Edgar Filing: CenterState Banks, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

(Mark One)

x	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

¨	Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from to

Commission file number 000-32017

CENTERSTATE BANKS, INC.

(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.)

42745 U.S. Highway 27

Davenport, Florida 33837

(Address of Principal Executive Offices)

(863) 419-7750

(Issuer’s Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES x NO ¨

Check whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ¨ NO ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ¨ NO x

State 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		30,076,427 shares
(class)		Outstanding at August 1, 2012

CENTERSTATE BANKS, INC. AND SUBSIDIARIES

INDEX


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

Condensed consolidated balance sheets at June 30, 2012 (unaudited) and December 31, 2011 (audited)			2

Condensed consolidated statements of earnings and comprehensive income for for the three and six months ended June 30, 2012 and 2011 (unaudited)			3

Condensed consolidated statements of changes in stockholders’ equity for the six months ended June 30, 2012 and 2011 (unaudited)			5

Condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011 (unaudited)			6

Notes to condensed consolidated financial statements (unaudited)			8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		63

Item 4.	Controls and Procedures		63

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		64

Item 1A.	Risk Factors		64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3.	Defaults Upon Senior Securities		64

Item 4.	[Removed and Reserved]		64

Item 5.	Other Information		64

Item 6.	Exhibits		64

SIGNATURES			65

CERTIFICATIONS			66

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands of dollars, except per share data)


	As of June 30, 2012 (unaudited)			As of December 31, 2011
ASSETS
Cash and due from banks	$	23,444		$	17,893
Federal funds sold and Federal Reserve Bank deposits		93,361			133,202

Cash and cash equivalents		116,805			151,095
Trading securities, at fair value		1,061			—
Investment securities available for sale, at fair value		474,105			591,164
Loans held for sale, at lower of cost or fair value		1,692			3,741

Loans covered by FDIC loss share agreements		327,325			164,051
Loans, excluding those covered by FDIC loss share agreements		1,128,263			1,119,715
Less allowance for loan losses		(25,183	)		(27,944	)

Net Loans		1,430,405			1,255,822

Bank premises and equipment, net		100,902			94,358
Accrued interest receivable		6,507			6,929
Federal Home Loan Bank and Federal Reserve Bank stock		9,770			10,804
Goodwill		46,785			38,035
Core deposit intangible		6,522			5,203
Trust intangible		1,481			—
Bank owned life insurance		47,241			36,520
Other repossessed real estate owned covered by FDIC loss share agreements		30,243			9,469
Other repossessed real estate owned (“OREO”)		6,855			8,712
FDIC indemnification asset		141,057			50,642
Deferred income taxes, net		325			3,451
Prepaid expense and other assets		18,722			18,514

TOTAL ASSETS	$	2,440,478		$	2,284,459


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand – non-interest bearing	$	500,871		$	423,128
Demand – interest bearing		408,877			344,303
Savings and money market accounts		569,141			545,440
Time deposits		577,208			606,918

Total deposits		2,056,097			1,919,789

Securities sold under agreement to repurchase		23,767			14,652
Federal funds purchased		45,337			54,624
Note payable		10,000			—
Corporate debentures		16,958			16,945
Accrued interest payable		918			778
Settlement payments due FDIC		3,442			2,599
Accounts payable and accrued expenses		14,644			12,439

Total liabilities		2,171,163			2,021,826

Stockholders’ equity:
Common stock, $.01 par value: 100,000,000 shares authorized; 30,074,927 and 30,055,499 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		301			301
Additional paid-in capital		228,755			228,342
Retained earnings		32,645			28,277
Accumulated other comprehensive income		7,614			5,713

Total stockholders’ equity		269,315			262,633


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,440,478		$	2,284,459

See notes to the accompanying condensed consolidated financial statements

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)


