 2018 was determined using discount rates ranging from 0.4% to 1.1%, prepayment
speeds ranging from 6.6% to 15.5%, depending on the stratification of the specific right, and a weighted
average default rate of 0.5%.
Small Business Administration Servicing Assets
During the year ended December 31, 2018, the Company acquired $226 of SBA loans serviced for others in
the acquisition of Charter (see Note 26 “Business Combinations”, for further information). The Company
had a total of $35,779, and $26,315 at December 31, 2018, and 2017, respectively of SBA loans sold with
servicing assets retained. The Company recorded $235 and $69 of amortization on the SBA servicing assets
during the years ended December 31, 2018 and 2017, respectively. As the SBA servicing assets from the
Charter acquisition was assumed at fair value on September 1, 2018, no impairment charge has currently
been assessed on these assets. SBA servicing assets totaled $1,388 and $551 at December 31, 2018 and
2017, respectively.
The risk inherent in SBA servicing assets includes prepayments at different rates than anticipated or
resolution of loans at dates not consistent with the estimated expected lives. These events would cause the
value of the SBA servicing assets to decline at a faster or slower rate than originally anticipated.
Activity for SBA servicing assets is as follows:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
$ 551
846
226
(235)
$ 85
535
—
(69)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,388
$551
142
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
(10) Deposits
A detail of deposits at December 31, 2018 and 2017 is as follows:
Non-interest bearing deposits . . . . . . . . . . . . . . . .
Interest bearing deposits:
Interest bearing demand deposits . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . .
Time deposits less than $100,000 . . . . . . . . .
Time deposits of $100,000 or greater . . . . . .
December 31,
Weighted
Average
Interest
Rate
2017
Weighted
Average
Interest
Rate
2018
$2,923,640
—%
$1,999,901
—%
1,811,006
704,159
2,216,571
871,043
950,917
$9,477,336
0.3%
0.1%
0.9%
1.6%
1.6%
0.6%
1,058,985
501,014
1,167,940
384,347
448,336
$5,560,523
0.1%
0.1%
0.4%
1.0%
1.2%
0.3%
The following table presents the amount of certificate accounts at December 31, 2018, maturing during the
periods reflected below:
Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Amount
$1,337,688
320,487
89,880
39,552
33,965
388
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,821,960
Time deposits that meet or exceed the FDIC insurance limit of $250 at year end 2018 and 2017 were
$397,369 and $197,247. Total brokered deposits were $328,718 and $222,368 at year end 2018 and 2017,
respectively.
(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, 2018 and 2017, the Company had $57,772 and $52,080 in repurchase agreements.
Repurchase agreements are secured by obligations of U.S. government agencies and municipal securities
with fair values of $64,706 and $59,682 at December 31, 2018 and 2017, 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.
143
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The following tables provide additional details as of December 31, 2018 and 2017.
As of December 31, 2018
MBS
Securities
Municipal
Securities
Market value of securities pledged . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings related to pledged amounts . . . . . . . . . . . . . . . . . . . . .
Market value pledged as a % of borrowings . . . . . . . . . . . . . . . . .
$64,269
57,594
112%
$437
178
246%
As of December 31, 2017
MBS
Securities
Municipal
Securities
Market value of securities pledged . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings related to pledged amounts . . . . . . . . . . . . . . . . . . . . .
Market value pledged as a % of borrowings . . . . . . . . . . . . . . . . .
$59,239
52,030
114%
$443
50
886%
Information concerning repurchase agreements is summarized as follows:
Total
$64,706
57,772
112%
Total
$59,682
52,080
115%
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 . . . . . . . . . . . . . . . . . . . .
$54,344
$43,850
$29,435
1.16%
0.56%
0.35%
$59,751
$52,080
$35,500
1.66%
0.88%
0.33%
2018
2017
2016
(12) Federal Funds Purchased
Federal funds purchased, as listed below, are overnight deposits including deposits from correspondent
banks. At December 31, 2017, the Company also had $70,000 in overnight borrowings, with a weighted
average interest rate of 1.63%, with the Federal Reserve Bank and financial institutions. These borrowings
are included in Federal Funds Purchased on the Company’s Consolidated Balance Sheets.
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 . . . . . . . . . . . . . . . . .
$250,499
$263,669
$210,276
2.02%
1.13%
0.55%
$294,360
$335,531
$288,582
2.07%
1.39%
0.72%
2018
2017
2016
(13) 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.
144
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
At year end, advances from the Federal Home Loan Bank were as follows:
Fixed rate advances, maturity through 01/28/2019, rates from 2.45% and
2.54%, averaging 2.50% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$200,000
$ —
Floating rate advances, rates of 2.65% and 1.59%, as of December 31, 2018
and 2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,000
155,000
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$350,000
$155,000
2018
2017
Federal Home Loan Bank advances are collateralized by residential and commercial loans under a blanket
lien arrangement and investment securities. Based on this collateral, and the Company’s holdings of FHLB
stock, the Company is eligible to borrow up to $871,067 at year end 2018.
The Company has $50,000 available in a revolving line of credit, with an interest rate of LIBOR plus 350
basis points (“bps”) and scheduled to mature on April 1, 2021. No revolving line of credit balance was
outstanding as of December 31, 2018. For year ended December 31, 2017, the Company had $20,000
outstanding in this revolving line of credit with an interest rate of 4.84%.
On January 1, 2018, the Company acquired all the assets and assumed all the liabilities of Sunshine pursuant
to the merger agreement, including Sunshine’s debt obligations. In March 2016, Sunshine accepted
subscriptions for and sold, at 100% of their principal amount, an aggregate of $11,000 of subordinated notes
(the “Notes”), on a private placement basis, to two accredited investors. The Notes bear interest at a fixed
interest rate of 5.0% per year. The Notes have a term of five years, and have a maturity date of April 1,
2021. The Notes are redeemable at the option of the Company, in whole or in part, at any time, without
penalty or premium, subject to any required regulatory approvals.
The Federal Home Loan Bank Advances, revolving line of credit and Notes are included in Other Borrowed
Funds on the Company’s Consolidated Balance Sheets.
(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 (“bps”)). The corporate debenture and
the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture
are callable by the Company or the Trust, at their respective option 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
145
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
corporate debenture in the amount of $2,500. The Trust used the proceeds from the issuance of a trust
preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets
and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI’s corporate
debenture and related trust preferred security discussed above. The trust preferred security essentially
mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the
interest rate on the corporate debenture (three month LIBOR plus 270 bps). The corporate debenture and the
trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are
callable by the Company or the Valrico Trust, at their respective option 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 bps). The corporate debenture and the trust
preferred security each have 30-year lives maturing in 2033. The trust preferred security and the corporate
debenture are callable by the Company or the FTC Trust, at their respective option after five years, and
sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company
has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal
Reserve guidelines for federal regulatory purposes. The Company is not considered the primary beneficiary
of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial
statements, but rather the subordinated debentures are shown as a liability. 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.
146
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
On January 22, 2016, the Company cancelled, dissolved and terminated GBI Trust I. The Company
recognized 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.
In July 2006, Hometown formed Homestead Statutory Trust I (“Homestead Trust I”) for the purpose of
issuing trust preferred securities. On July 17, 2006, Hometown issued a floating rate corporate debenture in
the amount of $16,000. 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 165 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 March 1, 2016, the Company acquired all the assets and assumed all
the liabilities of Hometown by merger, including Hometown’s corporate debenture and related trust
preferred security. On March 16, 2016, the Company partially redeemed and terminated $6,000 of
Homestead Trust I. The Company has treated the remaining corporate debenture as Tier 1 capital up to the
maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.
In January 2018, the Company assumed BSA Financial Statutory Trust I (“BSA”) and MRCB Statutory
Trust II (“MRCB”) from its acquisition of HCBF. These Trusts were acquired by HCBF in prior
acquisitions completed by HCBF. The issued floating rate corporate debentures related to BSA and MRCB
were in the amounts of $5,000 and $3,000, respectively. The trust preferred security essentially mirror the
corporate debentures, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on
the corporate debentures (three month LIBOR plus 155 bps and LIBOR plus 160 bps, respectively). The
rates are subject to change quarterly. The corporate debentures and the trust preferred securities each have
30-year lives. The trust preferred securities and the corporate debentures are callable by the Company or the
BSA and MRCB trusts, at their respective option, subject to prior approval by the Federal Reserve, if then
required. The Company has treated the corporate debentures 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 these trusts (variable interest entities), therefore the trusts are not
consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a
liability. The Company’s investments in the common stock of the trusts were $155 and $93, respectively,
and are included in Other Assets.
