CSFL CenterState Bank
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-32017
CENTERSTATE BANK CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Florida |
| 59-3606741 |
(State or Other Jurisdiction |
| (I.R.S. Employer |
1101 First Street South, Suite 202
Winter Haven, Florida 33880
(Address of Principal Executive Offices)
(863) 293-4710
(Issuer’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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 |
| ☒ |
| Accelerated filer |
| ☐ |
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Non-accelerated filer |
| ☐ |
| Small reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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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 Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock | CSFL | NASDAQ |
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Common stock, par value $.01 per share |
|
|
| 124,132,401 shares |
|
(class) |
| Outstanding at April 29, 2020
|
CENTERSTATE BANK CORPORATION AND SUBSIDIARIES
INDEX
|
| Page |
PART I. FINANCIAL INFORMATION |
|
|
Item 1. Financial Statements |
|
|
Condensed consolidated balance sheets (unaudited) at March 31, 2020 and December 31, 2019 |
| 3 |
|
| 4 |
|
| 6 |
|
| 7 |
Notes to condensed consolidated financial statements (unaudited) |
| 9 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 48 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
| 67 |
|
| 67 |
PART II. OTHER INFORMATION |
|
|
|
| 68 |
|
| 68 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| 69 |
|
| 69 |
|
| 69 |
|
| 69 |
|
| 70 |
|
| 71 |
CERTIFICATIONS |
|
|
2
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands of dollars, except per share data)
|
| March 31, 2020 |
| December 31, 2019 |
ASSETS |
|
|
|
|
Cash and due from banks |
| $135,338 |
| $185,255 |
Deposits in other financial institutions (restricted cash) |
| 550,101 |
| 140,913 |
Federal funds sold and FRB deposits |
| 461,252 |
| 163,890 |
Cash and cash equivalents |
| 1,146,691 |
| 490,058 |
Trading securities, at fair value |
| 8,432 |
| 4,987 |
Available for sale debt securities, at fair value |
| 2,138,442 |
| 1,886,724 |
Held to maturity debt securities, net of allowance for credit losses of $10 at |
|
|
|
|
March 31, 2020 (fair value of $205,458 and $208,852 at March 31, 2020 |
|
|
|
|
and December 31, 2019, respectively) |
| 195,948 |
| 202,903 |
Loans held for sale (see Note 6) |
| 188,316 |
| 142,801 |
Loans, excluding Purchased Credit Deteriorated ("PCD") loans |
| 11,876,909 |
| 11,848,475 |
PCD loans |
| 150,322 |
| 135,468 |
Allowance for credit losses |
| (158,733) |
| (40,655) |
Net Loans |
| 11,868,498 |
| 11,943,288 |
Bank premises and equipment, net |
| 296,471 |
| 296,706 |
Right-of-use operating lease assets |
| 33,062 |
| 32,163 |
Accrued interest receivable |
| 43,382 |
| 40,945 |
FHLB, FRB and other stock, at cost |
| 100,463 |
| 100,305 |
Goodwill |
| 1,204,417 |
| 1,204,417 |
Core deposit intangible, net |
| 87,295 |
| 91,157 |
Other intangible assets, net |
| 4,131 |
| 4,507 |
Bank owned life insurance |
| 331,713 |
| 330,155 |
Other repossessed real estate owned |
| 9,942 |
| 5,092 |
Deferred income tax asset, net |
| 37,687 |
| 28,786 |
Bank property held for sale |
| 21,347 |
| 23,781 |
Interest rate swap derivatives, at fair value |
| 831,891 |
| 273,068 |
Prepaid expense and other assets |
| 48,164 |
| 40,182 |
TOTAL ASSETS |
| $18,596,292 |
| $17,142,025 |
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
Deposits: |
|
|
|
|
Demand - non-interest bearing |
| $4,164,091 |
| $3,929,183 |
Demand - interest bearing |
| 2,650,252 |
| 2,613,933 |
Savings and money market accounts |
| 4,413,773 |
| 4,336,721 |
Time deposits |
| 2,893,383 |
| 2,256,555 |
Total deposits |
| 14,121,499 |
| 13,136,392 |
|
|
|
|
|
Securities sold under agreement to repurchase |
| 81,736 |
| 93,141 |
Federal funds purchased |
| 255,433 |
| 379,193 |
Other borrowed funds |
| 211,000 |
| 161,000 |
Corporate and subordinated debentures |
| 71,356 |
| 71,343 |
Accrued interest payable |
| 4,334 |
| 3,998 |
Interest rate swap derivatives, at fair value |
| 842,451 |
| 275,033 |
Operating lease liabilities |
| 35,168 |
| 34,485 |
Reserve for unfunded commitments |
| 7,110 |
| — |
Payables and accrued expenses |
| 95,953 |
| 90,722 |
Total liabilities |
| 15,726,040 |
| 14,245,307 |
|
|
|
|
|
Equity: |
|
|
|
|
Common stock, $.01 par value: 200,000,000 shares authorized; 124,131,401 |
|
|
|
|
and 125,173,597 shares issued and outstanding at March 31, 2020 and |
|
|
|
|
December 31, 2019, respectively |
| 1,241 |
| 1,252 |
Additional paid-in capital |
| 2,376,637 |
| 2,407,385 |
Retained earnings |
| 435,984 |
| 465,680 |
Accumulated other comprehensive income |
| 56,390 |
| 22,401 |
Total equity |
| 2,870,252 |
| 2,896,718 |
TOTAL LIABILITIES AND EQUITY |
| $18,596,292 |
| $17,142,025 |
See notes to the accompanying condensed financial statements
3
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(in thousands of dollars, except per share data)
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Interest income: |
|
|
|
|
Loans |
| $160,675 |
| $116,285 |
Investment securities: |
|
|
|
|
Taxable |
| 12,534 |
| 12,286 |
Tax-exempt |
| 1,737 |
| 1,716 |
Federal funds sold and other |
| 1,813 |
| 1,995 |
|
| 176,759 |
| 132,282 |
Interest expense: |
|
|
|
|
Deposits |
| 19,836 |
| 13,323 |
Securities sold under agreement to repurchase |
| 252 |
| 236 |
Federal funds purchased and other borrowings |
| 2,321 |
| 3,978 |
Corporate and subordinated debentures |
| 997 |
| 570 |
|
| 23,406 |
| 18,107 |
|
|
|
|
|
Net interest income |
| 153,353 |
| 114,175 |
Provision for credit losses |
| 44,914 |
| 1,053 |
Net interest income after credit loss provision |
| 108,439 |
| 113,122 |
|
|
|
|
|
Non-interest income: |
|
|
|
|
Correspondent banking capital markets revenue |
| 26,424 |
| 7,972 |
Other correspondent banking related revenue |
| 1,384 |
| 1,028 |
Mortgage banking revenue |
| 10,973 |
| 4,193 |
Small business administration loans revenue |
| 1,403 |
| 688 |
Service charges on deposit accounts |
| 7,522 |
| 6,678 |
Debit, prepaid, ATM and merchant card related fees |
| 3,667 |
| 5,018 |
Wealth management related revenue |
| 831 |
| 607 |
Bank owned life insurance income |
| 1,927 |
| 1,626 |
Net gain on sale of available for sale debt securities |
| — |
| 17 |
Other non-interest income |
| 1,659 |
| 1,473 |
Total other income |
| 55,790 |
| 29,300 |
See notes to the accompanying condensed consolidated financial statements
4
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(in thousands of dollars, except per share data)
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Non-interest expense: |
|
|
|
|
Salaries, wages and employee benefits |
| $77,077 |
| $48,393 |
Occupancy expense |
| 7,346 |
| 5,602 |
Depreciation of premises and equipment |
| 4,045 |
| 2,850 |
Supplies, stationary and printing |
| 861 |
| 748 |
Marketing expenses |
| 2,158 |
| 2,020 |
Data processing expense |
| 5,617 |
| 3,656 |
Legal, audit and other professional fees |
| 2,682 |
| 1,442 |
Amortization of intangibles |
| 4,535 |
| 2,814 |
Credit loss expense for unfunded commitments |
| 1,027 |
| — |
Postage and delivery |
| 1,160 |
| 925 |
ATM and debit card and merchant card related expenses |
| 1,598 |
| 1,453 |
Bank regulatory expenses |
| 1,807 |
| 1,616 |
Loss on sale of repossessed real estate (“OREO”) |
| 1 |
| 47 |
Valuation write down of OREO |
| 95 |
| 108 |
(Gain) loss on repossessed assets other than real estate |
| (8) |
| 13 |
Foreclosure related expenses |
| 856 |
| 561 |
Merger related expenses |
| 3,051 |
| 6,365 |
Impairment on bank property held for sale |
| 31 |
| 107 |
Other expenses |
| 8,833 |
| 5,753 |
Total other expenses |
| 122,772 |
| 84,473 |
|
|
|
|
|
Income before provision for income taxes |
| 41,457 |
| 57,949 |
Provision for income taxes |
| 6,025 |
| 13,306 |
Net income |
| $35,432 |
| $44,643 |
|
|
|
|
|
Net income |
| $35,432 |
| $44,643 |
Other comprehensive income, net of tax |
|
|
|
|
Unrealized available for sale debt securities holding gain, |
|
|
|
|
net of taxes of $13,268 and $7,322, respectively |
| 39,729 |
| 21,571 |
Unrealized interest rate swap holding loss, net of |
|
|
|
|
taxes of ($1,917) and $0, respectively |
| (5,740) |
| — |
Less: reclassified adjustments for gain included in net income, |
|
|
|
|
net income tax expense of $0 and $4, respectively |
| — |
| (13) |
|
|
|
|
|
Net change in accumulated other comprehensive income |
| $33,989 |
| $21,558 |
|
|
|
|
|
Total comprehensive income |
| $69,421 |
| $66,201 |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic |
| $0.28 |
| $0.47 |
Diluted |
| $0.28 |
| $0.46 |
Common shares used in the calculation of earnings per share: |
|
|
|
|
Basic (1) |
| 124,798,732 |
| 95,740,856 |
Diluted (1) |
| 125,341,227 |
| 96,500,740 |
(1)Excludes participating shares
See notes to the accompanying condensed consolidated financial statements
5
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the three months ended March 31, 2020 and 2019 (unaudited)
(in thousands of dollars, except per share data)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| Number of |
|
|
| Additional |
|
|
| other |
|
|
|
| common |
| Common |
| paid in |
| Retained |
| comprehensive |
| Total |
|
| shares |
| stock |
| capital |
| earnings |
| income (loss) |
| equity |
Balances at January 1, 2019 |
| 95,679,596 |
| $957 |
| $1,699,031 |
| $293,777 |
| $(22,421) |
| $1,971,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
| 44,643 |
|
|
| 44,643 |
Unrealized holding gain on |