	Three months ended						Six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Interest income:
Loans	$	20,921		$	16,254		$	40,465		$	32,581
Investment securities available for sale:
Taxable		3,064			3,945			6,433			7,514
Tax-exempt		350			341			700			688
Federal funds sold and other		144			165			295			299

		24,479			20,705			47,893			41,082


Interest expense:
Deposits		2,004			2,982			4,235			6,191
Securities sold under agreement to repurchase		25			23			45			47
Federal funds purchased		7			12			15			32
Federal Home Loan Bank advances and other borrowings		111			46			198			93
Corporate debentures		157			103			321			206

		2,304			3,166			4,814			6,569


Net interest income		22,175			17,539			43,079			34,513
Provision for loan losses		1,894			11,645			4,626			22,921

Net interest income after loan loss provision		20,281			5,894			38,453			11,592


Non interest income:
Service charges on deposit accounts		1,595			1,417			3,078			2,973
Income from correspondent banking and bond sales division		9,966			5,759			17,750			10,229
Commissions from sale of mutual funds and annuities		631			322			1,291			761
Debit card and ATM fees		1,017			714			1,932			1,370
Loan related fees		85			306			285			471
Bank owned life insurance income		363			235			721			474
Gain on sale of securities		726			3,120			1,328			3,129
Trading securities revenue		133			106			277			267
Bargain purchase gain		—			—			453			11,129
FDIC indemnification income		1,229			585			1,793			1,721
FDIC indemnification asset accretion/(amortization)		(290	)		(47	)		(786	)		421
Trust fees		319			—			527			—
Other non interest revenue and fees		825			701			1,636			1,179

Total other income		16,599			13,218			30,285			34,124

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (unaudited)

(in thousands of dollars, except per share data)

(continued)


	Three months ended					Six months ended
	June 30, 2012		June 30, 2011			June 30, 2012		June 30, 2011

Non interest expenses:
Salaries, wages and employee benefits		19,050		13,820			36,511		27,326
Occupancy expense		2,481		2,114			4,542		4,208
Depreciation of premises and equipment		1,416		996			2,683		1,995
Supplies, stationary and printing		303		366			618		670
Marketing expenses		609		760			1,193		1,488
Data processing expense		962		1,625			1,967		2,917
Legal, auditing and other professional fees		601		623			1,221		1,317
Core deposit intangible (CDI) amortization		299		201			577		391
Postage and delivery		264		200			587		431
ATM and debit card related expenses		256		424			518		740
Bank regulatory expenses		658		645			1,358		1,445
Loss (gain) on sale of repossessed real estate (“OREO”)		229		(463	)		501		55
Valuation write down of repossessed real estate (“OREO”)		835		1,235			1,090		3,270
Loss on repossessed assets other than real estate		40		82			138		103
Foreclosure and other credit related expenses		1,094		2,008			2,060		2,995
Acquisition and conversion related expenses		614		469			2,482		870
Other expenses		1,947		1,424			3,698		2,957

Total other expenses		31,658		26,529			61,744		53,178

Income (loss) before income taxes		5,222		(7,417	)		6,994		(7,462	)
Provision (benefit) for income taxes		1,542		(3,071	)		2,025		(3,281	)

Net income (loss)	$	3,680	$	(4,346	)	$	4,969	$	(4,181	)


Other comprehensive income, net of tax:
Change in unrealized holding gain on available for sale securities, net of reclassifications and deferred income tax of $1,316, $1,085, $1,147 and $1,382, respectively		2,182		1,798			1,901		2,290

Total comprehensive income (loss)	$	5,862	$	(2,548	)	$	6,870	$	(1,891	)


Earnings (loss) per share:
Basic	$	0.12	$	(0.14	)	$	0.16	$	(0.14	)
Diluted	$	0.12	$	(0.14	)	$	0.16	$	(0.14	)

Common shares used in the calculation of earnings (loss) per share:
Basic		30,072,395		30,037,556			30,069,013		30,028,844
Diluted		30,140,009		30,037,556			30,138,992		30,028,844