147
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
In September 2018, the Company assumed CBS Financial Capital Trust I (“CBS Trust I”) and CBS
Financial Capital Trust II (“CBS Trust II”) pursuant to its acquisition of Charter, in the amounts of $4,000
and $5,000, respectively. CBS Trust I and CBS Trust II were subsequently redeemed in December 2018, at
par with no gains or losses realized on the termination of debt, with prior approval by the Federal Reserve.
(15) Income Taxes
Allocation of federal and state income tax expense between current and deferred portions for the years
ended December 31, 2018, 2017 and 2016, is as follows:
December 31, 2018:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,273
5,240
$16,843
4,668
$31,116
9,908
Current
Deferred
Total
$19,513
$21,511
$41,024
December 31, 2017:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,243
4,045
$29,393
1,799
$47,636
5,844
$22,288
$31,192
$53,480
December 31, 2016:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,172
3,091
$ 3,127
520
$18,299
3,611
$18,263
$ 3,647
$21,910
148
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2018 and 2017, are presented below:
December 31,
2018
2017
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accrual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on available for sale debt securities . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 10,079
1,701
2,235
1,334
18,313
177
17,929
2,890
7,611
—
$ 8,320
1,609
1,488
572
13,278
557
13,414
1,385
2,378
2,339
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,269
45,340
Deferred tax liabilities:
Premises and equipment, due to differences in depreciation methods and
useful lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Like kind exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of discounts on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
(8,145)
(683)
(1,608)
(197)
(67)
(107)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,807)
(5,441)
(208)
(1,752)
(197)
(17)
—
(7,615)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 51,462
$37,725
As a result of the acquisition of First Southern on June 1, 2014, the Company obtained net operating loss
carryforwards of approximately $57,375 which are subject
to an Internal Revenue Code (“IRC”)
Section 382 annual limitation of approximately $6,487 per year. The Company obtained net operating loss
carryforwards of approximately $11,526 and $8,763 as a result of the acquisitions of Community and
Hometown, respectively, on March 1, 2016 which are also subject to IRC Section 382 limitations of
approximately $1,722 and $507, respectively. On May 1, 2017, the Company completed its acquisition of
Gateway and as a result obtained net operating loss carryforwards of approximately $5,407, which are
subject to IRC Section 382 limitations of approximately $3,289. The Company obtained net operating loss
carryforwards of approximately $22,529 and $14,003 as a result of the acquisitions of Sunshine and HCBF,
respectively, on January 1, 2018 which are also subject to IRC Section 382 limitations of approximately
$3,682 and $1,101, respectively. On September 1, 2018, the Company acquired approximately $3,780 of net
operating loss carryforwards pursuant to its acquisition of Charter, however, these net operating loss
carryforwards are less than the IRC Section 382 annual limitation of approximately $9,036.
149
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
At December 31, 2018, total net operating losses approximate $71,483, which includes $19,653 from 2018.
Effective January 1, 2018, net operating losses generated on January 1, 2018 and forward are no longer
subject to a 20-year carryforward period and are carried indefinitely until fully utilized. Excluding the net
operating losses not subject to expiration, the Company had approximately $51,830 of net operating loss
carryforwards at December 31, 2018, which will begin to expire as follows:
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2033 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2035 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,418
1,996
11,826
13,681
7,246
6,841
7,063
759
$51,830
As a result of the enactment of the Tax Act on December 22, 2017, the Company evaluated its deferred tax
assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on its deferred
tax assets. The reduction in the federal corporate tax rate resulted in a one-time charge to the Company’s
earnings and reduction to its net deferred tax assets of approximately $18,575, which was recorded in 2017.
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 net deferred tax asset,
net of the one-time charge mentioned above, will be realized as of December 31, 2018 and 2017.
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.
files a tax return in South Carolina. The Company is no longer subject to examination by taxing authorities
for the years before 2015. The Company has not recorded any material interest or penalties on its income tax
liabilities for the years 2018, 2017 and 2016.
150
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
A reconciliation between the actual tax expense and the “expected” tax expense, computed by applying the
U.S. federal corporate rate of 21 percent for 2018 and 35 percent for 2017 and 2016 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 . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock based compensation . . . . . . . . . . . . . .
Revaluation of net deferred tax asset due to change in federal
income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
December 31,
2018
2017
2016
$41,466
(3,177)
(1,167)
7,827
17
610
(5,095)
$38,246
(4,104)
(1,251)
4,077
40
1,049
(3,007)
$22,488
(2,364)
(825)
2,347
81
388
—
—
543
18,575
(145)
—
(205)
$41,024
$53,480
$21,910
(16) Related-Party Transactions
Loans to principal officers, directors, and their affiliates during 2017 and 2016 were as follows:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New loans and advances on existing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,458
39,183
(21,215)
$ 26,515
21,753
(17,810)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,426
$ 30,458
2018
2017
At December 31, 2018 and 2017 principal officers, directors, and their affiliates had $10,820 and $8,835,
respectively, of available lines of credit. Deposits from principal officers, directors, and their affiliates at
year-end 2018 and 2017 were approximately $6,739 and $4,777, 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
151
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under these rules, banks
are required to maintain a minimum CET1 ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets
of 6%, a total risk-based capital ratio of 8%, and a minimum leverage capital ratio of 4%. In addition, the
rules require a capital conservation buffer of up to 2.5% above each of CET1, tier 1, and total risk-based
capital which must be met for a bank to be able to pay dividends, engage in share buybacks or make
discretionary bonus payments to executive management without restriction. This capital conservation buffer
is being phased in over a four-year period starting on January 1, 2016. The capital conservation buffer was
1.875% in 2018 and 2.5% as of January 1, 2019. When fully implemented, a banking organization would
need to maintain a CET1 capital ratio of at least 7%, a total Tier 1 capital ratio of at least 8.5% and a total
risk-based capital ratio of at least 10.5%. The net unrealized gain or loss on available for sale securities is
not included in computing regulatory capital.
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 CET1 (as defined in the regulations) to risk-weighted assets. Management believes, as of December 31,
2018, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2018 and 2017, the most recent notifications from the Office of Comptroller of the
Currency (“OCC”) 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.
A summary of actual, required, and capital levels necessary for capital adequacy purposes for the Company
as of December 31, 2018 and 2017, are presented in the table below. The ratios for capital adequacy
purposes do not include capital conservation buffer requirements.
Actual
For capital
adequacy purposes
To be well
capitalized under
prompt corrective
action provision
Amount
Ratio
Amount
Ratio Amount
Ratio
December 31, 2018
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted
. .
$1,183,229
12.7% $745,543 >8.0% n/a
assets) . . . . . . . . . . . . . . . . . . . . . . . . .
1,143,459
12.3% 559,157 >6.0% n/a
Common equity tier 1 capital (to risk
weighted assets) . . . . . . . . . . . . . . . . .
. . . . . .
Tier 1 capital (to average assets)
1,104,959
1,143,459
11.9% 419,368 >4.5% n/a
10.0% 455,561 >4.0% n/a
December 31, 2017
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted
. .
$ 682,175
12.6% $434,245 >8.0% n/a
assets) . . . . . . . . . . . . . . . . . . . . . . . . .
649,350
12.0% 325,684 >6.0% n/a
Common equity tier 1 capital (to risk
weighted assets) . . . . . . . . . . . . . . . . .
. . . . . .
Tier 1 capital (to average assets)
621,956
649,350
11.5% 244,263 >4.5% n/a
9.8% 264,616 >4.0% n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
152
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018 and 2017, are presented in the table below. The ratios
for capital adequacy purposes do not include capital conservation buffer requirements.
Actual
For capital
adequacy purposes
To be well
capitalized under
prompt corrective
action provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
$1,177,082
12.6% $745,003
>8.0% $931,254
>10.0%
$1,137,315
12.2% 558,753
>6.0% 745,003
>8.0%
December 31, 2018
Total capital (to risk weighted
assets) . . . . . . . . . . . . . . . . .
Tier 1 capital (to risk weighted
assets) . . . . . . . . . . . . . . . . .
Common equity tier 1 capital
(to risk weighted assets) . . .
$1,137,315
12.2% 419,064
>4.5% 605,315
>6.5%
Tier 1 capital (to average
assets) . . . . . . . . . . . . . . . . .
$1,137,315
10.0% 455,515
>4.0% 569,394
>5.0%
December 31, 2017
Total capital (to risk weighted
assets) . . . . . . . . . . . . . . . . .
Tier 1 capital (to risk weighted
assets) . . . . . . . . . . . . . . . . .
Common equity tier 1 capital
$ 654,018
12.2% $430,561
>8.0% $538,202
>10.0%
621,199
11.5% 322,921
>6.0% 430,561
>8.0%
(to risk weighted assets) . . .