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities, net of |
|
|
|
|
|
|
|
|
|
|
|
|
deferred income tax of $7,318 |
|
|
|
|
|
|
|
|
| 21,558 |
| 21,558 |
Cumulative adjustment pursuant to adoption |
|
|
|
|
|
|
|
|
|
|
|
|
of ASU 842 (Note 11) |
|
|
|
|
|
|
| (1,464) |
|
|
| (1,464) |
Dividends paid - common ($0.11 per share) |
|
|
|
|
|
|
| (10,547) |
|
|
| (10,547) |
Stock grants issued |
| 132,918 |
| 1 |
| (1) |
|
|
|
|
| — |
Stock based compensation expense |
|
|
|
|
| 1,218 |
|
|
|
|
| 1,218 |
Stock options exercised |
| 116,764 |
| 1 |
| 1,198 |
|
|
|
|
| 1,199 |
Stock repurchase |
| (15,971) |
| — |
| (399) |
|
|
|
|
| (399) |
Balances at March 31, 2019 |
| 95,913,307 |
| 959 |
| 1,701,047 |
| 326,409 |
| (863) |
| 2,027,552 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
Balances at January 1, 2020 |
| 125,173,597 |
| $1,252 |
| $2,407,385 |
| $465,680 |
| $22,401 |
| $2,896,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
| 35,432 |
|
|
| 35,432 |
Unrealized holding gain on |
|
|
|
|
|
|
|
|
|
|
|
|
available for sale securities, net of |
|
|
|
|
|
|
|
|
|
|
|
|
deferred income tax of $13,268 |
|
|
|
|
|
|
|
|
| 39,729 |
| 39,729 |
Unrealized holding loss on |
|
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|
|
|
|
|
|
|
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|
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interest rate swaps, net of |
|
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|
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|
|
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|
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|
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deferred income tax of $1,917 |
|
|
|
|
|
|
|
|
| (5,740) |
| (5,740) |
Cumulative adjustment pursuant to adoption |
|
|
|
|
|
|
|
|
|
|
|
|
of ASU 326 (Note 12) |
|
|
|
|
|
|
| (47,751) |
|
|
| (47,751) |
Dividends paid - common ($0.14 per share) |
|
|
|
|
|
|
| (17,377) |
|
|
| (17,377) |
Stock grants issued |
| 258,616 |
| 3 |
| (3) |
|
|
|
|
| — |
Stock based compensation expense |
|
|
|
|
| 1,796 |
|
|
|
|
| 1,796 |
Stock options exercised |
| 179,174 |
| 1 |
| 1,358 |
|
|
|
|
| 1,359 |
Stock repurchase |
| (1,479,986) |
| (15) |
| (33,899) |
|
|
|
|
| (33,914) |
Balances at March 31, 2020 |
| 124,131,401 |
| $1,241 |
| $2,376,637 |
| $435,984 |
| $56,390 |
| $2,870,252 |
See notes to the accompanying condensed consolidated financial statements
6
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars, except per share data)
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Cash flows from operating activities: |
|
|
|
|
Net income |
| $35,432 |
| $44,643 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
Provision for credit losses |
| 44,914 |
| 1,053 |
Credit loss on unfunded commitments |
| 1,027 |
| — |
Depreciation of premises and equipment |
| 4,045 |
| 2,850 |
Accretion of purchase accounting adjustments |
| (12,575) |
| (12,982) |
Net amortization of investment securities |
| 2,273 |
| 2,421 |
Net deferred loan origination fees |
| 435 |
| 344 |
Gain on sale of securities available for sale debt securities |
| — |
| (17) |
Trading securities revenue |
| (153) |
| (25) |
Purchases of trading securities |
| (54,723) |
| (51,691) |
Proceeds from sale of trading securities |
| 51,431 |
| 53,453 |
Repossessed real estate owned valuation write down |
| 95 |
| 108 |
Loss on sale of repossessed real estate owned |
| 1 |
| 47 |
(Gain) loss on repossessed assets other than real estate |
| (8) |
| 13 |
Gain on sale of residential loans held for sale |
| (10,781) |
| (3,976) |
Residential loans originated and held for sale |
| (423,622) |
| (134,752) |
Proceeds from sale of residential loans held for sale |
| 391,242 |
| 129,657 |
Net change in fair value of residential loans held for sale |
| (2,354) |
| (4) |
Gain on disposal of and or sale of fixed assets |
| (6) |
| (1) |
Gain on disposal of bank property held for sale |
| (236) |
| (618) |
Impairment on bank property held for sale |
| 31 |
| 107 |
Gain on sale of small business administration loans |
| (1,403) |
| (688) |
Small business administration loans originated for sale |
| (12,255) |
| (7,482) |
Proceeds from sale of small business administration loans |
| 13,658 |
| 8,170 |
Deferred income taxes |
| (4,306) |
| 6,114 |
Tax deduction in excess of book deduction for stock awards |
| (1,391) |
| (376) |
Stock based compensation expense |
| 1,796 |
| 1,218 |
Bank owned life insurance income |
| (1,927) |
| (1,626) |
Net cash from changes in: |
|
|
|
|
Net changes in accrued interest receivable, prepaid expenses, and other assets |
| 10,211 |
| 11,461 |
Net change in accrued interest payable, accrued expense, and other liabilities |
| (12,867) |
| (5,019) |
Net cash provided by operating activities |
| $17,984 |
| $42,402 |
See notes to the accompanying condensed consolidated financial statements
7
CenterState Bank Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars, except per share data)
(continued)
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Cash flows from investing activities: |
|
|
|
|
Available for sale debt securities: |
|
|
|
|
Purchases of investment securities |
| $(229,404) |
| $(1,037) |
Purchases of mortgage-backed securities |
| (50,138) |
| (66,624) |
Proceeds from pay-downs of mortgage-backed securities |
| 78,830 |
| 53,579 |
Proceeds from sales of investment securities |
| — |
| 2,309 |
Proceeds from sales of mortgage-backed securities |
| — |
| 64,177 |
Proceeds from maturities of investment securities |
| — |
| 295 |
Held to maturity debt securities: |
|
|
|
|
Proceeds from called investment securities |
| 3,110 |
| — |
Proceeds from pay-downs of mortgage-backed securities |
| 3,551 |
| 2,317 |
Purchases of FHLB, FRB and other stock |
| (20,344) |
| (4,717) |
Proceeds from sales of FHLB, FRB and other stock |
| 20,188 |
| 10,826 |
Net (increase) decrease in loans |
| (16,919) |
| 1,956 |
Purchases of premises and equipment, net |
| (3,813) |
| (3,931) |
Proceeds from sale of repossessed real estate |
| 438 |
| 430 |
Proceeds from sale of fixed assets |
| 9 |
| 1 |
Proceeds from sale of bank property held for sale |
| 2,639 |
| 6,365 |
Net cash (used in) provided by investing activities |
| $(211,853) |
| $65,946 |
Cash flows from financing activities: |
|
|
|
|
Net increase in deposits |
| 985,602 |
| 269,954 |
Net (decrease) increase in securities sold under agreement to repurchase |
| (11,405) |
| 1,259 |
Net (decrease) increase in federal funds purchased |
| (123,760) |
| 8,657 |
Net increase (decrease) in other borrowings |
| 50,000 |
| (150,000) |
Net decrease in payable to shareholders for acquisitions |
| (3) |
| (1) |
Stock options exercised |
| 1,359 |
| 1,199 |
Stock repurchased |
| (33,914) |
| (399) |
Dividends paid |
| (17,377) |
| (10,547) |
Net cash provided by financing activities |
| $850,502 |
| $120,122 |
|
|
|
|
|
Net increase in cash and cash equivalents |
| 656,633 |
| 228,470 |
Cash and cash equivalents, beginning of period |
| 490,058 |
| 367,333 |
Cash and cash equivalents, end of period |
| $1,146,691 |
| $595,803 |
|
|
|
|
|
Supplemental Information |
|
|
|
|
Transfer of loans to other real estate owned |
| $5,384 |
| $3,657 |
New right-of-use operating lease assets |
| 4,749 |
| — |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest |
| $23,889 |
| $17,689 |
Income taxes |
| — |
| — |
See notes to the accompanying condensed consolidated financial statements
8
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
NOTE 1: Nature of operations and basis of presentation
The consolidated financial statements include the accounts of CenterState Bank Corporation (the “Parent Company,” “Company” or “CSFL”), and its wholly owned subsidiary bank, CenterState Bank, N.A. (“CenterState” or the “Bank”), and non-bank subsidiaries, R4ALL, Inc., and CSFL Insurance Corp. The Company operates as one of the largest community bank franchises headquartered in the state of Florida. The Bank provides traditional retail, commercial, mortgage, wealth management and SBA services throughout its Florida, Georgia and Alabama branch network and customer relationships in neighboring states.
The Bank, headquartered in Winter Haven, Florida, also operates a correspondent banking and capital markets division, of which the majority of its bond salesmen, traders and operational personnel are primarily housed in facilities located in Birmingham, Alabama and Atlanta, Georgia. This division’s primary revenue generating activities are related to its 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; and its correspondent banking division, which includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and correspondent bank checking account deposits and fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services. The customer base includes small to medium size financial institutions primarily located in the Southeastern United States, although clients are located across the United States. The Bank also owns CBI Holding Company, LLC (“CBI”), which in turn owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.
R4ALL, Inc. manages troubled loans purchased from the Bank to their eventual disposition. CSFL Insurance Corp. is a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019. In the Company’s opinion, all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods have been made. The results of operations of the three-month ended March 31, 2020 are not necessarily indicative of the results expected for the full year.
Some items in the prior period financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or common stockholders’ equity.