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the six months ended June 30, 2012 and 2011 (unaudited)

(in thousands of dollars, except per share data)


	Number of common shares		Common stock		Additional paid in capital		Retained earnings			Accumulated other comprehensive income		Total stockholders’ equity
Balances at January 1, 2011		30,004,761	$	300	$	227,464	$	21,569		$	2,916	$	252,249

Comprehensive income:
Net loss								(4,181	)				(4,181	)
Change in unrealized holding gain on available for sale securities, net of deferred income tax benefit of $1,382											2,290		2,290

Total comprehensive loss													(1,891	)

Dividends paid – common ($0.02 per share)								(600	)				(600	)
Stock options exercised, including tax benefit		14,903				95							95
Stock grants issued		19,428				216							216
Stock based compensation expense						217							217

Balances at June 30, 2011		30,039,092	$	300	$	227,992	$	16,788		$	5,206	$	250,286


Balances at January 1, 2012		30,055,499	$	301	$	228,342	$	28,277		$	5,713	$	262,633

Comprehensive income:
Net income								4,969					4,969
Change in unrealized holding gain on available for sale securities, net of deferred income tax benefit of $1,147											1,901		1,901

Total comprehensive loss													6,870

Dividends paid – common ($0.02 per share)								(601	)				(601	)
Stock grants issued		19,428				216							216
Stock based compensation expense						197							197

Balances at June 30, 2012		30,074,927	$	301	$	228,755	$	32,645		$	7,614	$	269,315


	Three months ended						Six months ended
Disclosure of reclassification amounts:	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Unrealized holding gain arising during the period, net of income taxes	$	2,635		$	3,744		$	2,729		$	4,242
Less: reclassified adjustments for gain included in net income, net of income taxes of $273, $1,174, $500 and $1,177, respectively		(453	)		(1,946	)		(828	)		(1,952	)

Net change in unrealized gain on securities, net of income taxes	$	2,182		$	1,798		$	1,901		$	2,290

See notes to the accompanying condensed consolidated financial statements

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)


	Six months ended June,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	4,969		$	(4,181	)
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,626			22,921
Depreciation of premises and equipment		2,683			1,995
Accretion of purchase accounting adjustments		(12,336	)		(6,636	)
Net amortization/accretion of investment securities		4,634			3,526
Net deferred loan origination fees		5			(64	)
Gain on sale of securities available for sale		(1,328	)		(3,129	)
Trading securities revenue		(277	)		(267	)
Purchases of trading securities		(191,078	)		(118,082	)
Proceeds from sale of trading securities		190,294			119,325
Repossessed real estate owned valuation write down		1,090			3,270
Loss on sale of repossessed real estate owned		501			55
Repossessed assets other than real estate valuation write down		89			77
Loss on sale of repossessed assets other than real estate		49			26
Gain on sale of loans held for sale		(119	)		(52	)
Loans originated and held for sale		(7,342	)		(3,140	)
Proceeds from sale of loans held for sale		9,510			2,966
Gain on disposal of and or sale of fixed assets		(7	)		(28	)
Impairment of bank property held for sale		165			—
Deferred income taxes		1,979			(3,157	)
Stock based compensation expense		318			372
Bank owned life insurance income		(721	)		(474	)
Bargain purchase gain from acquisition		(453	)		(11,129	)
Net cash from changes in:
Net changes in accrued interest receivable, prepaid expenses, and other assets		712			(716	)
Net change in accrued interest payable, accrued expense, and other liabilities		2,378			3,340

Net cash provided by operating activities		10,341			6,818

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands of dollars)

(continued)


