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Actionable news in CSFL: CenterState Banks, Inc.,

Centerstate Banks, Inc. Announces

The following excerpt is from the company's SEC filing.

Third Quarter 2015 Operating Results

DAVENPORT, FL. – October 27, 2015 - CenterState Banks, Inc. (Nasdaq: CSFL) reported earnings per share (“EPS”) of $0.22 on net income of $9,916 for the third quarter of 2015, compared to $0.21 per share on net income of $9,878 reported during the prior quarter. All amounts are in thousands, except per share information, and all earnings per share amounts are reported on a diluted basis unless otherwise noted.

Current Quarter Highlights

Announced two complimentary acquisitions in South Miami-Dade County:

Acquired combined consolidated balances (Jun e 30, 2015):

Assets: $840 million

Loans: $544 million

Deposits: $730 million

Assets: $4.7 billion

Loans: $3.1 billion

Deposits: $3.9 billion

Combined mid-teens EPS accretion fully phased-in 2017.

Pro-forma CSFL will have $1.2 billion in deposits in the Miami MSA.

Annualized ROA 1.01%.

Efficiency ratio 63%.

8% annualized increase in loans during current quarter and 11% annualized increase YTD through September 30, 2015 (excluding Purchased Credit Impaired “PCI” loans).

(page 4)

8% annualized increase in deposits during current quarter and 7.5% annualized increase YTD through September 30, 2015 (excluding Time Deposits).

(page 13)

15% decrease in non-performing assets during the current quarter and 26% decrease compared to December 31, 2014.

(page 10)

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

Quarterly Condensed Consolidated Statements of Operations (unaudited)

For the quarter ended:

9/30/15

6/30/15

3/31/15

12/31/14

9/30/14

Interest income

$ 40,112

$ 41,625

$ 39,485

$ 38,019

$ 37,347

Interest expense

Net interest income

38,328

39,807

37,620

36,171

35,250

Provision for loan losses

Recovery for loan losses- PCI loans

Net interest income after loan loss provision

37,499

35,978

36,153

34,295

Correspondent banking and capital markets division- income

Gain on sale of securities available for sale

FDIC- IA amortization (negative accretion) (1)

(4,144)

(4,649)

(4,350)

(5,599)

(4,953)

FDIC- revenue (2)

All other non-interest income

Total non interest income

10,573

Credit related expenses

FDIC credit related expenses

Correspondent banking and capital markets division-expense

Merger and acquisition related expenses

Branch closure and efficiency initiatives

All other non-interest expense

25,230

25,383

25,559

25,999

26,639

Total non interest expense

30,855

32,538

30,603

32,091

35,534

Income before income tax

15,603

15,534

14,456

11,597

Income tax provision

NET INCOME

$ 9,916

$ 9,878

$ 9,148

$ 7,281

$ 3,593

Net Income allocated to common shares

$ 9,862

$ 9,823

$ 9,097

$ 7,250

Earnings per share (basic) (GAAP)

$ 0.22

$ 0.20

$ 0.16

$ 0.08

Earnings per share (diluted) (GAAP)

$ 0.21

Net operating income per share (Non-GAAP) (3)

$ 0.17

$ 0.13

Average common shares outstanding (basic)

45,200

45,161

45,128

45,072

45,061

Average common shares outstanding (diluted)

45,826

45,737

45,658

45,506

45,413

Common shares outstanding at period end

45,469

45,421

45,409

45,324

45,209

note 1: On the date of an FDIC acquisition (with loss share), the Company estimates expected future losses and the timing of those losses by loan pool. The related reimbursements from the FDIC, pursuant to the specific loss share agreement, of those losses are recorded as a receivable from the FDIC, referred to as indemnification asset or “IA.” The Company updates its estimate of future losses and the timing of the losses each quarter. To the extent management estimates that future losses are less than prior expected future losses, management adjusts its estimates of future expected cash flows and this increase is accreted to interest income over the remaining life of those specific loan pools, increasing the yield on loans. Because management no longer expects these incremental future losses on the loan pool(s), then the expected future reimbursements from the FDIC for the related percentage of loss share are also reduced. Instead of immediately charging down the IA for expected future FDIC reimbursements, the IA is written down over the shorter of the loss share period or the life of the related loan pool(s) by negative accretion (amortization) in this line item.