621,199
11.5% 242,191
>4.5% 349,831
>6.5%
Tier 1 capital (to average
assets) . . . . . . . . . . . . . . . . .
621,199
9.4% 264,577
>4.0% 330,721
>5.0%
(18) Dividends
The Company declared and paid cash dividends on its common stock of $35,906, $13,878 and $7,681
during the years ended December 31, 2018, 2017 and 2016, 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. The Company received a $68,000 and $10,000 dividend from its subsidiary bank
in 2018 and 2017, respectively. At December 31, 2018, dividends from the subsidiary bank available to be
paid to the Company, without prior approval of the Bank’s regulatory agency, was $136,124, subject to the
Bank meeting or exceeding regulatory capital requirements.
(19) Stock-Based Compensation
The Company assumed the obligations of Sunshine under Sunshine’s 2015 Equity Incentive Plan
(“Sunshine Plan”) pursuant to the closing on January 1, 2018 by CenterState of the merger of Sunshine with
and into CenterState. All of the Sunshine stock options awarded pursuant to the Sunshine Plan outstanding
at the merger closing date were converted to stock options for 590,345 of the Company’s common shares
with an average exercise price of $14.84 per share. At December 31, 2018, there were options outstanding
153
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
for 16,020 shares of the Company’s common stock with an average exercise price of $15.88 per share and
an average remaining contractual life of approximately 7.3 years.
The Company assumed the obligations of HCBF under HCBF’s 2010 Amended and Restated Stock
Incentive Plan (the “HCBF Plan”), pursuant to the closing on January 1, 2018 by CenterState of the merger
of HCBF with and into CenterState. All of the HCBF stock options awarded pursuant to the HCBF Plan
outstanding at the merger closing date were converted to stock options for 1,621,543 of the Company’s
common shares with an average exercise price of $14.80 per share. At December 31, 2018, there were
options outstanding for 145,616 shares of the Company’s common stock with an average exercise price of
$15.06 per share and an average remaining contractual life of approximately 4.8 years.
The Company assumed the obligations of Gateway under the Gateway Officers’ and Employees’ Stock
Option Plan and the Gateway Directors’ Stock Option Plan (collectively, the “Gateway Plans”) pursuant to
the closing on May 1, 2017 by CenterState of the merger of Gateway with and into CenterState. All of the
Gateway stock options awarded pursuant to the Gateway Plans outstanding at the merger closing date were
converted to stock options for 1,150,517 of the Company’s common shares with an average exercise price
of $11.32 per share. At December 31, 2018, there were options outstanding for 341,425 shares of the
Company’s common stock with an average exercise price of $10.70 per share and an average remaining
contractual life of approximately 4.6 years.
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, 2018
there were options outstanding for 52,600 shares of the Company’s common stock with an average exercise
price of $6.72 per share and an average remaining contractual life of approximately 3.6 years.
On April 26, 2018, the Company’s shareholders approved the CenterState Bank Corporation 2018 Equity
Incentive Plan (the “2018 Plan”). The 2018 Plan replaces the 2013 Plan discussed below. The 2018 Plan
authorizes the issuance of up to 2,200,000 shares through the 2028 expiration of the plan. No more than
$150 in grants of shares may be issued to any director in any one fiscal year. The Company’s Board of
Directors froze the Company’s 2013 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 2018 Plan.
During 2018 the Company did not grant any incentive stock options to its employees. The Company
awarded 67,502 shares of Restricted Stock (“RSAs”) during 2018 with an average fair value of $26.77 per
share at the date of grant. These restricted stock awards vest over periods ranging from two to five years.
The Company awarded Performance Share Units (“PSUs”) during 2018 pursuant to the Company’s Long-
Term Incentive Plan as described in the Company’s 2018 Proxy Statement. These PSUs will cliff vest on
January 1, 2022. 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, 2022. The range of the units that may vest in the future is a
minimum of 0 and a maximum of 72,655 with an expected target of 48,435 shares. The Company also
awarded 41,630 Restricted Share Units (“RSUs”) during 2018 with an average fair value of $26.60 per unit
at the date of grant. The RSUs will vest at a rate of one third each January 1, 2020, 2021 and 2022. In
154
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
addition, the Company issued 22,074 shares to non-employee directors in lieu of cash for director fees
during 2018. At December 31, 2018, there were a total of 2,055,246 shares available for future grants
pursuant to the 2018 Plan, assuming maximum future vesting of PSUs outstanding.
On April 25, 2013, the Company’s shareholders approved the CenterState 2013 Equity Incentive Plan (the
“2013 Plan”). The 2013 Plan replaced the 2007 Plan. The 2013 Plan authorized the issuance of up to
1,600,000 shares of the Company stock. In 2018, the 2013 Plan was frozen whereby no additional grants
and/or awards were awarded pursuant to this plan subsequent to April 2018.
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,
authorized 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.
The Company’s stock-based compensation consists of stock options, RSAs, RSUs and PSUs. During the
twelve month period ended December 31, 2018, 2017 and 2016, the Company recognized total stock-based
compensation expense as listed in the table below.
Stock option expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSA expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSU Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PSU expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
83
2,922
538
650
$ 115
3,560
287
624
$ 230
3,605
169
419
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
$4,193
$4,586
$4,423
2018
2017
2016
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 $5,373, $1,545
and $140 during the twelve-month periods ending December 31, 2018, 2017 and 2016, respectively. The
Company provided an income tax benefit in its tax provision for RSA, RSU and PSU expenses of
approximately $1,042, $1,725 and $1,617 during the twelve-month periods ending December 31, 2018,
2017 and 2016, respectively.
As of December 31, 2018, the total remaining unrecognized compensation cost related to non-vested stock
options was approximately $42 and will be recognized over the next 4 years. The weighted average period
over which this expense is expected to be recognized is approximately 4.8 years.
As of December 31, 2018, the total remaining unrecognized compensation cost related to non-vested RSAs,
net of estimated forfeitures, was approximately $4,012 and will be recognized over the next 9 years. The
weighted average period over which this expense is expected to be recognized is approximately 2.4 years.
As of December 31, 2018, the total remaining unrecognized compensation cost related to non-vested PSUs,
net of estimated forfeitures, was approximately $1,674 and will be recognized over the next 3 years. The
weighted average period over which this expense is expected to be recognized is approximately 1.8 years.
As of December 31, 2018 the total remaining unrecognized compensation cost related to non-vested RSUs,
net of estimated forfeitures, was approximately $1,601 and will be recognized over the next 3 years. The
weighted average period over which this expense is expected to be recognized is approximately 1.8 years.
155
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The Company did not grant any stock options during 2016, 2017 and 2018. However, the Company
converted all outstanding Gateway stock options into CenterState options for 1,150,517 shares of common
stock on the May 1, 2017 acquisition date pursuant to the Company’s agreement to acquire Gateway. The
Company also converted all outstanding Sunshine and HCBF stock options into CenterState options for
590,345 and 1,621,543 shares of common stock, respectively, on the January 1, 2018 acquisition date
pursuant to the Company’s respective agreements to acquire Sunshine and HCBF. The estimated fair value
of options granted, or acquired in the case of Gateway, Sunshine and HCBF, during these periods were
calculated as of the grant date, or the acquisition date in the case of Gateway, Sunshine and HCBF, using the
Black-Scholes option-pricing model.
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. However, with the adoption of ASU 2016-09 in 2017, the Company made an entity-wide
accounting policy election to account for forfeitures when they occur.
The weighted-average estimated fair value of stock options granted, or acquired in the case of Sunshine and
HCBF, during the twelve-month period ended December 31, 2018 was $14.81 per share. The table below
present’s information related to stock option activity for the years ended December 31, 2018, 2017 and
2016:
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . .
Net proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . .
Gross income tax benefit from the exercise of stock options . . . . . . . .
$ 1,492
$14,707
$ 5,373
$8,039
$6,715
$1,545
$2,716
$1,769
140
A summary of stock option activity for the years ended December 31, 2018, 2017 and 2016 is as follows:
2018
2017
2016
December 31, 2018
December 31, 2017
December 31, 2016
Number of
Options
Weighted-
Average
Exercise
Price
Number of
Options
Weighted-
Average
Exercise
Price
Number of
Options
Weighted-
Average
Exercise
Price
Outstanding, beginning of
period . . . . . . . . . . . . . . . . . . . . .
1,119,483
$11.26
623,490
$12.30
940,634
$11.73
Options assumed pursuant to
acquisition of (note 1):
. . . . . . .
Gateway . . . . . . . . . . . . . . . . . . . . .
HCBF . . . . . . . . . . . . . . . . . . . . . . .