	Six months ended June 30,
	2012			2011
Cash flows from investing activities:
Purchases of investment securities available for sale		(14,147	)		(35,767	)
Purchases of mortgage backed securities available for sale		(99,503	)		(177,866	)
Purchases of FHLB and FRB stock		(855	)		—
Proceeds from maturities of investment securities available for sale		204			419
Proceeds from called investment securities available for sale		56,550			53,520
Proceeds from pay-downs of mortgage backed securities available for sale		64,068			55,572
Proceeds from sale of investment securities available for sale		12,812			10,621
Proceeds from sales of mortgage backed securities available for sale		102,265			142,572
Proceeds from sale of FHLB and FRB stock		3,683			971
Net decrease in loans		24,590			27,538
Cash received from FDIC loss sharing agreements		4,193			—
Purchases of premises and equipment, net		(8,038	)		(4,340	)
Proceeds from sale of repossessed real estate		10,172			10,005
Proceeds from insurance claims related to repossessed real estate		—			263
Proceeds from sale of fixed assets		37			71
Purchase of bank owned life insurance		(10,000	)		—
Net cash from bank acquisitions		81,061			4,349

Net cash provided by investing activities		227,092			87,928


Cash flows from financing activities:
Net decrease in deposits		(280,950	)		(34,061	)
Net increase in securities sold under agreement to repurchase		9,115			4,863
Net (decrease) increase in federal funds purchased		(9,287	)		18,940
Net increase (decrease) in FHLB advances and other borrowings		10,000			(12,000	)
Stock options exercised, including tax benefit		—			95
Dividends paid		(601	)		(600	)

Net cash used by financing activities		(271,723	)		(22,763	)


Net (decrease) increase in cash and cash equivalents		(34,290	)		71,983
Cash and cash equivalents, beginning of period		151,095			177,515

Cash and cash equivalents, end of period	$	116,805		$	249,498


Transfer of loans to other real estate owned	$	13,015		$	11,230


Cash paid during the period for:
Interest	$	5,710		$	7,612

Income taxes	$	—		$	147

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks, Inc. 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

Our consolidated financial statements include the accounts of CenterState Banks, Inc. (the “Parent Company,” “Company” or “CSFL”), and our wholly owned subsidiary bank, CenterState Bank of Florida, N.A. and our non bank subsidiary, R4ALL, Inc. Our subsidiary bank operates through 59 full service banking locations in 18 counties throughout Central Florida, providing traditional deposit and lending products and services to their commercial and retail customers. R4ALL, Inc. is a separate non bank subsidiary of CSFL. Its purpose is to purchase troubled loans from our subsidiary bank and manage their eventual disposition. Our prior subsidiary bank, Valrico State Bank, was merged into CenterState Bank of Florida, N.A. during June 2012.

In addition, we also operate a correspondent banking and bond sales division. The division is integrated with and part of our subsidiary bank located in Winter Haven, Florida, although the majority of our bond salesmen, traders and operational personnel are physically housed in leased facilities located in Birmingham, Alabama, Atlanta, Georgia and Winston Salem, North Carolina. The business lines of this division are primarily divided into three inter-related revenue generating activities. The first, and largest, revenue generator is commissions earned on fixed income security sales. The second category includes correspondent bank deposits (i.e. federal funds purchased) and correspondent bank checking account deposits. The third revenue generating category includes 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 Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

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 information 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 our Annual Report on Form 10-K for the year ended December 31, 2011. In our 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 and six month periods ended June 30, 2012 are not necessarily indicative of the results expected for the full year.

NOTE 2:

Common stock outstanding and earnings per share data

Basic earnings per share is based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the periods and the further dilution from stock options using the treasury method. There were 1,133,315 and 1,155,304 stock options that were anti dilutive at June 30, 2012 and 2011, respectively. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


	Three months ended June 30,					Six months ended June 30,
	2012		2011			2012		2011
Numerator for basic and diluted earnings per share:
Net income (loss)	$	3,680	$	(4,346	)	$	4,969	$	(4,181	)