9
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
NOTE 2: Common stock outstanding and earnings per share data
The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. There were 0 anti-dilutive stock options for the three-month periods ending March 31, 2020 and 2019. The following table presents the factors used in the earnings per share computations for the periods indicated.
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Basic |
|
|
|
|
Net income available to common shareholders |
| $35,432 |
| $44,643 |
Less: Earnings allocated to participating securities |
| (8) |
| (23) |
Net income allocated to common shareholders |
| $35,424 |
| $44,620 |
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
including participating securities |
| 124,831,232 |
| 95,790,456 |
Less: Participating securities (1) |
| (32,500) |
| (49,600) |
Average shares |
| 124,798,732 |
| 95,740,856 |
Basic earnings per common share |
| $0.28 |
| $0.47 |
|
|
|
|
|
Diluted |
|
|
|
|
Net income available to common shareholders |
| $35,424 |
| $44,620 |
Weighted average common shares outstanding for |
|
|
|
|
basic earnings per common share |
| 124,798,732 |
| 95,740,856 |
Add: Dilutive effects of stock based compensation awards |
| 542,495 |
| 759,884 |
Average shares and dilutive potential common shares |
| 125,341,227 |
| 96,500,740 |
Diluted earnings per common share |
| $0.28 |
| $0.46 |
| (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. |
|
NOTE 3: 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). U.S. Treasury securities are valued using quoted market prices. Valuation adjustments are not applied (Level 1). 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.
10
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The Company accounts for mortgage loans held for sale under the fair value option with changes in fair value recognized in current period earnings. 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 (“IRLCs”) 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 fair values of IRLCs are derived by a valuation model using various unobservable inputs, such as an estimate of the fair value of the servicing rights expected to be recorded upon sale of the loans, estimated costs to originate the loans, and the pull through rate. At March 31, 2020, the estimated gain on sale before the pull through rate ranged from (1.45%) to 9.34% with an average of 3.19%. The costs to originate ranged from 0.70% to 0.89% with an average of 0.82%. The pull through rates ranged from 47.00% to 100.00% with an average of 85.19%. At December 31, 2019, the estimated gain on sale before the pull through rate ranged from (2.41%) to 8.21% with an average of 2.54%. The costs to originate ranged from 0.70% to 0.89% with an average of 0.82%. The pull through rates ranged from 58.00% to 100.00% with an average of 89.00%.
The Company has the rights to service a portfolio of Fannie Mae 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 Condensed 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 credit 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 March 31, 2020, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 5% to 13%. Adjustments to appraisals 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, other real estate owned and bank property held for sale are considered a Level 3 in the fair value hierarchy.
11
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Assets and liabilities measured at fair value on a recurring basis are summarized below.
|
|
|
| Fair value measurements using | ||||
|
|
|
| Quoted prices |
| Significant |
|
|
|
|
|
| in active |
| other |
| Significant |
|
|
|
| markets for |
| observable |
| unobservable |
|
| Carrying |
| identical assets |
| inputs |
| inputs |
|
| value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
at March 31,2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Trading securities |
| $8,432 |
| $ — |
| $8,432 |
| $ — |
Available for sale debt securities |
|
|
|
|
|
|
|
|
Corporate debt securities |
| 5,757 |
| — |
| 5,757 |
| — |
Obligations of U.S. government sponsored entities and agencies |
| 147,959 |
| — |
| 147,959 |
| — |
Mortgage-backed securities |
| 1,787,846 |
| — |
| 1,787,846 |
| — |
U.S. treasuries |
| 99,997 |
| — |
| 99,997 |
| — |
Municipal securities |
| 96,883 |
| — |
| 96,883 |
| — |
Loans held for sale |
| 188,316 |
| — |
| 188,316 |
| — |
Mortgage servicing assets |
| 1,038 |
| — |
| 1,038 |
| — |
Mortgage banking derivatives |
| 6,436 |
| — |
| 57 |
| 6,379 |
Interest rate swap derivatives |
| 831,891 |
| — |
| 831,891 |
| — |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage banking derivatives |
| 6,126 |
| — |
| 6,032 |
| 94 |
Interest rate swap derivatives |
| 842,451 |
| — |
| 842,451 |
| — |
|
|
|
|
|
|
|
|
|
at December 31,2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Trading securities |
| $4,987 |
| $ — |
| $4,987 |
| $ — |
Available for sale debt securities |
|
|
|
|
|
|
|
|
Corporate debt securities |
| 5,657 |
| — |
| 5,657 |
| — |
Obligations of U.S. government sponsored entities and agencies |
| 19,930 |
| — |
| 19,930 |
| — |
Mortgage-backed securities |
| 1,767,242 |
| — |
| 1,767,242 |
| — |
Municipal securities |
| 93,895 |
| — |
| 93,895 |
| — |
Loans held for sale |
| 142,801 |
| — |
| 142,801 |
| — |
Mortgage servicing assets |
| 1,332 |
| — |
| 1,332 |
| — |
Mortgage banking derivatives |
| 1,761 |
| — |
| 14 |
| 1,747 |
Interest rate swap derivatives |
| 273,068 |
| — |
| 273,068 |
| — |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgage banking derivatives |
| 305 |
| — |
| 288 |
| 17 |
Interest rate swap derivatives |
| 275,033 |
| — |
| 275,033 |
| — |
12
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Assets and liabilities measured at fair value on a non-recurring basis are summarized below.
|
|
|
| Fair value measurements using | ||||
|
|
|
| Quoted prices |
| Significant |
|
|
|
|
|
| in active |
| other |
| Significant |
|
|
|
| markets for |
| observable |
| unobservable |
|
| Carrying |
| identical assets |
| inputs |
| inputs |
|
| value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
at March 31,2020 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Impaired loans, non-PCD |
|
|
|
|
|
|
|
|
Residential real estate |
| $1,916 |
| $ — |
| $ — |
| $1,916 |
Commercial real estate |
| 12,748 |
| — |
| — |
| 12,748 |
Land, land development and construction |
| 725 |
| — |
| — |
| 725 |
Commercial |
| 4,944 |
| — |
| — |
| 4,944 |
Consumer |
| 47 |
| — |
| — |
| 47 |
Impaired loans, PCD |
|
|
|
|
|
|
|
|
Commercial real estate |
| 9,694 |
| — |
| — |
| 9,694 |
Commercial |
| 766 |
| — |
| — |
| 766 |
Other real estate owned |
|
|
|
|
|
|
|
|
Residential real estate |
| 363 |
| — |
| — |
| 363 |
Commercial real estate |
| 2,129 |
| — |
| — |
| 2,129 |
Land, land development and construction |
| 289 |
| — |
| — |
| 289 |
Bank property held for sale |
| 2,834 |
| — |
| — |
| 2,834 |
|
|
|
|
|
|
|
|
|
at December 31,2019 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Impaired loans |
|
|
|
|
|
|
|
|
Residential real estate |
| $2,213 |
| $ — |
| $ — |
| $2,213 |
Commercial real estate |
| 8,177 |
| — |
| — |
| 8,177 |
Land, land development and construction |
| 847 |
| — |
| — |
| 847 |
Commercial |
| 5,564 |
| — |
| — |
| 5,564 |
Consumer |
| 47 |
| — |
| — |
| 47 |
Other real estate owned |
|
|
|
|
|
|
|
|
Residential real estate |
| — |
| — |
| — |
| — |
Commercial real estate |
| 2,129 |
| — |
| — |
| 2,129 |
Land, land development and construction |
| 340 |
| — |
| — |
| 340 |
Bank property held for sale |
| 4,160 |
| — |
| — |
| 4,160 |
Non-PCD impaired loans measured at fair value had a recorded investment of $22,169, with a valuation allowance of $1,789 at March 31, 2020, and a recorded investment of $18,556, with a valuation allowance of $1,708 at December 31, 2019. The Company recorded a provision for credit loss expense of $911 and $1,124 on non-PCD impaired loans carried at fair value during the three-month periods ending March 31, 2020 and 2019, respectively. Beginning in 2020, the Company began accounting for PCD loans under ASC Topic 326 and as a result several loans previously evaluated on a pool level basis were individually evaluated for impairment during the current period. PCD impaired loans measured at fair value had a recorded investment of $22,776, with a valuation allowance of $12,316 at March 31, 2020. The Company recorded a provision for credit loss expense of $2,870 on PCD impaired loans carried at fair value during the three-month periods ending March 31, 2020.
Other real estate owned had a decline in fair value of $95 and $108 during the three-month periods ending March 31, 2020 and 2019, respectively. Changes in fair value were recorded directly 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. 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 recognized an impairment charge of $31 and $107 during the three-month periods ending March 31, 2020 and 2019, respectively, related to bank properties held for sale.
13
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
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: 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. Tables below present additional information on assumptions ranges and methods used for the Level 3 fair value measurements for loans.
|
| Quantitative information about Level 3 fair value measurements | ||||||
|
| Fair value |
| Valuation |
| Unobservable |
| Range |
|
| at March 31, 2020 |
| technique |
| inputs |
| (weighted average rate) |
Loan, net |
| $12,008,094 |
| Discounted cash flow |
| Probability of default (PD) |
| 0.51% - 100.00% (1.43%) |
|
|
|
|
|
| Loss given default (LGD) |
| 0% - 100.00% (17.95%) |
|
|
|
|
|
| Prepayment rate |
| 0.00% - 34.47% (20.76%) |
|
|
|
|
|
| Discount rate |
| 3.03% - 8.28% (4.5%) |
|
|
|
|
|
|
|
|
|
|
| Quantitative information about Level 3 fair value measurements | ||||||
|
| Fair value |
| Valuation |
| Unobservable |
| Range |
|
| at December 31, 2019 |
| technique |
| inputs |
| (average) (1) |
Loan, net |
| $11,925,693 |
| Discounted cash flow |
| Probability of default (PD) |
| 1.04% - 2.79% (1.83%) |
|
|
|
|
|
| Loss given default (LGD) |
| 6.44% - 46.26% (22.02%) |
|
|
|
|
|
| Prepayment rate |
| 10.00% - 34.47% (19.19%) |
|
|
|
|
|
| Discount rate |
| 1.48% - 2.39% (1.62%) |
| (1) | Average rates are median rates. |
Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value and is 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.
Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.
Corporate and Subordinated Debentures: The fair values of the Company’s corporate and subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.
Off-balance Sheet Instruments: The fair value of off-balance-sheet items is not considered material.
14
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following table presents the carry amounts and estimated fair values of the Company’s financial instruments:
|
|
|
| Fair value measurements |
|
| ||||
|
| Carrying amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
at March 31,2020 |
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $1,146,691 |
| $1,146,691 |
| $ — |
| $ — |
| $1,146,691 |
Trading securities |
| 8,432 |
| — |
| 8,432 |
| — |
| 8,432 |
Available for sale debt securities |
| 2,138,442 |
| — |
| 2,138,442 |
| — |
| 2,138,442 |
Held to maturity debt securities |
| 195,948 |
| — |
| 205,458 |
| — |
| 205,458 |
Loans held for sale, at fair value |
| 188,316 |
| — |
| 188,316 |
| — |
| 188,316 |
Loans, net |
| 11,868,498 |
| — |
| — |
| 12,008,094 |
| 12,008,094 |
Mortgage servicing assets |
| 1,038 |
| — |
| 1,038 |
| — |
| 1,038 |
Mortgage banking derivatives |
| 6,436 |
| — |
| 57 |
| 6,379 |
| 6,436 |
Interest rate swap derivatives |
| 831,891 |
| — |
| 831,891 |
| — |
| 831,891 |
Accrued interest receivable |
| 43,382 |
| — |
| 7,594 |
| 35,788 |
| 43,382 |
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Deposits - without stated maturities |
| $11,228,116 |
| $11,228,116 |
| $ — |
| $ — |
| $11,228,116 |
Deposits - with stated maturities |
| 2,893,383 |
| — |
| 2,918,615 |
| — |
| 2,918,615 |
Securities sold under agreement to repurchase |
| 81,736 |
| — |
| 81,736 |
| — |
| 81,736 |
Federal funds purchased and other borrowings |
| 466,433 |
| — |
| 466,433 |
| — |
| 466,433 |
Corporate and subordinated debentures |
| 71,356 |
| — |
| — |
| 66,669 |
| 66,669 |
Mortgage banking derivatives |
| 6,126 |
| — |
| 6,032 |
| 94 |
| 6,126 |
Interest rate swap derivatives |
| 842,451 |
| — |
| 842,451 |
| — |
| 842,451 |
Accrued interest payable |
| 4,334 |
| — |
| 4,334 |
| — |
| 4,334 |
|
|
|
| Fair value measurements |
|
| ||||
|
| Carrying amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
at December 31,2019 |
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $490,058 |
| $490,058 |
| $ — |
| $ — |
| $490,058 |
Trading securities |
| 4,987 |
| — |
| 4,987 |
| — |
| 4,987 |
Available for sale debt securities |
| 1,886,724 |
| — |
| 1,886,724 |
| — |
| 1,886,724 |
Held to maturity debt securities |
| 202,903 |
| — |
| 208,852 |
| — |
| 208,852 |
Loans held for sale, at fair value |
| 142,801 |
| — |
| 142,801 |
| — |
| 142,801 |
Loans, net |
| 11,943,288 |
| — |
| — |
| 11,925,693 |
| 11,925,693 |
Mortgage servicing assets |
| 1,332 |
| — |
| 1,332 |
| — |
| 1,332 |
Mortgage banking derivatives |
| 1,761 |
| — |
| 14 |
| 1,747 |
| 1,761 |
Interest rate swap derivatives |
| 273,068 |
| — |
| 273,068 |
| — |
| 273,068 |
Accrued interest receivable |
| 40,945 |
| — |
| 7,547 |
| 33,398 |
| 40,945 |
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Deposits - without stated maturities |
| $10,879,837 |
| $10,879,837 |
| $ — |
| $ — |
| $10,879,837 |
Deposits - with stated maturities |
| 2,256,555 |
| — |
| 2,271,497 |
| — |
| 2,271,497 |
Securities sold under agreement to repurchase |
| 93,141 |
| — |
| 93,141 |
| — |
| 93,141 |
Federal funds purchased and other borrowings |
| 540,193 |
| — |
| 540,193 |
| — |
| 540,193 |
Corporate and subordinated debentures |
| 71,343 |
| — |
| — |
| 66,964 |
| 66,964 |
Mortgage banking derivatives |
| 305 |
| — |
| 288 |
| 17 |
| 305 |
Interest rate swap derivatives |
| 275,033 |
| — |
| 275,033 |
| — |
| 275,033 |
Accrued interest payable |
| 3,998 |
| — |
| 3,998 |
| — |
| 3,998 |
15
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
NOTE 4: Reportable segments
The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The table below is a reconciliation of the reportable segment revenues, expenses, and profit to the Company’s consolidated total for the three-month periods ending March 31, 2020 and 2019.
|
| Three-month period ending March 31, 2020 | ||||||||
|
|
|
| Correspondent |
| Corporate |
|
|
|
|
|
| Commercial |
| banking and |
| overhead |
|
|
|
|
|
| and retail |
| capital markets |
| and |
| Elimination |
|
|
|
| banking |
| division |
| administration |
| entries |
| Total |
Interest income |
| $173,702 |
| $3,057 |
| $ — |
| $ — |
| $176,759 |
Interest expense |
| (20,434) |
| (1,664) |
| (1,308) |
| — |
| (23,406) |
Net interest income (expense) |
| 153,268 |
| 1,393 |
| (1,308) |
| — |
| 153,353 |
Provision for credit losses |
| (45,156) |
| 242 |
| — |
| — |
| (44,914) |
Non-interest income |
| 27,981 |
| 27,809 |
| — |
| — |
| 55,790 |
Non-interest expense |
| (108,373) |
| (12,503) |
| (1,896) |
| — |
| (122,772) |
Net income (loss) before taxes |
| 27,720 |
| 16,941 |
| (3,204) |
| — |
| 41,457 |
Income tax (provision) benefit |
| (3,487) |
| (4,241) |
| 1,703 |
| — |
| (6,025) |
Net income (loss) |
| 24,233 |
| 12,700 |
| (1,501) |
| — |
| 35,432 |
Total assets |
| $17,954,442 |
| $641,599 |
| $3,005,931 |
| $(3,005,680) |
| $18,596,292 |
| Three-month period ending March 31, 2019 | ||||||||||
|
|
|
| Correspondent |
| Corporate |
|
|
|
| |
|
| Commercial |
| banking and |
| overhead |
|
|
|
| |
|
| and retail |
| capital markets |
| and |
| Elimination |
|
| |
|
| banking |
| division |
| administration |
| entries |
| Total | |
Interest income |
| $127,832 |
| $4,450 |
| $ — |
| $ — |
| $132,282 | |
Interest expense |
| (14,851) |
| (2,549) |
| (707) |
| — |
| (18,107) | |
Net interest income (expense) |
| 112,981 |
| 1,901 |
| (707) |
| — |
| 114,175 | |
Provision for credit losses |
| (1,015) |
| (38) |
| — |
| — |
| (1,053) | |
Non-interest income |
| 20,300 |
| 9,000 |
| — |
| — |
| 29,300 | |
Non-interest expense |
| (77,581) |
| (5,713) |
| (1,179) |
| — |
| (84,473) | |
Net income (loss) before taxes |
| 54,685 |
| 5,150 |
| (1,886) |
| — |
| 57,949 | |
Income tax (provision) benefit |
| (12,690) |
| (1,305) |
| 689 |
| — |
| (13,306) | |
Net income (loss) |
| $41,995 |
| $3,845 |
| $(1,197) |
| $ — |
| $44,643 | |
Total assets |
| $11,939,930 |
| $647,046 |
| $2,073,703 |
| $(2,073,042) |
| $12,587,637 |
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. This segment also includes the results of CBI, our transaction-based finance company that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers throughout the United States and Canada.
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.
16
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
NOTE 5: Investment securities
Available for Sale Debt Securities
All of the mortgage-backed securities (“MBS”) listed below are residential Fannie Mae, Freddie Mac and Ginnie Mae MBSs. The amortized cost, fair value and allowance for credit losses of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:
|
| March 31, 2020 | ||||||||
|
|
|
| Gross |
| Gross |
| Allowance |
|
|
|
| Amortized |
| unrealized |
| unrealized |
| for credit |
| Fair |
|
| cost |
| gains |
| losses |
| losses |
| value |
Corporate debt securities |
| $5,504 |
| $253 |
| $ — |
| $ — |
| $5,757 |
Obligations of U.S. government sponsored entities and agencies |
| 147,339 |
| 620 |
| — |
| — |
| 147,959 |
Mortgage-backed securities |
| 1,711,738 |
| 76,108 |
| — |
| — |
| 1,787,846 |
U.S. treasuries |
| 100,001 |
| — |
| 4 |
| — |
| 99,997 |
Municipal securities |
| 90,162 |
| 6,721 |
| — |
| — |
| 96,883 |
Total available for sale debt securities |
| $2,054,744 |
| $83,702 |
| $4 |
| $ — |
| $2,138,442 |
|
| December 31, 2019 | ||||||
|
|
|
| Gross |
| Gross |
|
|
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
|
| Cost |
| Gains |
| Losses |
| Value |
Corporate debt securities |
| $5,504 |
| $153 |
| $ — |
| $5,657 |
Obligations of U.S. government sponsored entities and agencies |
| 20,000 |
| — |
| 70 |
| 19,930 |
Mortgage-backed securities |
| 1,742,221 |
| 26,403 |
| 1,382 |
| 1,767,242 |
Municipal securities |
| 88,301 |
| 5,594 |
| — |
| 93,895 |
Total available for sale debt securities |
| $1,856,026 |
| $32,150 |
| $1,452 |
| $1,886,724 |
The cost of securities sold is determined using the specific identification method. NaN available for sale debt securities were sold during the three-month ended March 31, 2020. Sales of available for sale debt securities for the three-month ended March 31, 2019 were as follows:
For the three months ended: |
| March 31, 2020 |
| March 31, 2019 |
Proceeds |
| $ — |
| $66,486 |
Gross gains |
| — |
| 646 |
Gross losses |
| — |
| 629 |
The tax provision related to these net realized gain at March 31, 2019 was $4.