Sunshine . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . .
—
1,621,543
590,345
$14.80
$14.84
(1,793,339) $13.61
(882,771) $15.37
— 1,150,517
—
—
$11.32
—
—
—
—
—
—
—
—
(598,039) $12.11
(56,485) $15.00
(229,583) $ 8.74
(87,561) $15.51
Outstanding, end of period . . . . . .
655,261
$11.26
1,119,483
$11.26
623,490
$12.30
156
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Note 1: Pursuant to the Company’s respective agreements to acquire Gateway (on May 1, 2017), and Sunshine
and HCBF (both on January 1, 2018), all outstanding Gateway, Sunshine and HCBF stock options were
converted to CenterState stock options as of the acquisition date.
Options outstanding, December 31, 2018 . . . . . . . .
Options fully vested and expected to vest,
Number
of Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Contractual
Term
Aggregate
Intrinsic
Value
655,261
$11.26
4.2 years
$6,412
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable, December 31, 2018 . . . . . . . . .
653,212
626,401
$11.27
$11.37
4.2 years
4.3 years
$6,381
$6,051
At December 31, 2018 there were restricted stock awards (“RSAs”) for 390,366 shares of the Company’s
common stock outstanding and not vested. Of this amount 50,600 restricted shares have been issued and
included in the Company’s total common stock outstanding, but have not vested as of December 31, 2017.
The remaining 339,766 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, 2018, 2017 and 2016 is presented in the
table below.
2018
2017
2016
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
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
Total
number
of RSAs
Outstanding,
beginning
period . . . 489,424
Granted . . .
67,502
Vested . . . . (214,847)
(2,313)
Forfeited . .
Outstanding,
end of
period . . . 339,766
69,700
—
572,064 127,901
559,124 $15.89
148,232
67,502 $26.77
(19,100) (233,947) $13.65 (226,606)
(4,266)
(2,313) $18.55
699,965 $12.20
— 148,232 $24.94
532,127 189,588
262,934
(58,201) (284,807) $11.52 (219,032)
(3,965)
(4,266) $15.76
721,715 $10.79
— 262,934 $14.68
(60,087) (279,119) $10.88
(5,565) $12.07
(1,600)
—
—
50,600
390,366 $19.10
489,424
69,700
559,124 $15.89
572,064 127,901
699,965 $12.20
In September 2014, the Company initiated a Long-Term Incentive Plan (“LTI”) 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 and absolute Earnings Per Share growth as
compared to a peer group of similar companies selected by the Company’s Compensation Committee over a
39 month period beginning in September of each grant year. The Company awarded similar PSUs in 2015,
2016, 2017 and 2018. In 2018, a total of 157,020 PSUs were approved by the Company’s Compensation
Committee pursuant to the 2014 LTI plan. The PSUs will be issued in the form of common stock at the end
of the two-year mandatory hold period which ends in December 2019. The Company expects to recognize
an expense of $307, $412, $687 and $1,134 over the vesting period for PSUs granted in 2015, 2016, 2017
and 2018, respectively. The expense recognized during 2018 for all PSUs awarded pursuant to all LTI plans
was $520.
157
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
In September 2016, the Company also awarded PSUs pursuant to a productive incentive plan to one of its
divisions that could eventually be converted to the Company’s common stock based upon the division’s
financial performance over three and four year periods ending August 31, 2019 and 2020, respectively. The
Company expects to recognize a total expense of $192 during the performance periods. The expense
recognized during 2018 was $130.
The Company awarded RSUs during September 2015, 2016, 2017 and 2018 pursuant to its LTI plans as
mentioned above that could eventually be converted into the Company’s common stock. The Company
expects to recognize an expense of $356, $442, $720 and $1,107 for the RSUs awarded in 2015, 2016, 2017
and 2018, respectively. Generally, the RSUs will vest at a rate of one third each January 1st beginning two
years after each grant year. During 2016, time vesting equity grants were revised for an executive officer to
accelerate the vesting date to the date of retirement. As a result, 3,441 units vested and were converted to
common stock pursuant to the revised terms of the executive officer’s RSUs. The expense recognized
during 2018 for all RSUs awarded was $538.
December 31, 2018
December 31, 2017
December 31, 2016
Outstanding, beginning of period . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Vested and issued . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . .
Weighted
average
fair value
at grant
date
$17.00
26.60
—
—
Number of
Units
86,817
41,630
—
—
Outstanding, end of period . . . . . . .
128,447
$20.00
Weighted
average
fair value
at grant
date
$14.00
22.19
—
—
$17.00
Number of
Units
29,092
28,725
(3,441)
—
54,376
Weighted
average
fair value
at grant
date
$12.22
15.37
12.22
—
$14.00
Number of
Units
54,376
32,441
—
—
86,817
(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, 2018, 2017 and 2016, the
Company’s contributions to the plan were $3,444, $2,249 and $1,849, respectively, which are included in
Salary, Wages and Employee Benefits on the Consolidated Statements of Income and Comprehensive
Income. The Company has since amended its 401(k) defined contribution retirement plan’s participation
eligibility requirement to the first month following the date of employment effective January 1, 2019.
In 2008, the Company entered into a salary continuation agreement with its then 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. In 2018, the Company assumed pre-existing
supplemental executive retirement plan agreements pursuant to the acquisition of Charter. The plans are
nonqualified deferred compensation arrangements that are designed to provide supplemental retirement
158
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
income benefits to participants. The Company expensed $641, $568 and $609 for the accrual of future
salary continuation benefits in 2018, 2017 and 2016, respectively. Other liabilities included salary
continuation benefits payable of $7,966, $4,834 and $4,211 at December 31, 2017, 2016 and 2015,
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. In
2018, one of the executive officers retired and received the applicable funds from the agreement. The Rabbi
Trust asset and the related deferred compensation payable at December 31, 2018, 2017 and 2016 were $307,
$1,761 and $1,560, 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 was no net income statement effect other than the administration expenses of
the Trust which approximates $5 per year.
(21) Parent Company Only Financial Statements
Condensed financial statements of CenterState Bank Corporation (parent company only) follow:
Condensed Balance Sheets
December 31, 2018 and 2017
2018
2017
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,338
2,340
1,999,963
2,761
10,506
$
1,569
840
903,882
1,951
49,011
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,016,908
$957,253
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity:
2,149
11,000
32,415
45,564
$
6,311
20,000
26,192
52,503
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .
957
1,699,031
293,777
(22,421)
602
737,905
173,248
(7,005)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,971,344
904,750
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
$2,016,908
$957,253
159
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Condensed Statements of Operations
Years ended December 31, 2018, 2017 and 2016
2018
2017
2016
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 68,000
8
(3,415)
(3,988)
$10,000
—
(1,363)
(3,960)
$ 58,000
308
(1,159)
(3,869)
Income before equity in undistributed income of subsidiaries . . . . . . . . . . . . . . .
Equity in undistributed income (losses) of subsidiaries . . . . . . . . . . . . . . . . . . . .
60,605
88,532
Net income before income tax benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149,137
(7,298)
4,677
48,760
53,437
(2,358)
53,280
(12,736)
40,544
(1,797)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$156,435
$55,795
$ 42,341
160
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Condensed Statements of Cash Flows
Years ended December 31, 2018, 2017 and 2016
2018
2017
2016
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash used in operating
$156,435
$ 55,795
$ 42,341
activities:
Undistributed net (earnings) losses of subsidiaries . . . . . . . . . . .
Increase in payables and accrued expenses . . . . . . . . . . . . . . . .
Gain on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . . . . .
(88,532)
(13,385)
—
3,998
—
(48,760)
463
—
(40,369)
1,048
70,736
(25)
(308)
84
1,001
Net cash flows provided by (used in) operating activities . . . . . . . . .
58,516
(31,823)
113,829
Cash flows from investing activities:
Inter-company receivables from subsidiary bank . . . . . . . . . . . . . . . . . . . .
Net cash from bank acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(473)
(36,037)
—
19,339
25,145
(42,601)
(25,000)
(90)
(58,241)
(38,918)
450
39
Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . .
(17,171)
(42,546)
(96,670)
Cash flows from financing activities:
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock offering, net of offering costs . . . . . . . . . . . . . . . . . .
Dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,707
(1,027)
650
—
(20,000)
—
(35,906)
6,715
(1,131)
—
—
20,000
63,262
(13,878)
1,769
(962)
—
(8,680)
(650)
—
(7,681)
Net cash flows (used in) provided by financing activities . . . . . . . . .
(41,576)
74,968
(16,204)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
(231)
1,569
599
970
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,338
$ 1,569
$
955
15
970
(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.
