CSFL CenterState Bank 10-Q30 Apr 202020 Q1 Quarterly report

CSFL CenterState Bank 10-Q30 Apr 202020 Q1 Quarterly report

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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

☐	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 of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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.

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
Condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019 (unaudited)		4
Condensed consolidated statements of changes in equity for the three months ended March 31, 2020 and 2019 (unaudited)		6
Condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 (unaudited)		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
Item 4. Controls and Procedures		67
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		68
Item 1A. Risk Factors		68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		69
Item 3. Defaults Upon Senior Securities		69
Item 4. [Removed and Reserved]		69
Item 5. Other Information		69
Item 6. Exhibits		70
SIGNATURES		71
CERTIFICATIONS

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

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

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

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


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
interest rate swaps, net of
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

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

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

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.

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.

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.

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	—

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.

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.

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

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.

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.

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

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.

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

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.

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

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

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

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.

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

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

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	$ —

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:

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Bad

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company