The fair value of available for sale debt securities at March 31, 2020 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
|
| Fair |
| Amortized |
Investment securities available for sale: |
| Value |
| Cost |
Due one year or less |
| $102,204 |
| $102,191 |
Due after one year through five years |
| 131,668 |
| 131,295 |
Due after five years through ten years |
| 45,763 |
| 44,017 |
Due after ten years through thirty years |
| 70,961 |
| 65,503 |
Mortgage-backed securities |
| 1,787,846 |
| 1,711,738 |
Total available for sale debt securities |
| $2,138,442 |
| $2,054,744 |
Available for sale debt securities pledged at March 31, 2020 and December 31, 2019 had a carrying amount (estimated fair value) of $1,403,169 and $1,195,664, respectively. These securities were pledged primarily to increase borrowing capacity at the FHLB, secure public deposits and repurchase agreements. In addition, the amounts at March 31, 2020 and December 31, 2019 include $605,100 and $361,127 of securities pledged to the third party dealers and clearinghouse exchanges for the Company’s cash flow hedge interest rate swaps, respectively.
At March 31, 2020 and December 31, 2019, there were 0 holdings of securities of any one issuer, other than mortgage-backed securities issued by U.S. Government sponsored entities, in an amount greater than 10% of stockholders’ equity.
17
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following tables show the Company’s available for sale debt investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2020 and December 31, 2019.
|
| March 31, 2020 | ||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
|
| value |
| losses |
| value |
| losses |
| value |
| losses |
Mortgage-backed securities |
| $100 |
| $ — |
| $ — |
| $ — |
| $100 |
| $ — |
U.S. treasuries |
| 99,997 |
| 4 |
| — |
| — |
| 99,997 |
| 4 |
Total temporarily impaired available for sale debt securities |
| $100,097 |
| $4 |
| $ — |
| $ — |
| $100,097 |
| $4 |
|
| December 31, 2019 | ||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
Obligations of U.S. government sponsored entities and agencies |
| $19,930 |
| $70 |
| $ — |
| $ — |
| $19,930 |
| $70 |
Mortgage-backed securities |
| 125,249 |
| 388 |
| 117,903 |
| 994 |
| 243,152 |
| 1,382 |
Total temporarily impaired available for sale debt securities |
| $145,179 |
| $458 |
| $117,903 |
| $994 |
| $263,082 |
| $1,452 |
Mortgage-backed securities: At March 31, 2020, 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. As of March 31, 2020, none of our mortgage-backed securities were in a loss position.
U.S. treasuries: U.S. treasuries have almost no credit risk since they are backed by the full faith and credit of the U.S. government. Because the decline in fair value is attributable to changes in interest rates and inflation, and not credit quality, and because the Company does not have the intent to sell these 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 March 31, 2020.
Held to Maturity Debt Securities
Mortgage-Backed Securities: Most of the held to maturity securities investment portfolio is invested in U.S. Government Agency MBS. Given that the principal and interest payments on these securities are guaranteed by a U.S. Government Agency, there is minimal risk. Default from mortgage-backed securities would be present in macroeconomic events such as a recession which would result in insufficient cash flow to the servicer to continue regular payments.
Municipal Securities: Defaults on municipal bonds are not common, but they are not without risk. Risks stem from the potential for financial mismanagement of the municipal entity or a significant deterioration in the tax or revenue base of the municipal entity.
The following reflects the amortized cost, fair value and allowance for credit losses and the related gross unrecognized gains and losses of held to maturity securities as of March 31, 2020 and December 31, 2019.
|
| March 31, 2020 | |||||||||
|
|
|
| Gross |
| Gross |
|
|
| Allowance | |
|
| Amortized |
| unrecognized |
| unrecognized |
| Fair |
| for credit | |
|
| cost |
| gains |
| losses |
| value |
| losses | |
Mortgage-backed securities |
| $67,841 |
| $2,317 |
| $ — |
| $70,158 |
| $ — | |
Municipal securities |
| 128,117 |
| 7,183 |
| — |
| 135,300 |
| (10) | |
Total held to maturity debt securities |
| $195,958 |
| $9,500 |
| $ — |
| $205,458 |
| $(10) |
|
| December 31, 2019 | |||||||
|
|
|
| Gross |
| Gross |
|
| |
|
| Amortized |
| unrecognized |
| unrecognized |
| Fair | |
|
| cost |
| gains |
| losses |
| value | |
Mortgage-backed securities |
| $71,560 |
| $456 |
| $29 |
| $71,987 | |
Municipal securities |
| 131,343 |
| 5,522 |
| — |
| 136,865 | |
Total held to maturity debt securities |
| $202,903 |
| $5,978 |
| $29 |
| $208,852 |
18
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Held to maturity securities pledged at March 31, 2020 and December 31, 2019 had a carrying amount of $130,281 and $100,582 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.
At March 31, 2020, there were 0 holdings of held to maturity securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
The fair value and amortized cost of held to maturity securities at March 31, 2020 by contractual maturity were as follows. Mortgage-backed securities are not due at a single maturity date and are shown separately.
|
| Fair |
| Amortized |
Held to maturity debt securities |
| value |
| cost |
Due after five years through ten years |
| $2,193 |
| $2,138 |
Due after ten years through thirty years |
| 133,107 |
| 125,979 |
Mortgage-backed securities |
| 70,158 |
| 67,841 |
Total held to maturity debt securities |
| $205,458 |
| $195,958 |
As of March 31, 2020, there were no held to maturity debt securities in an unrecognized loss position. The following table shows 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, 2019.
|
| December 31, 2019 | ||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total | ||||||
|
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
| Fair |
| Unrecognized |
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
Mortgage-backed securities |
| $ — |
| $ — |
| $8,445 |
| $29 |
| $8,445 |
| $29 |
Total temporarily impaired held to maturity debt securities |
| $ — |
| $ — |
| $8,445 |
| $29 |
| $8,445 |
| $29 |
The following table shows a roll-forward for the three-month ended March 31, 2020 for the of the allowance for credit losses on held to maturity debt investments:
|
|
| Municipal |
Held to maturity debt securities |
|
| securities |
Allowance for credit losses: |
|
|
|
Beginning balance, January 1, 2020 |
|
| $ — |
Impact of adopting ASC 326 |
|
| 10 |
Provision for credit loss expense |
|
| — |
Allowance on purchased financial assets with credit deterioration |
|
| — |
Securities charged off |
|
| — |
Recoveries |
|
| — |
Total ending allowance balance |
|
| $10 |
The Company adopted CECL effective January 1, 2020 and recorded allowance for credit losses of $10 for held to maturity debt securities. The Company did not record any provision for credit loss on held to maturity debt securities for the three-month ended March 31, 2020.
Credit Quality Indicators:
Pursuant to ASC 326, the Company must also determine if the decline in fair value of investment securities, relative to its amortized cost, is due to credit-related factors. With respect to U.S. Government agency securities, the Bank has determined that a decline in fair value is not due to credit-related factors. In addition, no held to maturity debt securities were past due or on non-accrual as of March 31, 2020. The Company monitors the credit quality of debt securities held to maturity through the use of credit rating and other factors specific to an individual security in assessing whether or not the decline in fair value of municipal and corporate securities, relative to their amortized cost, is due to credit-related factors. The Company uses the following triggers to prompt further investigation of securities when the fair value is less than amortized costs: the security has been downgraded and fallen below an A credit rating, and the security’s unrealized loss exceeds 20% of its book value. The Company monitors credit ratings quarterly and annually performs an internal credit review of its municipal securities.
19
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following table summarizes the amortized costs of held to maturity debt securities at March 31, 2020, aggregated by credit quality indicator:
|
| Mortgage-backed |
| Municipal |
|
|
| securities |
| securities |
|
At March 31, 2020 |
|
|
|
|
|
AAA/AA/A |
| $ — |
| $126,737 |
|
Not rated (1) |
| 67,841 |
| 1,380 |
|
Total |
| $67,841 |
| $128,117 |
|
| (1) | All unrated mortgage-backed securities are FNMA and GNMA. The federal backing of these securities result in negligible credit risk. |
|
NOTE 6: Loans Held for Sale
The Company accounts for loans held for sale 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. Net gains from changes in estimated fair value of mortgage loans held for sale were $2,354 and $4 for the three-month periods ending March 31, 2020 and 2019, respectively. The total unpaid principal balance of loans held for sale was $185,962 and $141,627 at March 31, 2020 and December 31, 2019, respectively. NaN loans held for sale at March 31, 2020 or at December 31, 2019 were past due or on nonaccrual.
The table below summarizes the activity in mortgage loans held for sale during the three-month period ending March 31, 2020 and 2019.
|
| Three-month periods ended | ||
|
| March 31, 2020 |
| March 31, 2019 |
Beginning balance |
| $142,801 |
| $40,399 |
Loans originated |
| 423,622 |
| 134,752 |
Proceeds from sales |
| (391,242) |
| (129,657) |
Net change in fair value |
| 2,354 |
| 4 |
Net realized gain on sales |
| 10,781 |
| 3,976 |
Ending balance |
| $188,316 |
| $49,474 |
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 uses these derivative financial instruments on its loans held for sale to manage interest rate risk and not for speculative purposes. The table below summarizes the main components of Mortgage Banking Revenue during the three-month period ending March 31, 2020 and 2019. The Mortgage Banking Revenue amounts are reported in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.
|
| Three-month periods ended | ||
|
| March 31, 2020 |
| March 31, 2019 |
Servicing fees and commissions |
| $83 |
| $93 |
Gain on sale of loans held for sale |
| 10,781 |
| 3,976 |
Unrealized gain on loans held for sale |
| 2,354 |
| 4 |
(Loss) gain on mortgage derivatives |
| (1,147) |
| 557 |
Loss on mortgage hedge |
| (1,098) |
| (404) |
Loss on mortgage servicing assets |
| — |
| (33) |
Mortgage banking revenue |
| $10,973 |
| $4,193 |
20
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The table below summarizes the notional amounts for interest rate lock commitments, best efforts forward trades and MBS forward trades pertaining to loans held for sale at March 31, 2020 and 2019.
| Notional at | ||
| March 31, 2020 |
| March 31, 2019 |
Interest rate lock commitments | $389,387 |
| $85,802 |
Best efforts forward trades | 152,788 |
| 92,115 |
MBS forward trades | 345,500 |
| 57,000 |
Total derivative instruments | $887,675 |
| $234,917 |
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. 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.