note 2: Two FDIC related revenue items are included in this line item. The first item is FDIC reimbursement income from the sale of OREO. When OREO (those covered by loss share agreements) is sold for a loss, the FDIC covered portion of the loss is recognized as income and included in this line item per the coverage breakdown in the table on page 10,

Selected

Credit Quality Ratios

. Second, when a loan pool (with loss share) is impaired, the impairment expense is included in provision for loan losses, and the percentage of the loss that is reimbursable from the FDIC is recognized as income from FDIC reimbursement, and included in this line item as well.

note 3: This non-gaap metric represents gaap net income excluding certain income and expense items net of the effective tax rate for the period presented. Items excluded are gains on sales of securities held for sale, acquisition and merger related expenses and one time charges related to the Company’s efficiency and profitability initiatives announced in January 2014, which include impairment charges on the real estate of several of the branches closed during April 2014, divided by the average diluted common shares outstanding. A reconciliation table is presented on page 18,

Explanation of Certain Unaudited Non-GAAP Financial Measures

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

Quarterly Condensed Segment Information - Correspondent banking and capital markets division (unaudited)

$1,545

$1,467

$1,602

(131)

Total non-interest income (note 1)

5,935

8,587

6,800

5,795

5,142

Total non-interest expense (note 2)

(5,063)

(6,008)

(5,595)

(4,993)

(5,036)

(1,551)

(1,032)

Net income

$ 1,484

$ 2,471

$ 1,644

$ 1,101

$ 557

Contribution to diluted earnings per share

$ 0.03

$ 0.05

$ 0.04

$ 0.02

$ 0.01

Allocation of indirect expense net of

inter-company earnings credit, net of

income tax benefit (note 3)

$(304)

$(262)

$(276)

$(163)

$(284)

Contribution to diluted earnings per share after

deduction of allocated indirect expenses

note 1: The primary component in this line item is gross commissions earned on bond sales, fees from hedging services, loan brokering fees and related consulting fees which were $4,943, $7,334, $5,694, $4,876 and $4,184 for 3Q15, 2Q15, 1Q15, 4Q14 and 3Q14 respectively. The fee income in this category is based on sales volume in any particular period and is therefore volatile between comparable periods. The remaining non interest income items in this category, which are less volatile, include fees from safe-keeping activities, bond accounting services, asset/liability consulting related activities, international wires, clearing and corporate checking account services, and other correspondent banking related revenue and fees.

note 2: A significant portion of these expenses are variable in nature and are a derivative of the income from bond sales, hedging services, brokering loans sales and related consulting services identified in note 1 above. The variable expenses related to these fees identified in note 1 above were $2,388, $3,461, $2,938, $2,149 and $2,336 for 3Q15, 2Q15, 1Q15, 4Q14 and 3Q14, respectively. Expenses in this line item do not include any indirect support allocation costs.

A portion of the cost of the Company’s indirect departments such as human resources, accounting, deposit operations, item processing, information technology, compliance and others have been allocated to the correspondent banking and capital markets division based on management’s estimates. In addition, an inter-company earnings credit is allocated to the segment for services provided to the commercial bank segment, also based on management’s estimates and judgment.

Loan production

Loans excluding PCI loans increased $48,226 during the current quarter, an annualized growth rate of approximately 8.4% and $179,094 during the nine month period ending September 30, 2015, an annualized growth rate of approximately 11%. Total new loans originated during the quarter approximated $188.6 million, of which $152.3 million were funded. About 56% of funded loan origination was commercial real estate (“CRE”), 13% commercial and industrial (“C&I”), 24% single family residential, 2% land, development & construction and 5% were all other.

