CENTERSTATE BANK CORPORATION October 27, 2015
CenterState Banks, Inc. Announces 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.
Announced two complimentary acquisitions in South Miami-Dade County:
Acquired combined consolidated balances (June 30, 2015):
Assets: $840 million
Loans: $544 million
Deposits: $730 million
Combined pro-forma June 30, 2015:
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 | 1,784 1,818 1,865 1,848 2,097 |
Net interest income | 38,328 39,807 37,620 36,171 35,250 |
Provision for loan losses | 4 2,330 1,941 210 1,108 |
Recovery for loan losses- PCI loans | (4) (22) (299) (192) (153) |
Net interest income after loan loss provision | 38,328 37,499 35,978 36,153 34,295 |
Correspondent banking and capital markets division- income | 5,935 | 8,587 | 6,800 | 5,795 | 5,142 |
Gain on sale of securities available for sale | 4 | --- | --- | --- | --- |
FDIC- IA amortization (negative accretion) (1) | (4,144) | (4,649) | (4,350) | (5,599) | (4,953) |
FDIC- revenue (2) | 27 | 359 | 667 | 1,080 | 213 |
All other non-interest income 6,308 6,276 5,964 6,259 6,157
Total non interest income 8,130 10,573 9,081 7,535 6,559
Credit related expenses | 439 | 522 | 16 | 299 | 624 |
FDIC credit related expenses | (46) | 625 | (567) | 369 | (209) |
Correspondent banking and capital markets division-expense | 5,063 | 6,008 | 5,595 | 4,993 | 5,036 |
Merger and acquisition related expenses | 169 | --- | --- | 848 | 3,450 |
Branch closure and efficiency initiatives | --- | --- | --- | (417) | (6) |
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 5,320 | ||||
Income tax provision | 5,687 5,656 5,308 4,316 1,727 | ||||
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 | $ 3,593 |
Earnings per share (basic) (GAAP) | $ 0.22 | $ 0.22 | $ 0.20 | $ 0.16 | $ 0.08 |
Earnings per share (diluted) (GAAP) | $ 0.22 | $ 0.21 | $ 0.20 | $ 0.16 | $ 0.08 |
Net operating income per share (Non-GAAP) (3) | $ 0.22 | $ 0.22 | $ 0.20 | $ 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) | |||||
For the quarter ended: | 9/30/15 | 6/30/15 | 3/31/15 | 12/31/14 | 9/30/14 |
Net interest income | $1,545 | $1,467 | $1,602 | $991 | $801 |
Provision for loan losses | 1 | (24) | (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) |
Income tax provision (934) (1,551) (1,032) (692) (350) | |||||
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 | $ 0.03 $ 0.05 $ 0.03 $ 0.02 $ 0.01 | ||||
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.
note 3: A portion of the cost of the Company's indirect departments such as human resources, accounting, deposit operations, item processing, information technology, compliance and others have been allocated to the correspondent banking and 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.
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 $152.3 million were funded. About 56% of funded loan origination was commercial real estate ('CRE'), 13% commercial and industrial ('C&I'), 24% single family residential, 2% land, development & construction and 5% were all other.
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$ in millions
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$100
$60
$82
$114
$69
$84
$59
$77
$79
$99
$150
$185
$99
$132
$144
$192
$166
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$189
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3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Funded Loans Total Loan Production
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.
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
FDIC covered | $ 168,950 $ 32,071 $ 201,021 |
not covered | 62,828 2,299,782 2,362,610 |
Total | $ 231,778 $ 2,331,853 $ 2,563,631 |
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