NOTE 7: Loans
The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.
|
| March 31, 2020 |
| December 31, 2019 | |||||
Loans excluding PCD loans |
|
|
|
| |||||
Real estate loans |
|
|
|
| |||||
Residential |
| $2,537,240 |
| $2,512,544 | |||||
Commercial |
| 6,391,975 |
| 6,325,108 | |||||
Land, development and construction |
| 929,014 |
| 999,923 | |||||
Total real estate |
| 9,858,229 |
| 9,837,575 | |||||
Commercial, industrial & factored receivables |
| 1,778,526 |
| 1,759,074 | |||||
Consumer and other loans |
| 235,200 |
| 247,307 | |||||
Loans before unearned fees and deferred cost |
| 11,871,955 |
| 11,843,956 | |||||
Net unearned fees and costs |
| 4,954 |
| 4,519 | |||||
Total loans excluding PCD loans |
| 11,876,909 |
| 11,848,475 | |||||
PCD loans (note 1) |
|
|
|
| |||||
Real estate loans |
|
|
|
| |||||
Residential |
| 42,779 |
| 45,795 | |||||
Commercial |
| 92,281 |
| 81,576 | |||||
Land, development and construction |
| 5,447 |
| 4,655 | |||||
Total real estate |
| 140,507 |
| 132,026 | |||||
Commercial and industrial |
| 9,756 |
| 3,342 | |||||
Consumer and other loans |
| 59 |
| 100 | |||||
Total PCD loans |
| 150,322 |
| 135,468 | |||||
Total loans |
| 12,027,231 |
| 11,983,943 | |||||
Allowance for credit losses for loans that are not PCD loans |
| (140,803) |
| (40,429) | |||||
Allowance for credit losses for PCD loans |
| (17,930) |
| (226) | |||||
Total loans, net of allowance for credit losses |
| $11,868,498 |
| $11,943,288 |
| note 1: | Purchased credit deteriorated (“PCD”) loans are being accounted for pursuant to ASC Topic 326 effective January 1, 2020. |
|
21
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The table below set forth the activity in the allowance for credit losses for the periods presented.
|
| Allowance for credit losses for loans that are not PCD loans |
| Allowance for credit losses on PCD loans |
| Total |
Three-month ended March 31, 2020 |
|
|
|
|
|
|
Balance at beginning of period, prior to adoption of ASC 326 |
| $40,429 |
| $226 |
| $40,655 |
Impact of adopting ASC 326 |
| 57,604 |
| 17,004 |
| 74,608 |
Loans charged-off |
| (2,350) |
| (1,257) |
| (3,607) |
Recoveries of loans previously charged-off |
| 1,201 |
| 962 |
| 2,163 |
Net charge-offs |
| (1,149) |
| (295) |
| (1,444) |
Provision for credit losses |
| 43,919 |
| 995 |
| 44,914 |
Balance at end of period |
| $140,803 |
| $17,930 |
| $158,733 |
|
|
|
|
|
|
|
Three-month ended March 31, 2019 |
|
|
|
|
|
|
Balance at beginning of period |
| $39,579 |
| $191 |
| $39,770 |
Loans charged-off |
| (1,447) |
| — |
| (1,447) |
Recoveries of loans previously charged-off |
| 676 |
| — |
| 676 |
Net charge-offs |
| (771) |
| — |
| (771) |
Provision for credit losses |
| 1,053 |
| — |
| 1,053 |
Balance at end of period |
| $39,861 |
| $191 |
| $40,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following tables present the activity in the allowance for credit losses by portfolio segment for the periods presented.
|
| Real Estate Loans |
|
|
|
|
|
| ||||
|
| Residential |
| Commercial |
| Land, develop., constr. |
| Comm., industrial & factored receivables |
| Consumer & other |
| Total |
Allowance for credit losses for loans that are not PCD loans: |
|
|
|
|
|
|
|
|
|
| ||
Three-month ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, prior to adoption of ASC 326 |
| $4,257 |
| $18,552 |
| $2,319 |
| $11,282 |
| $4,019 |
| $40,429 |
Impact of adopting ASC 326 |
| 11,412 |
| 35,596 |
| 6,932 |
| 2,995 |
| 669 |
| 57,604 |
Charge-offs |
| (294) |
| — |
| (24) |
| (1,117) |
| (915) |
| (2,350) |
Recoveries |
| 181 |
| 305 |
| 25 |
| 556 |
| 134 |
| 1,201 |
Provision for credit losses |
| 4,675 |
| 37,073 |
| 4,929 |
| (2,727) |
| (31) |
| 43,919 |
Balance at end of period |
| $20,231 |
| $91,526 |
| $14,181 |
| $10,989 |
| $3,876 |
| $140,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period |
| $5,518 |
| $22,978 |
| $1,781 |
| $6,414 |
| $2,888 |
| $39,579 |
Charge-offs |
| (201) |
| — |
| (31) |
| (664) |
| (551) |
| (1,447) |
Recoveries |
| 142 |
| 152 |
| 83 |
| 155 |
| 144 |
| 676 |
Provision for loan losses |
| (11) |
| (883) |
| 387 |
| 1,025 |
| 535 |
| 1,053 |
Balance at end of period |
| $5,448 |
| $22,247 |
| $2,220 |
| $6,930 |
| $3,016 |
| $39,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
|
|
|
|
|
| ||||
|
| Residential |
| Commercial |
| Land, develop., constr. |
| Comm., industrial & factored receivables |
| Consumer & other |
| Total |
Allowance for credit losses for loans that are PCD loans: |
|
|
|
|
|
|
|
|
|
| ||
Three-month ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, prior to adoption of ASC 326 |
| $ — |
| $ — |
| $177 |
| $ — |
| $49 |
| $226 |
Impact of adopting ASC 326 |
| 3,021 |
| 11,966 |
| 79 |
| 1,924 |
| 14 |
| 17,004 |
Charge-offs |
| (156) |
| (1,021) |
| — |
| (80) |
| — |
| (1,257) |
Recoveries |
| 141 |
| 244 |
| 293 |
| 283 |
| 1 |
| 962 |
Provision for credit losses |
| (154) |
| 914 |
| (291) |
| 533 |
| (7) |
| 995 |
Balance at end of period |
| $2,852 |
| $12,103 |
| $258 |
| $2,660 |
| $57 |
| $17,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period |
| $ — |
| $ — |
| $177 |
| $ — |
| $14 |
| $191 |
Charge-offs |
| — |
| — |
| — |
| — |
| — |
| — |
Recoveries |
| — |
| — |
| — |
| — |
| — |
| — |
Provision for loan losses |
| — |
| — |
| — |
| — |
| — |
| — |
Balance at end of period |
| $ — |
| $ — |
| $177 |
| $ — |
| $14 |
| $191 |
23
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The following tables present the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019. Upon adoption of ASC Topic 326 effective January 1, 2020, the Company began to evaluate PCD loans that met the criteria for individual impairment analysis on a loan level basis. Previously, the Company accounted for PCD (formerly PCI) loans on a pool level basis pursuant to ASC 310-30 and were therefore collectively evaluated for period end December 31, 2019. Accrued interest receivable and unearned loan fees and costs are not included in the recorded investment because they are not material.
|
| Real Estate Loans |
|
|
|
|
|
| ||||
|
| Residential |
| Commercial |
| Land, develop., constr. |
| Comm., industrial & factored receivables |
| Consumer & other |
| Total |
As of March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to: |
|
|
|
|
|
|
|
|
|
| ||
Non-PCD loans |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $322 |
| $280 |
| $4 |
| $1,314 |
| $ — |
| $1,920 |
Collectively evaluated for impairment |
| 19,909 |
| 91,246 |
| 14,177 |
| 9,675 |
| 3,876 |
| 138,883 |
Total ending allowance balance, non-PCD |
| $20,231 |
| $91,526 |
| $14,181 |
| $10,989 |
| $3,876 |
| $140,803 |
PCD loans |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ — |
| $9,917 |
| $ — |
| $2,398 |
| $ — |
| $12,315 |
Collectively evaluated for impairment |
| 2,852 |
| 2,186 |
| 258 |
| 262 |
| 57 |
| 5,615 |
Total ending allowance balance, PCD |
| $2,852 |
| $12,103 |
| $258 |
| $2,660 |
| $57 |
| $17,930 |
Total ending allowance balance |
| $23,083 |
| $103,629 |
| $14,439 |
| $13,649 |
| $3,933 |
| $158,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-PCD loans |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $4,659 |
| $18,145 |
| $781 |
| $7,276 |
| $134 |
| $30,995 |
Collectively evaluated for impairment |
| 2,532,581 |
| 6,373,830 |
| 928,233 |
| 1,771,250 |
| 235,066 |
| 11,840,960 |
Total non-PCD loans |
| $2,537,240 |
| $6,391,975 |
| $929,014 |
| $1,778,526 |
| $235,200 |
| $11,871,955 |
PCD loans |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ — |
| $19,611 |
| $ — |
| $3,165 |
| $ — |
| $22,776 |
Collectively evaluated for impairment |
| 42,779 |
| 72,670 |
| 5,447 |
| 6,591 |
| 59 |
| 127,546 |
Total PCD loans |
| $42,779 |
| $92,281 |
| $5,447 |
| $9,756 |
| $59 |
| $150,322 |
Total ending loan balances |
| $2,580,019 |
| $6,484,256 |
| $934,461 |
| $1,788,282 |
| $235,259 |
| $12,022,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
|
|
|
|
|
| ||||
|
| Residential |
| Commercial |
| Land, develop., constr. |
| Comm., industrial & factored receivables |
| Consumer & other |
| Total |
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $588 |
| $375 |
| $ — |
| $914 |
| $1 |
| $1,878 |
Collectively evaluated for impairment |
| 3,669 |
| 18,177 |
| 2,319 |
| 10,368 |
| 4,018 |
| 38,551 |
Purchased credit impaired |
| — |
| — |
| 177 |
| — |
| 49 |
| 226 |
Total ending allowance balance |
| $4,257 |
| $18,552 |
| $2,496 |
| $11,282 |
| $4,068 |
| $40,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $6,475 |
| $11,445 |
| $865 |
| $7,232 |
| $123 |
| $26,140 |
Collectively evaluated for impairment |
| 2,506,069 |
| 6,313,663 |
| 999,058 |
| 1,751,842 |
| 247,184 |
| 11,817,816 |
Purchased credit impaired |
| 45,795 |
| 81,576 |
| 4,655 |
| 3,342 |
| 100 |
| 135,468 |
Total ending loan balances |
| $2,558,339 |
| $6,406,684 |
| $1,004,578 |
| $1,762,416 |
| $247,407 |
| $11,979,424 |
24
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
The table below summarizes impaired loan data for the periods presented.