161
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
A summary of commitments to extend credit and standby letters of credit written at December 31, 2018 and
2017, are as follows:
December 31,
2018
2017
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded loan commitments – fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded loan commitments – variable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
28,964
1,514,359
153,680
65,880
$ 15,740
824,958
140,750
35,814
Commitments to make loans are generally made for periods of 30 days or less. At December 31, 2018, the
fixed rate loan commitments have interest rates ranging from 3.27% to 8.35% and maturities ranging from 1
year to 20 years.
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 Southeastern United States
including Florida, Georgia and Alabama. 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, 2018, 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
162
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
shareholders and participating securities according to dividends declared (or accumulated) and participation
rights in undistributed earnings. There were no anti-dilutive stock options for the years ending December 31,
2018 and 2017. There were 24,500 stock options that were not considered in computing diluted earnings per
common share because they were anti-dilutive during the years ending December 31, 2016.
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
2018
2017
2016
$
$
156,435
(116)
156,319
$
$
55,795
(120)
55,675
$
$
42,341
(163)
42,178
including participating securities . . . . . . . . . . . . . . .
Less: Participating securities (1) . . . . . . . . . . . . . . . . . .
87,707,196
(65,976)
57,368,322
(123,624)
47,592,500
(183,358)
Average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,641,220
57,244,698
47,409,142
Basic earnings per common share . . . . . . . . . . . . . . . . .
Diluted
Net income available to common shareholders . . . . . .
$
$
1.78
156,319
$
$
0.97
55,675
$
$
0.89
42,178
Weighted average common shares outstanding for
basic earnings per common share . . . . . . . . . . . . . . .
87,641,220
57,244,698
47,409,142
Add: Dilutive effects of stock based compensation
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,117,633
1,096,115
782,381
Average shares and dilutive potential common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,758,853
58,340,813
48,191,523
Dilutive earnings per common share . . . . . . . . . . . . . . .
$
1.76
$
0.95
$
0.88
Note 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.
(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.
163
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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, 2018, 2017 and 2016.
Year ending December 31, 2018
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Interest income . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .
$
445,688
(36,853)
Net interest income (expense)
. . . . . .
Provision for loan losses . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . .
Net income (loss) before taxes . . . . . .
Income tax (provision) benefit . . . . . .
408,835
(7,914)
71,731
(286,191)
186,461
(43,662)
$ 14,944
$ (7,282)
7,662
$
$
(369)
$ 33,388
$ (22,288)
$ 18,393
(4,660)
$
—
(3,415)
(3,415)
—
8
(3,988)
(7,395)
7,298
Elimination
entries
Total
— $
—
460,632
(47,550)
—
—
—
—
—
—
413,082
(8,283)
105,127
(312,467)
197,459
(41,024)
Net income (loss) . . . . . . . . . . . . . . . .
$
142,799
$ 13,733
$
(97) $
— $
156,435
Total assets . . . . . . . . . . . . . . . . . . . . .
$11,769,734
$561,885
$2,016,908
$(2,010,939) $12,337,588
Year ending December 31, 2017
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
$ 240,583
(11,431)
$ 10,743
(2,989)
Net interest income (expense) . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . .
Net income (loss) before taxes . . . . . . . . .
. . . . . . . . .
Income tax (provision) benefit
229,152
(5,037)
36,834
(161,946)
99,003
(49,823)
7,754
79
28,341
(20,579)
15,595
(6,015)
$ —
(1,363)
(1,363)
—
—
(3,960)
(5,323)
2,358
Elimination
entries
Total
— $ 251,326
(15,783)
—
—
—
—
—
—
—
235,543
(4,958)
65,175
(186,485)
109,275
(53,480)
Net income (loss) . . . . . . . . . . . . . . . . . . . .
$
49,180
$
9,580
$ (2,965)
$
— $
55,795
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$6,572,636
$506,234
$957,253
$(912,148) $7,123,975
164
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Year ending December 31, 2016
Commercial
and retail
banking
Correspondent
banking and
capital markets
division
Corporate
overhead
and
administration
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . .
$ 180,696
(7,044)
$
7,969
(1,137)
Net interest income . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . .
Net income before taxes . . . . . . . . . . . . . .
. . . . . . . . .
Income tax (provision) benefit
173,652
(4,938)
30,376
(147,228)
51,862
(17,107)
6,832
(24)
33,685
(23,384)
17,109
(6,600)
$ —
(1,159)
(1,159)
—
308
(3,869)
(4,720)
1,797
Elimination
entries
Total
— $ 188,665
(9,340)
—
—
—
—
—
—
—
179,325
(4,962)
64,369
(174,481)
64,251
(21,910)
Net income (loss) . . . . . . . . . . . . . . . . . . . .
$
34,755
$ 10,509
$ (2,923)
$
— $
42,341
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$4,676,375
$397,323
$584,572
$(579,711) $5,078,559
Commercial and retail banking: The Company’s primary business is commercial and retail banking.
Currently, the Company operates primarily through the Bank providing traditional retail, commercial,
mortgage, wealth management and SBA services throughout its Florida, Georgia and Alabama branch
network and customer relationships in neighboring states.
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 Platinum Bank Holding Company
On April 1, 2017, the Company completed its acquisition of Platinum Bank Holding Company (“Platinum”)
whereby Platinum merged with and into the Company. Pursuant to and simultaneously with the merger of
Platinum with and into the Company, Platinum’s wholly owned subsidiary bank, Platinum Bank merged
with and into the Company’s subsidiary bank, CenterState Bank, N.A.
The Company’s primary reasons for the transaction were to further solidify its market share in the Central
Florida markets and expand its customer base to enhance deposit fee income and leverage operating cost
165
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
through economies of scale. The acquisition increased the Company’s total assets and total deposits by
approximately 14% and 13%, respectively, as compared with the balances at December 31, 2016, 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. No acquisition costs related to
the Platinum acquisition were incurred during the twelve-month period ending December 31, 2018. During
the twelve-month periods ending December 31, 2017 and 2016, the Company incurred approximately
$3,924 and $186 of acquisition costs related to this transaction, respectively. These acquisition costs are
reported in Merger Related Expenses on the Company’s Consolidated Statements of Income and
Comprehensive Income.
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 $73,829 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.
The Company acquired 100% of the outstanding common stock of Platinum. The purchase price consisted
of both cash and stock. Each share of Platinum common stock was exchanged for $7.60 cash and 3.7832
shares of the Company’s common stock. Based on the closing price of the Company’s common stock on
March 31, 2017, the resulting purchase price was $119,431.
The table below summarizes the purchase price calculation.
Number of shares of Platinum common stock exchanged for CenterState common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,131,134
3.7832
Number of shares of CenterState common stock less 51 of fractional shares . . . . . . . . . .
CenterState common stock price per share on March 31, 2017 . . . . . . . . . . . . . . . . . . . . .
4,279,255
25.90
$
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 110,833
Total Platinum common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash consideration each Platinum share was entitled to receive . . . . . . . . . . . . . . . . . . . .
Total cash consideration, not including cash for fractional shares . . . . . . . . . . . . . . . . . . .
1,131,134
7.60
8,597
$
$
Total stock consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash consideration, plus $1 for 51 of fractional shares . . . . . . . . . . . . . . . . . . . . . . .
$ 110,833
8,598
$
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119,431
166
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The list below summarizes the estimates of the fair value of the assets purchased, including goodwill, and
liabilities assumed as of the April 1, 2017 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Deferred tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 1, 2017
$106,537
442,366
12,218
28,873
1,216
9,600
402
4,382
2,220
272
3,992
73,829
227
29
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$686,163
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$520,423
40,546
5,569
94
100
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$566,732
In the acquisition, the Company acquired $454,584 of loans at fair value, net of $8,980, or 1.9%, estimated
discount to the outstanding principal balance, representing 13.3% of the Company’s total loans at
December 31, 2016. Of the total loans acquired, management identified $12,218 with credit deficiencies. All
loans that were on non-accrual status, impaired loans including TDRs and other substandard loans were
considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.
167
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 April 1, 2017 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,811
(4,639)
14,172
(1,954)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,218
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
$ 37,206
262,612
47,675
96,587
2,954
16,530
$ 37,419
259,727
46,618
95,701
2,901
12,218
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$463,564
$454,584
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 $3,992, 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.
Acquisition of Gateway Financial Holdings of Florida, Inc.
On May 1, 2017, the Company completed its acquisition of Gateway Financial Holdings of Florida, Inc.