Denominator:
Denominator for basic earnings per share
– weighted-average shares		30,072,395		30,037,556			30,069,013		30,028,844
Effect of dilutive securities:
Stock options and stock grants		67,614		—			69,979		—

Denominator for diluted earnings per share
– adjusted weighted-average shares		30,140,009		30,037,556			30,138,992		30,028,844


Basic (loss) earnings per share	$	0.12	$	(0.14	)	$	0.16	$	(0.14	)
Diluted (loss) earnings per share	$	0.12	$	(0.14	)	$	0.16	$	(0.14	)

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 securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to June 30, 2012 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 June 30, 2012, the fair value was determined by broker price indications of similar or same securities.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The mortgage back securities held by the Company were issued by U. S. government sponsored entities and agencies. Assets and liabilities measured at fair value on a recurring basis are summarized below.


			Fair value measurements using
			Quoted prices in active markets for identical assets (Level 1)		Significant Other observable Inputs (Level 2)		Significant unobservable inputs (Level 3)
at June 30, 2012
Assets:
Trading securities	$	1,061		—	$	1,061		—
Available for sale securities
U.S. government sponsored entities and agencies		26,817		—		26,817		—
Mortgage backed securities		404,073		—		404,073		—
Municipal securities		43,215		—		43,215		—

at December 31, 2011
Assets:
Trading securities	$	—		—	$	—		—
Available for sale securities
U.S. government sponsored entities and agencies		78,877		—		78,877		—
Mortgage backed securities		470,994		—		470,994		—
Municipal securities		41,293		—		41,293		—

The fair value of impaired loans with specific valuation allowance for loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of sale. 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 June 30, 2012, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8% to 11%. Adjustments to comparable sales may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair value of impaired loans and other real estate owned are considered a Level III in the fair value hierarchy.

CenterState Banks, Inc. 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 in active markets for identical assets (Level 1)		Significant other observable Inputs (Level 2)		Significant unobservable inputs (Level 3)
at June 30, 2012
Assets:
Impaired loans
Residential real estate	$	6,176		—		—	$	6,176
Commercial real estate		411		—		—		411
Land, land development and construction		332		—		—		332
Commercial		10		—		—		10
Consumer		418		—		—		418
Other real estate owned
Residential real estate	$	781		—		—	$	781
Commercial real estate		2,313		—		—		2,313
Land, land development and construction		2,718		—		—		2,718

at December 31, 2011
Assets:
Impaired loans
Residential real estate	$	6,462		—		—	$	6,462
Commercial real estate		171		—		—		171
Land, land development and construction		2,775		—		—		2,775
Commercial		11		—		—		11
Consumer		480		—		—		480
Other real estate owned
Residential real estate	$	1,733		—		—	$	1,733
Commercial real estate		2,948		—		—		2,948
Land, land development and construction		2,767		—		—		2,767

Impaired loans with specific valuation allowances had a recorded investment of $7,981, with a valuation allowance of $634, at June 30, 2012, and a recorded investment of $13,203, with a valuation allowance of $3,304, at December 31, 2011. The Company recorded a provision for loan loss expense of $297 and $504 on these loans during the three and six month period ending June 30, 2012, respectively.

Other real estate owned had a decline in fair value of $835 and $1,090 during the three and six month period ending June 30, 2012, respectively. Changes in fair value were recorded directly as an adjustment to current earnings through non interest expense.

CenterState Banks, Inc. 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 and FRB Stock: It is not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on their transferability.

Loans held for sale: The fair value of loans held for sale is estimated based upon binding contracts from third party investors resulting in a Level 2 classification.

Loans, net: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

FDIC Indemnification Asset: It is not practical to determine the fair value of the FDIC indemnification asset due to restrictions placed on its transferability.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates fair value and is classified as Level 3.

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 (note payable), generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Corporate Debentures: The fair values of the Company’s corporate debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Accrued Interest Payable: The carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Off-balance Sheet Instruments: The fair value of off-balance-sheet items is not considered material.