|
| March 31, 2020 |
| December 31, 2019 |
Performing TDRs (these are not included in nonperforming loans ("NPLs")) |
| $7,215 |
| $8,012 |
Nonperforming TDRs (these are included in NPLs) |
| 4,648 |
| 4,512 |
Total TDRs (these are included in impaired loans) |
| 11,863 |
| 12,524 |
Impaired loans that are not TDRs |
| 19,132 |
| 13,616 |
Total impaired loans, excluding PCD loans |
| $30,995 |
| $26,140 |
Impaired PCD loans |
| 22,776 |
| — |
Total impaired loans |
| $53,771 |
| $26,140 |
Troubled Debt Restructurings:
In certain situations, it is common to restructure or modify the terms of troubled loans (i.e. troubled debt restructure or “TDRs”). In those circumstances, it may be 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 the terms of a loan have been modified, usually the monthly payment and/or interest rate is reduced for generally twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan modifications to date.
TDRs as of March 31, 2020 and December 31, 2019 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non-performing loans) are presented in the tables below.
|
| Accruing |
| Non-accrual |
| Total |
As of March 31, 2020 |
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
Residential |
| $4,660 |
| $813 |
| $5,473 |
Commercial |
| 1,290 |
| — |
| 1,290 |
Land, development, construction |
| 46 |
| 470 |
| 516 |
Total real estate loans |
| 5,996 |
| 1,283 |
| 7,279 |
Commercial and industrial |
| 1,085 |
| 3,365 |
| 4,450 |
Consumer and other |
| 134 |
| — |
| 134 |
Total TDRs |
| $7,215 |
| $4,648 |
| $11,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accruing |
| Non-Accrual |
| Total |
As of December 31, 2019 |
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
Residential |
| $4,862 |
| $1,147 |
| $6,009 |
Commercial |
| 1,706 |
| — |
| 1,706 |
Land, development, construction |
| 175 |
| — |
| 175 |
Total real estate loans |
| 6,743 |
| 1,147 |
| 7,890 |
Commercial and industrial |
| 1,146 |
| 3,365 |
| 4,511 |
Consumer and other |
| 123 |
| — |
| 123 |
Total TDRs |
| $8,012 |
| $4,512 |
| $12,524 |
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. Our 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 credit loss expense of $22 and partial charge offs of $21 on the TDR loans described above during the three-month period ending March 31, 2020. The Company recorded a provision for credit loss expense of $31 and partial charge-offs of $8 on TDR loans during the three-month period ending March 31, 2019.
Loans are modified to minimize credit 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 61% of our TDRs are current pursuant to their modified terms, and $4,648, or approximately 39% 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.
25
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Loans modified as TDRs during the three-month period ending March 31, 2020 were $482. Loans modified as TDRs during the three-month period ending March 31, 2019 were $713. The Company recorded $14 of credit loss provision for loans modified during the three-month period ending March 31, 2020. NaN credit loss provision was recorded during the three-month period ending March 31, 2019.
The following table presents loans by class modified and for which there was a payment default within twelve months following the modification during the periods ending March 31, 2020 and 2019.
| Period ending |
| Period ending | |||||||||||
| March 31, 2020 |
| March 31, 2019 | |||||||||||
|
| Number |
| Recorded |
| Number |
| Recorded | ||||||
|
| of loans |
| investment |
| of loans |
| investment | ||||||
Residential |
| 1 |
| $169 |
| — |
| $ — | ||||||
Commercial real estate |
| 1 |
| 267 |
| — |
| — | ||||||
Land, development, construction |
| — |
| — |
| — |
| — | ||||||
Commercial and industrial |
| 1 |
| 61 |
| 1 |
| 122 | ||||||
Consumer and other |
| — |
| — |
| — |
| — | ||||||
Total |
| 3 |
| $497 |
| 1 |
| $122 |
The Company recorded $1 provision for credit loss expense related to TDRs and $1 partial charge offs on TDR loans subsequently defaulted during the for three-month period ending March 31, 2020. The Company recorded 0 provision for loan loss expense of and 0 partial charge offs on TDR loans that subsequently defaulted as described above during the three-month period ending March 31, 2019.
The following tables present non-PCD loans individually evaluated for impairment by class of loans as March 31, 2020 and December 31, 2019. The recorded investment is less than the unpaid principal balance due to partial charge-offs.
|
| Unpaid principal balance |
| Recorded investment |
| Allowance for credit losses allocated |
As of March 31, 2020 |
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
Residential real estate |
| $2,822 |
| $2,669 |
| $ — |
Commercial real estate |
| 16,470 |
| 15,003 |
| — |
Land, development, construction |
| 755 |
| 725 |
| — |
Commercial and industrial |
| 3,737 |
| 3,424 |
| — |
Consumer, other |
| 110 |
| 109 |
| — |
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
Residential real estate |
| 2,126 |
| 1,990 |
| 322 |
Commercial real estate |
| 3,175 |
| 3,142 |
| 280 |
Land, development, construction |
| 56 |
| 56 |
| 4 |
Commercial and industrial |
| 3,922 |
| 3,852 |
| 1,314 |
Consumer, other |
| 30 |
| 25 |
| — |
Total |
| $33,203 |
| $30,995 |
| $1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid principal balance |
| Recorded investment |
| Allowance for loan losses allocated |
As of December 31, 2019 |
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
Residential real estate |
| $2,894 |
| $2,744 |
| $ — |
Commercial real estate |
| 11,031 |
| 10,015 |
| — |
Land, development, construction |
| 886 |
| 865 |
| — |
Commercial and industrial |
| 5,522 |
| 4,820 |
| — |
Consumer, other |
| 99 |
| 98 |
| — |
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
Residential real estate |
| 3,920 |
| 3,731 |
| 588 |
Commercial real estate |
| 1,438 |
| 1,430 |
| 375 |
26
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Land, development, construction |
| — |
| — |
| — |
Commercial and industrial |
| 2,486 |
| 2,412 |
| 914 |
Consumer, other |
| 31 |
| 25 |
| 1 |
Total |
| $28,307 |
| $26,140 |
| $1,878 |
|
| Average of impaired loans |
| Interest income recognized during impairment |
| Cash basis interest income recognized | ||||
Three-month ended March 31, 2020 |
|
|
|
|
|
| ||||
Real estate loans: |
|
|
|
|
|
| ||||
Residential |
| $5,567 |
| $37 |
| $ — | ||||
Commercial |
| 14,795 |
| 31 |
| — | ||||
Land, development, construction |
| 823 |
| 2 |
| — | ||||
Total real estate loans |
| 21,185 |
| 70 |
| — | ||||
|
|
|
|
|
|
| ||||
Commercial and industrial |
| 7,254 |
| 18 |
| — | ||||
Consumer and other loans |
| 129 |
| 2 |
| — | ||||
Total |
| $28,568 |
| $90 |
| $ — | ||||
|
|
|
|
|
|
| ||||
|
| Average of impaired loans |
| Interest income recognized during impairment |
| Cash basis interest income recognized | ||||
Three-month ended March 31, 2019 |
|
|
|
|
|
| ||||
Real estate loans: |
|
|
|
|
|
| ||||
Residential |
| $5,945 |
| $62 |
| $ — | ||||
Commercial |
| 7,787 |
| 25 |
| — | ||||
Land, development, construction |
| 117 |
| 1 |
| — | ||||
Total real estate loans |
| 13,849 |
| 88 |
| — | ||||
|
|
|
|
|
|
| ||||
Commercial and industrial |
| 2,600 |
| 12 |
| — | ||||
Consumer and other loans |
| 140 |
| 2 |
| — | ||||
Total |
| $16,589 |
| $102 |
| $ — | ||||
|
|
|
|
|
|
|
The following tables present PCD loans, accounted for pursuant to ASC Topic 326, individually evaluated for impairment by class of loans as of March 31, 2020. The recorded investment is less than the unpaid principal balance due to partial charge-offs and non-credit discounts. In addition, the interest income recognized during impairment excludes interest accretion recognized during the current reporting period.
|
| Unpaid principal balance |
| Recorded investment |
| Allowance for credit losses allocated |
As of March 31, 2020, PCD loans |
|
|
|
|
|
|
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 |
| 35,999 |
| 19,611 |
| 9,917 |
Land, development, construction |
| — |
| — |
| — |
Commercial and industrial |
| 4,745 |
| 3,165 |
| 2,398 |
Consumer, other |
| — |
| — |
| — |
Total |
| $40,744 |
| $22,776 |
| $12,315 |
27
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
|
| Average of impaired loans |
| Interest income recognized during impairment |
| Cash basis interest income recognized |
Three-month ended March 31, 2020, PCD loans |
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
Residential |
| $ — |
| $ — |
| $ — |
Commercial |
| 20,128 |
| 125 |
| — |
Land, development, construction |
| — |
| — |
| — |
Total real estate loans |
| 20,128 |
| 125 |
| — |
|
|
|
|
|
|
|
Commercial and industrial |
| 3,593 |
| 23 |
| — |
Consumer and other loans |
| — |
| — |
| — |
Total |
| $23,721 |
| $148 |
| $ — |
Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All loans greater than 90 days past due are placed on non-accrual status, excluding factored receivables. For CBI’s factored receivables, which are commercial trade credits rather than promissory notes, the Company’s practice, in most cases, is to charge-off unpaid recourse receivables when they become 90 days past due from the invoice due date and the non-recourse receivables when they become 120 days past due from the statement billing date. Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual PCD loans in its nonperforming loans. As such the nonperforming loans as of March 31, 2020 include PCD loans accounted for pursuant to ASC 326 as these loans are individually evaluated. The nonperforming loans do not include PCD (formerly PCI) loans as of December 31, 2019, as the PCD loans prior to adopting ASC Topic 326 were evaluated on a pool level basis.