(“Gateway”) Gateway merged with and into the Company. Pursuant to and simultaneously with the merger
of Gateway with and into the Company, Gateway’s three subsidiary banks, Gateway Bank of Florida,
Gateway Bank of Central Florida and Gateway Bank of Southwest Florida, merged with and into the
Company’s subsidiary bank, CenterState Bank, N.A
The Company’s primary reasons for the transaction were to expand its market share in the Central Florida
market, together with its acquisition of Platinum as described above, and expand its customer base to
enhance deposit fee income and leverage operating cost through economies of scale. The acquisition
168
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
increased the Company’s total assets and total deposits by approximately 19% and 17%, respectively, as
compared with the balances at December 31, 2016, 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. During the twelve-month periods ending December 31, 2018, 2017 and
2016, the Company incurred approximately $149 , $6,203 and $11 of acquisition costs related to this
transaction, respectively. These acquisition costs are reported in Merger Related Expenses on the
Company’s Consolidated Statements of Income and Comprehensive Income.
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 $77,826 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.
The Company acquired 100% of the outstanding common stock of Gateway. The purchase price consisted
of both cash and stock. Each share of Gateway common stock was either exchanged for $18.00 or $0.95
shares of the Company’s common stock. In addition, the Company assumed Gateway’s stock options, which
were converted to the Company’s stock options. Based on the closing price of the Company’s common
stock on April 30, 2017, the resulting purchase price was $157,372.
The table below summarizes the purchase price calculation.
Number of shares of Gateway common stock outstanding at April 30, 2017 . . . . . . . . . .
Gateway preferred shares that converted to Gateway common shares upon a change in
5,463,764
control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
919,236
Total Gateway common shares including conversion of preferred shares . . . . . . . . . . . . .
Number of shares of Gateway common shares exchanged for CenterState common
6,383,000
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,468,100
0.95
Number of shares of CenterState common stock less 254 of fractional shares . . . . . . . . .
CenterState common stock price per share on April 30, 2017 . . . . . . . . . . . . . . . . . . . . . .
4,244,441
25.23
$
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 107,087
Number of shares of Gateway common shares exchanged for cash . . . . . . . . . . . . . . . . . .
Cash consideration each Gateway share is entitled to receive . . . . . . . . . . . . . . . . . . . . . .
Total cash consideration, not including cash for fractional shares . . . . . . . . . . . . . . . . . . .
Total stock consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash consideration plus $6 for 254 of fractional shares . . . . . . . . . . . . . . . . . . . . . . .
Total consideration paid to Gateway common shareholders . . . . . . . . . . . . . . . . . . . . . . .
Fair value of Gateway stock options converted to CenterState stock options . . . . . . . . . .
1,914,900
18.00
34,468
$
$
$ 107,087
34,474
$
$ 141,561
15,811
$
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 157,372
169
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The list below summarizes the preliminary estimates of the fair value of the assets purchased, including
goodwill, and liabilities assumed as of the May 1, 2017 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB and FRB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other repossessed real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 1, 2017
$ 23,065
560,413
7,827
231,951
2,422
18,160
702
1,087
4,640
134
15,475
271
8,432
77,826
7,246
1,217
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$960,868
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$708,209
90,598
3,588
304
797
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$803,496
In the acquisition, the Company acquired $568,240 of loans at fair value, net of $9,479, or 1.6%, estimated
discount to the outstanding principal balance, representing 16.6% of the Company’s total loans at
December 31, 2016. Of the total loans acquired, management identified $7,827 with credit deficiencies. All
loans that were on non-accrual status, impaired loans including TDRs and other substandard loans 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 May 1, 2017 for purchased credit
impaired loans.
170
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Contractually required principal and interest payments have been adjusted for estimated prepayments.
Contractually required principal and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,523
(2,465)
10,058
(2,231)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,827
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
$142,881
321,262
47,727
46,953
7,803
11,093
$142,468
317,578
46,489
46,274
7,604
7,827
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$577,719
$568,240
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 $8,432, 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.
Acquisition of Sunshine Bancorp, Inc.
On January 1, 2018, the Company completed its acquisition of Sunshine Bancorp, Inc. (“Sunshine”)
whereby Sunshine merged with and into the Company. Pursuant to and simultaneously with the merger of
Sunshine with and into the Company, Sunshine’s wholly owned subsidiary bank, Sunshine Bank merged
with and into the Company’s subsidiary bank, CenterState Bank, N.A.
The Company’s primary reasons for the transaction were to further solidify its market share in the 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 14% and 13%, respectively, as compared with the balances at December 31, 2017, 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. During the twelve-month
periods ending December 31, 2018 and 2017, the Company incurred approximately $10,474 and $859,
respectively, of acquisition costs related to this transaction. A portion of these merger expenses reduced
171
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
goodwill by $4,114, net of income taxes of $1,397. These acquisition costs are reported in Merger Related
Expenses on the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.
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 $114,228
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.
The Company acquired 100% of the outstanding common stock of Sunshine. The purchase price consisted
of stock plus cash in lieu of fractional shares. Each share of Sunshine common stock was exchanged for
0.89 shares of the Company’s common stock. Based on the closing price of the Company’s common stock
on December 29, 2017, the resulting purchase price was $187,852.
The table below summarizes the purchase price calculation.
Number of shares of Sunshine common stock outstanding at December 31, 2017 . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of CenterState common stock less 361 of fractional shares . . . . . . . . .
CenterState common stock price per share on December 29, 2017 . . . . . . . . . . . . . . . . . .
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash consideration paid for 361 of fractional shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration to be paid to Sunshine common shareholders . . . . . . . . . . . . . . . . . . .
Fair value of Sunshine stock options converted to CenterState stock options . . . . . . . . . .
7,922,479
0.89
7,050,645
25.73
$
$ 181,413
7
$ 181,420
6,432
Total Purchase Price for Sunshine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 187,852
172
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed
as of the January 1, 2018 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Deferred tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2018
$
47,056
676,090
8,232
430
93,006
2,170
9,375
916
9,503
4,875
23,101
8,525
114,228
11,890
5,915
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,015,312
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreement to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 719,039
95,001
353
11,000
457
1,610
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 827,460
In the acquisition, the Company acquired $684,322 of loans at fair value, net of $22,657, or 3.2%, estimated
discount to the outstanding principal balance, representing 14.3% of the Company’s total loans at
December 31, 2017. Of the total loans acquired, management identified $8,232 with credit deficiencies. All
loans that were on non-accrual status, impaired loans including TDRs and other substandard loans were
considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.
173
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 1, 2018 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,598
(12,213)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,385
(1,153)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,232
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
$148,342
375,377
58,530
104,811
1,770
18,149
$146,057
371,323
57,331
99,650
1,729
8,232
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$706,979
$684,322
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 $8,525, 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.
Acquisition of HCBF Holding Company, Inc.
On January 1, 2018, the Company completed its acquisition of HCBF Holding Company, Inc. (“HCBF”)
whereby HCBF merged with and into the Company. Pursuant to and simultaneously with the merger of
HCBF with and into the Company, HCBF’s wholly owned subsidiary bank, Harbor Bank merged with and
into the Company’s subsidiary bank, CenterState Bank, N.A.
The Company’s primary reasons for the transaction were to further solidify its market share in the 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 33% and 32%, respectively, as compared with the balances at December 31, 2017, and is
174
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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. During the twelve-month
periods ending December 31, 2018 and 2017, the Company incurred approximately $12,302 and $2,060,
respectively, of acquisition costs related to this transaction. These acquisition costs are reported in Merger
Related Expenses on the Company’s Consolidated Statements of Income and Comprehensive Income.
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 $233,321
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.
The Company acquired 100% of the outstanding common stock of HCBF. The purchase price consisted of
both cash and stock. Each share of HCBF common stock was exchanged for $1.925 cash and 0.675 shares
of the Company’s common stock. Based on the closing price of the Company’s common stock on
December 29, 2017, the resulting purchase price was $448,236.
The table below summarizes the purchase price calculation.
Number of shares of HCBF common stock outstanding at December 31, 2017 . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of CenterState common stock less 241 of fractional shares . . . . . . . .
CenterState common stock price per share on December 29, 2017 . . . . . . . . . . . . . . . . .
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of HCBF common stock outstanding at December 31, 2017 . . . . . . .
Cash consideration each HCBF share is entitled to receive . . . . . . . . . . . . . . . . . . . . . . .
Total Cash Consideration plus $6 for 241 of fractional shares . . . . . . . . . . . . . . . . . . . . .
Total Stock Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration to be paid to HCBF common shareholders . . . . . . . . . . . . . . . . . . . .
Fair value of HCBF stock options converted to CenterState stock options . . . . . . . . . . .