Approximately 53% of the funded loan production was a combination of floating and variable rate, and the remaining 47% was fixed rate. In the aggregate, the funded loan production for the current quarter is expected to result in an estimated duration of approximately 2.9 years. The loan origination pipeline is approximately $285 million at September 30, 2015 compared to $298 million at June 30, 2015. The graph below summarizes total loan production and funded loan production over the past nine quarters.

Loan portfolio mix, PCI loans, FDIC covered loans and the related Indemnification Asset (“IA”)

Total PCI loans at September 30, 2015 is equal to $231,778 of which $168,950 (73%) are covered by FDIC loss sharing agreements. The Company acquired both covered and non-covered PCI loans in its June 1, 2014 acquisition of First Southern Bank (“FSB”). It also acquired FDIC covered loans that are not included in the PCI loan portfolio. In addition, the Company also acquired non-covered PCI loans from the January 17, 2014 Gulfstream Business Bank (“GSB”) acquisition. The table below compares the Company’s total FDIC covered loans and its PCI loan portfolio at September 30, 2015.

PCI loans

Non-PCI

Total loans

$ 168,950

$ 32,071

$ 201,021

not covered

62,828

2,299,782

2,362,610

$ 231,778

$ 2,331,853

$ 2,563,631

The table below summarizes the Company’s total PCI loans, both covered and not covered by FDIC loss share arrangements. It also shows the difference between the unpaid principal balance and the carrying balance (book balance) at September 30, 2015.

FDIC covered PCI loans

$217,043

($48,093)

PCI loans not covered

83,322

(20,494)

$300,365

($68,587)

The table below summarizes the Company’s total loans covered by FDIC loss share arrangements, both PCI loans and non-PCI loans. It also shows the difference between the unpaid principal balance and the carrying balance (book balance) at September 30, 2015.

FDIC covered, non-PCI loans

32,413

Total FDIC covered loans

$249,456

$201,021

($48,435)

Four of the Company’s fourteen loss share agreements with the FDIC terminated during the third quarter of 2015. The total loans that transferred from loss share status to no loss share status, both PCI and non-PCI, during the third quarter had an aggregate total carrying balance outstanding at September 30, 2015 of approximately $38 million. The table below summarizes the remaining ten loss share agreements by acquired bank and by term of the related loss share period at September 30, 2015.

est rem

Unpaid

of losses

end of

Principal

Carrying

Difference (2)

Balance

years(1)

First Commercial Bank

$74,301

$65,774

($8,527)

70%/30%/75%

Jan-16

First Guaranty Bank

51,103

36,659

(14,444)

Jan-17

Central FL State Bank

10,280

(2,684)

Subtotal

135,684

110,029

(25,655)

Olde Cypress

10 yrs

27,293

23,953

(3,340)

Jul-20

Comm Bank Bartow

13,598

10,055

(3,543)

Aug-20

Independent Nat'l Bank

17,261

12,866

(4,395)

Haven Trust Bank

70%/0%/70%

Sep-20

(1,023)

Jan-21

38,344

29,918

(8,426)

Jan-22

(1,082)

113,772

90,992

(22,780)

19,790

$28,596

This represents an estimate of the weighted average remaining life or timing of the estimated future cash flows as of September 30, 2015.

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

As shown in the table above, the Company’s total IA at September 30, 2015 was $28,596 of which $6,602 represents a receivable from the FDIC for estimated future loss reimbursements, and $21,994 represents previously estimated loss reimbursements that are no longer expected. This amount is now expected to be paid (and/or has been paid) by the borrower (or realized upon the sale of OREO) instead of a reimbursement from the FDIC. At September 30, 2015, the $21,994 previously estimated reimbursements from the FDIC is expected to be written off as amortization expense (negative accretion) in the Company’s non-interest...


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