Nonperforming loans were as follows: |
| March 31, 2020 |
| December 31, 2019 |
Non-accrual loans, non-PCD |
| $45,305 |
| $36,916 |
Non-accrual loans, PCD |
| 33,893 |
| — |
Loans past due over 90 days and still accruing interest |
| 535 |
| 1,692 |
Total nonperforming loans |
| $79,733 |
| $38,608 |
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2020 and December 31, 2019. Effective January 1, 2020 with the adoption of ASC Topic 326, the Company began including non-accrual PCD loans in its nonperforming loans. As such the nonperforming loans as of March 31, 2020 below include PCD loans accounted for pursuant to ASC 326 but does not include PCD (formerly PCI) loans in non-performing loans as of December 31, 2019.
|
| Non-accrual with no allocated allowance for credit losses |
| Non-accrual with allocated allowance for credit losses |
| Loans past due over 90 days still accruing |
As of March 31, 2020 |
|
|
|
|
|
|
Non-PCD loans: |
|
|
|
|
|
|
Residential real estate |
| $11,537 |
| $926 |
| $ — |
Commercial real estate |
| 18,386 |
| 2,264 |
| — |
Land, development, construction |
| 2,107 |
| 470 |
| — |
Comm., industrial & factored receivables |
| 5,713 |
| 2,869 |
| 535 |
Consumer, other |
| 1,033 |
| — |
| — |
Total |
| $38,776 |
| $6,529 |
| $535 |
|
| Non-accrual with no allocated allowance for credit losses |
| Non-accrual with allocated allowance for credit losses |
| Loans past due over 90 days still accruing |
As of March 31, 2020 |
|
|
|
|
|
|
PCD loans: |
|
|
|
|
|
|
Residential real estate |
| $ 8,847 |
| $— |
| $ — |
Commercial real estate |
| 10,722 |
| 9,609 |
| — |
Land, development, construction |
| 1,334 |
| — |
| — |
Comm., industrial & factored receivables |
| 1,396 |
| 1,969 |
| — |
Consumer, other |
| 16 |
| — |
| — |
Total |
| $ 22,315 |
| $11,578 |
| $ — |
28
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
|
| Non-accrual |
| Loans past due over 90 days still accruing |
As of December 31, 2019 |
|
|
|
|
Non-PCD loans: |
|
|
|
|
Residential real estate |
| $13,455 |
| $ — |
Commercial real estate |
| 12,141 |
| — |
Land, development, construction |
| 2,516 |
| — |
Commercial and industrial |
| 7,884 |
| 1,692 |
Consumer, other |
| 920 |
| — |
Total |
| $36,916 |
| $1,692 |
Collateral dependent loans:
Collateral dependent loans are impaired loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. They are written down to the lower of cost or collateral value less estimated selling costs. As of March 31, 2020, there were $19,611 of collateral-dependent loans which are secured by real-estate.
The following table presents the aging of the recorded investment in past due non-PCD loans as of March 31, 2020 and December 31, 2019:
|
| Accruing Loans |
|
| ||||||||||
As of March 31, 2020 |
| Total |
| 30 - 59 days past due |
| 60 - 89 days past due |
| Greater than 90 days past due |
| Total past due |
| Loans not past due |
| Nonaccrual loans |
Residential real estate |
| $2,537,240 |
| $17,555 |
| $910 |
| $ — |
| $18,465 |
| $2,506,312 |
| $12,463 |
Commercial real estate |
| 6,391,975 |
| 10,802 |
| 7,147 |
| — |
| 17,949 |
| 6,353,376 |
| 20,650 |
Land, development, construction |
| 929,014 |
| 4,757 |
| 74 |
| — |
| 4,831 |
| 921,606 |
| 2,577 |
Comm., industrial & factored receivables |
| 1,778,526 |
| 15,859 |
| 2,043 |
| 535 |
| 18,437 |
| 1,751,507 |
| 8,582 |
Consumer |
| 235,200 |
| 1,870 |
| 377 |
| — |
| 2,247 |
| 231,920 |
| 1,033 |
|
| $11,871,955 |
| $50,843 |
| $10,551 |
| $535 |
| $61,929 |
| $11,764,721 |
| $45,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accruing Loans |
|
| ||||||||||
As of December 31, 2019 |
| Total |
| 30 - 59 days past due |
| 60 - 89 days past due |
| Greater than 90 days past due |
| Total past due |
| Loans not past due |
| Nonaccrual loans |
Residential real estate |
| $2,512,544 |
| $7,601 |
| $5,928 |
| $ — |
| $13,529 |
| $2,485,560 |
| $13,455 |
Commercial real estate |
| 6,325,108 |
| 7,554 |
| 2,577 |
| — |
| 10,131 |
| 6,302,836 |
| 12,141 |
Land, development, construction |
| 999,923 |
| 1,343 |
| 2,349 |
| — |
| 3,692 |
| 993,715 |
| 2,516 |
Comm., industrial & factored receivables |
| 1,759,074 |
| 14,924 |
| 12,465 |
| 1,692 |
| 29,081 |
| 1,722,109 |
| 7,884 |
Consumer |
| 247,307 |
| 1,663 |
| 907 |
| — |
| 2,570 |
| 243,817 |
| 920 |
|
| $11,843,956 |
| $33,085 |
| $24,226 |
| $1,692 |
| $59,003 |
| $11,748,037 |
| $36,916 |
The following table presents the aging of the recorded investment in past due PCD loans as of March 31, 2020:
|
| Accruing Loans |
|
| ||||||||||
As of March 31, 2020 |
| Total |
| 30 - 59 days past due |
| 60 - 89 days past due |
| Greater than 90 days past due |
| Total past due |
| Loans not past due |
| Nonaccrual loans |
Residential real estate |
| $42,779 |
| $782 |
| $ — |
| $ — |
| $782 |
| $33,150 |
| $8,847 |
Commercial real estate |
| 92,281 |
| 870 |
| — |
| — |
| 870 |
| 71,080 |
| 20,331 |
Land, development, construction |
| 5,447 |
| 12 |
| 35 |
| — |
| 47 |
| 4,066 |
| 1,334 |
Comm., industrial & factored receivables |
| 9,756 |
| 1,049 |
| 168 |
| — |
| 1,217 |
| 5,174 |
| 3,365 |
Consumer |
| 59 |
| 3 |
| — |
| — |
| 3 |
| 40 |
| 16 |
|
| $150,322 |
| $2,716 |
| $203 |
| $ — |
| $2,919 |
| $113,510 |
| $33,893 |
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:
29
CenterState Bank Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands of dollars, except per share data)
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Effective January 1, 2020, the Company began accounting for PCD loans pursuant to ASC Topic 326. Previously, PCD (formerly PCI) loans were accounted for pursuant to ASC Topic 310-30. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
| Term Loans Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||
Loan Category |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Revolving loans amortized cost |
| Total | |
As of March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential Non-PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pass |
| $96,916 |
| $331,772 |
| $340,612 |
| $235,228 |
| $191,581 |
| $626,533 |
| $659,493 |
| $2,482,135 | |
Special mention |
| — |
| — |
| 272 |
| 1,258 |
| 3,182 |
| 21,568 |
| 3,414 |
| 29,694 | |
Substandard |
| — |
| 19 |
| 1,893 |
| 1,642 |
| 1,200 |
| 16,183 |
| 4,474 |
| 25,411 | |
Total residential loans |
| $96,916 |
| $331,791 |
| $342,777 |
| $238,128 |
| $195,963 |
| $664,284 |
| $667,381 |
| $2,537,240 | |
Commercial Non-PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pass |
| $231,694 |
| $1,068,021 |
| $1,013,588 |
| $908,262 |
| $827,344 |
| $2,162,917 |
| $ — |
| $6,211,826 | |
Special mention |
| 555 |
| 6,378 |
| 3,801 |
| 16,580 |
| 13,985 |
| 79,175 |
| — |
| 120,474 | |
Substandard |
| — |
| 439 |
| 1,111 |
| 9,406 |
| 10,942 |
| 37,777 |
| — |
| 59,675 | |
Total commercial loans |
| $232,249 |
| $1,074,838 |
| $1,018,500 |
| $934,248 |
| $852,271 |
| $2,279,869 |
| $ — |
| $6,391,975 | |
Land, Dev., Construction Non-PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pass |
| $55,460 |
| $414,429 |
| $218,397 |
| $84,358 |
| $51,453 |
| $93,530 |
| $ — |
| $917,627 | |
Special mention |
| — |
| 184 |
| 626 |
| 584 |
| — |
| 6,042 |
| — |
| 7,436 | |
Substandard |
| — |
| 348 |
| 274 |
| 154 |
| 919 |
| 2,256 |
| — |
| 3,951 | |
Total land, dev., construction loans |
| $55,460 |
| $414,961 |
| $219,297 |
| $85,096 |
| $52,372 |
| $101,828 |
| $ — |
| $929,014 | |
Commercial & Industrial Non-PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pass |
| $113,652 |
| $334,843 |
| $382,869 |
| $287,342 |
| $161,970 |
| $449,985 |
| $ — |
| $1,730,661 | |
Special mention |
| — |
| — |
| 75 |
| 3,026 |
| 2,264 |
| 25,662 |
| — |
| 31,027 | |
Substandard |
| 98 |
| 995 |
| 5,212 |
| 5,480 |
| 3,020 |
| 2,033 |
| — |
| 16,838 | |
Total commercial & industrial loans |
| $113,750 |
| $335,838 |
| $388,156 |
| $295,848 |
| $167,254 |
| $477,680 |
| $ — |
| $1,778,526 | |
Consumer & Other Non-PCD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pass |
| $20,977 |
| $65,488 |
| $42,744 |
| $25,046 |
| $29,300 |
| $23,642 |
| $26,498 |
| $233,695 | |
Special mention |
| — |
| — |
| — |
| 5 |
| 33 |
| 108 |
| — |
| 146 | |
Substandard |
| — |
| 141 |