Total Purchase Price for HCBF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,299,082
0.675
15,051,639
25.73
387,279
22,299,082
1.925
42,932
387,279
42,932
430,211
18,025
448,236
$
$
$
$
$
$
$
$
175
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed
as of the January 1, 2018 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB and other stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Deferred tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2018
$
77,176
1,290,004
36,031
5,694
585,297
5,847
34,035
3,571
14,140
9,488
39,089
5,144
23,625
233,321
14,684
1,923
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,379,069
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,755,155
157,919
5,872
478
11,409
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,930,833
In the acquisition, the Company acquired $1,326,035 of loans at fair value, net of $40,438, or 3.0%,
estimated discount to the outstanding principal balance, representing 27.8% of the Company’s total loans at
December 31, 2017. Of the total loans acquired, management identified $36,031 with credit deficiencies. All
loans that were on non-accrual status, impaired loans including TDRs and other substandard loans were
considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.
176
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 1, 2018 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 67,107
(25,951)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,156
(5,125)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,031
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
$ 370,611
636,517
149,547
113,818
41,660
54,320
$ 363,559
627,900
146,639
110,630
41,276
36,031
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,366,473
$1,326,035
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 $23,625, 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.
Acquisition of Charter Financial Corporation
On September 1, 2018, the Company completed its acquisition of Charter Financial Corporation (“Charter”)
whereby Charter merged with and into the Company. Pursuant to and simultaneously with the merger of
Charter with and into the Company, Charter’s wholly owned subsidiary bank, CharterBank, merged with
and into the Company’s subsidiary bank, CenterState Bank, N.A.
The Company’s primary reasons for the transaction were to expand its franchise into Georgia and Alabama,
further solidify its market share in the 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 24% as compared with the balances at December 31, 2017,
177
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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. During the twelve-
month period ending December 31, 2018, the Company incurred approximately $11,987 of acquisition costs
related to this transaction. These acquisition costs are reported in Merger Related Expenses on the
Company’s Consolidated Statements of Income and Comprehensive Income.
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 $197,648
which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill is
calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.
Fair value estimates are based on the information available, and are subject to change for up to one year
after the closing date of the acquisition as additional information relative to closing date fair values becomes
available. Fair value estimates on loans are deemed preliminary due to appraisals, other borrower financial
information, and pending final reports from loan valuation specialists.
The Company acquired 100% of the outstanding common stock of Charter. The purchase price consisted of
both cash and stock. Each share of Charter common stock was exchanged for $2.30 cash and 0.738 shares of
the Company’s common stock. Based on the closing price of the Company’s common stock on August 31,
2018, the resulting purchase price was $389,476.
The table below summarizes the purchase price calculation.
Number of shares of Charter common stock outstanding at August 31, 2018 . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of CenterState common stock less 599 of fractional shares . . . . . . . .
CenterState common stock price per share on August 31, 2018 . . . . . . . . . . . . . . . . . . . .
Fair value of CenterState common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of Charter common stock outstanding at August 31, 2018 . . . . . . . . .
Cash consideration each Charter share is entitled to receive . . . . . . . . . . . . . . . . . . . . . .
Total Cash Consideration plus $17 for 599 of fractional shares . . . . . . . . . . . . . . . . . . . .
Total Stock Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration to be paid to Charter common shareholders . . . . . . . . . . . . . . . . . . .
Cash out of Charter stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Purchase Price for Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,480,776
0.738
11,424,214
30.62
349,809
15,480,776
2.300
35,624
349,809
35,624
385,433
4,043
389,476
$
$
$
$
$
$
$
178
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
The list below summarizes the fair value of the assets purchased, including goodwill, and liabilities assumed
as of the September 1, 2018 purchase date.
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB and other stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 1, 2018
$ 184,020
1,130,240
11,432
2,835
73,808
3,684
27,930
1,988
1,695
1,483
54,813
257
1,828
19,795
197,648
3,441
17,644
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,734,541
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,321,970
9,000
1,015
13,080
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,345,065
In the acquisition, the Company acquired $1,141,672 of loans at fair value, net of $23,118, or 2.0%,
estimated discount to the outstanding principal balance, representing 23.9% of the Company’s total loans at
December 31, 2017. Of the total loans acquired, management identified $11,432 with credit deficiencies. All
loans that were on non-accrual status, impaired loans including TDRs and some substandard loans were
considered by management to be credit impaired and are accounted for pursuant to ASC Topic 310-30.
179
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
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 September 1, 2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,687
(20,763)
Cash flows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,924
(1,492)
Total purchased credit-impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,432
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
$ 284,505
567,506
181,128
88,308
26,221
17,122
$ 280,200
557,730
178,687
87,062
26,561
11,432
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,164,790
$1,141,672
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 $19,795, 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.
180
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Pro-forma information (supplemental)
Pro-forma data for the twelve-month period ending December 31, 2017 listed in the table below presents
pro-forma information as if the Platinum, Gateway, Sunshine, HCBF and Charter acquisitions occurred at
the beginning of 2017. The pro-forma information for the twelve-month period ending December 31, 2018
assumes the Charter acquisition occurred at the beginning of 2017.
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . .
EPS—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2018
2017
$450,847
$178,746
1.88
$
1.85
$
$421,556
$ 96,633
1.04
$
1.02
$
The disclosures regarding the results of operations for Community, Hometown, Platinum, Gateway,
Sunshine, HCBF and Charter subsequent to their respective acquisition dates are omitted as this information
is not practical to obtain. The Company converted Community, Hometown, Platinum, Gateway, and
Sunshine’s core systems in the same quarter as their respective acquisition date. Although the Company did
not convert HCBF’s core system in the first quarter of 2018 or Charter’s core system in the third quarter of
2018, the majority of the fixed costs and purchase accounting entries were booked on the Company’s core
system making it impractical to determine HCBF or Charter’s results of operation on a stand-alone basis.
Announced Acquisition of National Commerce Corporation
On November 23, 2018, the Company entered into a definitive agreement to acquire National Commerce
Corporation (“NCC”), whereby NCC will merge with and into the Company, with the Company continuing
as the surviving corporation in the merger. Immediately after the merger, the Company’s subsidiary bank
and NCC’s subsidiary bank, National Bank of Commerce (“NBC”), will merge with CenterState Bank as
the surviving bank. Under the terms of the agreement, each outstanding share of NCC common stock will
convert into the right to receive 1.65 shares of the Company’s common stock, provided that cash in lieu of
any fractional shares of CenterState common stock will be paid. The transaction was unanimously approved
by the boards of directors of both companies. The transaction is expected to close in the second quarter of
2019 subject to customary closing conditions, including receipt of all applicable regulatory approvals and
shareholder approval of the Company and stockholder approval of NCC. The Company’s primary reasons
for the transaction are to expand its core growth markets of Orlando, Tampa, Jacksonville and Atlanta,
further solidify its market share in Florida, Georgia and Alabama, expand its customer base to enhance
deposit fee income and leverage operating cost through economies of scale. NCC, which is headquartered in
Birmingham, Alabama, operates 37 banking locations. As of December 31, 2018, NCC reported total assets
of $4,210,541, total loans of $3,317,965 and total deposits of $3,432,289.
(27) Interest Rate Swap 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
181
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
in order to offset its exposure on the customer swap. At years ended December 31, 2018 and 2017, the
notional amount of such arrangements was $5,743,283 and $3,740,430, respectively. Due to new regulations
effective in 2017, the Company pledged $28,345 and $16,991 of cash as collateral to the third party dealers
at December 31, 2018 and 2017, respectively. At December 31, 2017, in addition to the cash collateral,
investment securities with a fair value of $19,048 was pledged. 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) . . . . . . . . . . . . . . . . .
2018
2017
$5,743,283
$3,740,430
3.64%
3.64%
11
92,475
92,892
3.00%
3.00%
11
42,480
43,259
(28) Revenue from Contracts with Customers
On January 1, 2018, the Company adopted 2014-09, Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”). ASU 2014-09 implements a common revenue standard that clarifies the principles for
recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an
entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the
performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity
satisfies a performance obligation.
The Company concluded that there is no change to the timing and pattern of revenue recognition for its
current revenue streams in scope of Topic 606 or the presentation of revenue as gross versus net. No
adjustment to retained earnings was required on the adoption date. Because there is no change to the timing
and pattern of revenue recognition, there are no material changes to the Company’s processes and internal
controls. Expanded disclosures including disaggregation of revenues and descriptions of performance
obligations required by ASU 2014-09 are included below. The Company adopted ASU 2014-09 in the first
quarter of 2018 under the modified retrospective approach, and management determined during the
assessment of the Company’s revenue streams that the adoption of ASU 2014-09 did not impact the
Consolidated Financial Statements of the Company.
There are two reasons ASU 2014-09 did not have an impact to the Company. First, the majority of revenues
are interest earned and gain on sales of loans, investment securities and other financial instruments, all of
which are unaffected as they are outside the scope of ASU 2014-09. Secondly, the Company’s non-interest
income revenue streams such as service charges on deposits, treasury management fees, wealth advisory
fees, fixed income sales, and correspondent bank fees, are all within the scope of ASU 2014-09. However,
ASC Topic 606 focuses on revenues from contracts earned over time, but all of these in-scope noninterest
182
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
income revenue streams are governed by agreements that do not have an enforceable, contractual term.
Given the cancellable-at-will structure, ASC Topic 606 views these contracts as agreements-at-will without
a defined term, the revenues of which are immediately recognized. The revenue recognition timing is
identical compared to previous revenue recognition standards.
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within
Non-Interest Income. ASU 2014-09 requires disclosure of sufficient information to understand the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. A
description of the Company’s revenue streams accounted for under ASC 606 as well as an explanation of
why they are not impacted are as follows:
Revenues by Operating Segment/Line of Business
Correspondent Banking Capital Markets Revenue - Fixed Income Sales
The company earns commission revenues from the sale of fixed income securities to institutional investors.
These revenues are earned and collected at each individual sale, and the sale is the sole performance
obligation. There are no minimum orders or future performance obligations or deferred recognition
requirements.
Other Correspondent Banking Related Revenue
The company earns revenues from a variety of services to other financial institutions including but not
limited to correspondent banking, cash and clearing, safekeeping, wire transfers, international services, bond
accounting, and others. Fixed income sales are discussed separately. While there is a significant variety of a
la carte services, all (except fixed income sales) are either billed as incurred or are subject to monthly
billing, at which point the performance obligation have been fulfilled. Even though a Correspondent
agreement may provide for services over an indefinite period of time, the customer is free to end the
agreement at will without penalty. This structure is viewed as an at-will agreement under ASC 606, the
revenues of which are recognized immediately.
Service Charges on Deposit Accounts
The Company earns fees from its deposit customers for transaction-based, account maintenance, and
overdraft services. Transaction-based fees, which include but are not limited to: services such as ATM use
fees, stop payment charges, statement rendering, ACH fees, are recognized at the time the transaction is
executed as that is the point in time the Company fulfills the customer’s request. Maintenance fees, which
relate primarily to monthly maintenance, are earned over the course of a month, representing the period over
which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time
that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Wealth Management Related Revenue - Treasury Management
The Company earns fees for Treasury Management products and services which include but are not limited
to online cash management, remote deposit capture, positive pay, and lockboxes. Similar to the above
service charges on deposit accounts above, these fees are also recognized at either the time the transaction or
at the end of the month in the case where service obligations are provided over the course of each month.
Even though a customer’s Treasury Management agreement may provide for services over an indefinite
183
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
period of time, the customer is free to end the agreement at will without penalty. This structure is viewed as
an at-will agreement under ASC 606, the revenues of which are recognized immediately.
Wealth Management Related Revenue - Wealth Management & Advisory
The Company has contracted with a third party to provide wealth management and investment brokerage
services on behalf of the Company. All fees earned by the Company from Wealth Management and
Advisory activities are in the form of a revenue sharing agreement. The Company acts as agent in this
agreement, and as such, ASC 606 deems the third party to be the customer of the Company as opposed to
those individual and entities receiving the wealth advisory services. The agreed-upon portion of revenues
generated by the third party for services provided other entities and individuals are owed and remitted to the
Company at the end of each month, at which time all performance obligations of the Company are fulfilled.
Wealth Management Related Revenue - Trust
The Company sold its Trust Department in December 2017. While there would have been ASC Topic 606
revenue recognition timing implications, the sale prior to December 31, 2017 removed these revenues from
consideration. Trust revenues are displayed for prior periods only.
Debit, Prepaid, ATM and Merchant Card Related Fees - Prepaid Cards
The Company earns revenues from prepaid card interchange fees and maintenance fees. Interchange fees
from cardholder transactions represent a portion of the underlying transaction value and are recognized
daily, concurrently with the transaction processing services to the cardholder. Similar to fees from deposits
accounts, maintenance fees are earned over the performance obligation period, after which all obligations
have been fulfilled.
Debit, Prepaid, ATM and Merchant Card Related Fees - Credit Cards
The Company earns revenues from a revenue sharing agreement with a third party who provides credit card
services for Company customers. Similar to the Wealth Management and Advisory revenue sharing
agreement discussed above, the Company is the agent and the third party is the customer. The revenue
sharing agreement calculates fees owed to the Company based on interchange and application amounts and
levels. These share of fees are remitted to the Company each month, at which time the performance
obligation is fulfilled.
Debit, Prepaid, ATM and Merchant Card Related Fees - Debit Card Interchange Income
The Company earns interchange fees from debit cardholder transactions through the MasterCard payment
network. Interchange fees form cardholder transactions represent a percentage of the underlying transaction
value and are recognized daily, concurrently with the transaction processing services provided to the
cardholder.
Gains/Losses on Sales of Repossessed Real Estate (“OREO”)
The Company records a gain or loss from the sale of OREO when control of the property transfers to the
buyer, which generally occurs at the time of an executed deed. There are no ASC 606 implications unless
the Company finances the sale of OREO. There are no instances of the Company financing the sale of one
of its OREO properties as of September 30, 2018.
184
(Continued)
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
December 31, 2018, 2017 and 2016
Contract Balances
The Contract Balances disclosure requirement is not relevant, as no revenues are earned over time that
would require the monitoring of contract balances. The Performance Obligations disclosure requirements
call for a description of when performance obligations are satisfied, significant payment terms, nature of
goods or services promised, and obligations for returns, refunds, and warranties.
(29) Capital Raise
On January 13, 2017, the Company raised approximately $63,791 through a public offering by issuing
2,695,000 shares of common stock, including 245,000 shares pursuant to the exercise of the underwriters’
over-allotment option. Net proceeds of the offering, after all expenses, were approximately $63,262.
185
(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
Winter Haven, State of Florida, on the 28th day of February 2019.
SIGNATURES
CENTERSTATE BANK CORPORATION
/s/ John C. Corbett
John C. Corbett
President and Chief Executive Officer
(Principal executive officer)
/s/ Jennifer L. Idell
Jennifer L. Idell
Executive 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 shown on February 28, 2019.
Signature
Title
/s/ Ernest S. Pinner
Ernest S. Pinner
/s/ James H. Bingham
James H. Bingham
/s/ Michael J. Brown, Sr.
Michael J. Brown, Sr.
/s/ C. Dennis Carlton
C. Dennis Carlton
/s/ Michael F. Ciferri
Michael F. Ciferri
/s/ John C. Corbett
John C. Corbett
/s/ Jody J. Dreyer
Jody J. Dreyer
/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
Executive Chairman of the Board
Director
Director
Director
Director
Director
President and Chief Executive Officer
Director
Director
Director
Director
Director
Director
Director
186
Signature
/s/ David G. Salyers
David G. Salyers
/s/ Joshua A. Snively
Joshua A. Snively
/s/ Mark W. Thompson
Mark W. Thompson
Title
Director
Director
Director
Bank President
187
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Exhibit 31.1
CERTIFICATIONS
I, John C. Corbett, certify, that:
1.
I have reviewed this report on Form 10-K of CenterState Bank Corporation
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: February 28, 2019
/s/ John C. Corbett
John C. Corbett
President and Chief Executive Officer
Exhibit 31.2
I, Jennifer L. Idell, certify, that:
1.
I have reviewed this report on Form 10-K of CenterState Bank Corporation
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: February 28, 2019
/s/ Jennifer L. Idell
Jennifer L. Idell
Executive Vice President and
Chief Financial Officer
Certification of President and Chief Executive Officer
The undersigned President and Chief Executive Officer of CenterState Bank Corporation 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 Bank Corporation.
Exhibit 32.1
/s/ John C. Corbett
John C. Corbett
President and Chief Executive Officer
Date: February 28, 2019
Certification of Executive Vice President and Chief Financial Officer
The undersigned Executive Vice President and Chief Financial Officer of CenterState Bank Corporation
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 Bank
Corporation.
Exhibit 32.2
Date: February 28, 2019
/s/ Jennifer L. Idell
Jennifer L. Idell
Executive Vice President and
Chief Financial Officer
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As we progress through 2019 and beyond, CenterState remains committed to enriching
the lives of all our stakeholders. The Company is proud of the accomplishments earned by our employees,
appreciative of the customers and communities we serve, and
excited about the returns and new opportunities created for our shareholders.
CECENTTN ERERSTATE BANKNK CORPORATION
111 01 First Street Sooututh WWinter Haven, FFLL 333 880 863.293.4710