The following table presents the carry amounts and estimated fair values of the Company’s financial instruments:


			Fair value measurements
at June 30, 2012	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	116,805	$	116,805	$	—	$	—	$	116,805
Trading securities		1,061		—		1,061		—		1,061
Investment securities available for sale		474,105		—		474,105		—		474,105
FHLB and FRB stock		9,770		—		—		—		n/a
Loans held for sale		1,692		—		1,692		—		1,692
Loans, less allowance for loan losses of $25,183		1,430,405		—		—		1,442,747		1,442,747
FDIC indemnification asset		141,057		—		—		—		n/a
Accrued interest receivable		6,507		—		—		6,507		6,507

Financial liabilities:
Deposits – without stated maturities	$	1,478,889	$	1,478,889	$	—	$	—	$	1,478,889
Deposits – with stated maturities		577,208		—		585,970		—		585,970
Securities sold under agreement to repurchase		23,767		—		23,767		—		23,767
Federal funds purchased (correspondent bank deposits)		45,337		—		45,337		—		45,337
Note payable		10,000		—		10,000		—		10,000
Corporate debentures		16,958		—		—		8,525		8,525
Accrued interest payable		918		—		918		—		918


At December 31, 2011	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	151,095	$	151,095
Trading securities		—		—
Investment securities available for sale		591,164		591,164
FHLB and FRB stock		10,804		n/a
Loans held for sale		3,741		3,741
Loans, less allowance for loan losses of $27,944		1,255,822		1,185,089
FDIC indemnification asset		50,642		50,642
Accrued interest receivable		6,929		6,929

Financial liabilities:
Deposits – without stated maturities	$	1,312,871	$	1,312,871
Deposits – with stated maturities		606,918		616,238
Securities sold under agreement to repurchase		14,652		14,652
Federal funds purchased (correspondent bank deposits)		54,624		54,624
Note payable		—		—
Corporate debentures		16,945		8,367
Accrued interest payable		778		778

CenterState Banks, Inc. 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 six and three month periods ending June 30, 2012 and 2011.

Six month period ending June 30, 2012


	Commercial and retail banking			Correspondent banking and bond sales division			Corporate overhead and administration			Elimination entries			Total
Interest income	$	45,658		$	2,235		$	—					$	47,893
Interest expense		(4,283	)		(15	)		(516	)					(4,814	)

Net interest income		41,375			2,220			(516	)					43,079
Provision for loan losses		(4,626	)		—			—						(4,626	)
Non interest income		11,221			19,061			3						30,285
Non interest expense		(45,307	)		(14,864	)		(1,573	)					(61,744	)

Net income before taxes		2,663			6,417			(2,086	)					6,994
Income tax benefit (provision)		(379	)		(2,415	)		769						(2,025	)

Net income (loss)	$	2,284		$	4,002		$	(1,317	)				$	4,969

Total assets	$	2,288,868		$	146,703		$	299,868		$	(294,961	)	$	2,440,478

Three month period ending June 30, 2012


	Commercial and retail banking			Correspondent banking and bond sales division			Corporate overhead and administration			Elimination entries			Total
Interest income	$	23,430		$	1,049		$	—					$	24,479
Interest expense		(2,028	)		(7	)		(269	)					(2,304	)

Net interest income		21,402			1,042			(269	)					22,175
Provision for loan losses		(1,894	)		—			—						(1,894	)
Non interest income		5,889			10,707			3						16,599
Non interest expense		(22,985	)		(7,896	)		(777	)					(31,658	)

Net income before taxes		2,412			3,853			(1,043	)					5,222
Income tax benefit (provision)		(476	)		(1,450	)		384						(1,542	)

Net (loss) income	$	1,936		$	2,403		$	(659	)				$	3,680

Total assets	$	2,288,868		$	146,703		$	299,868		$	(294,961	)	$	2,440,478

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Six month period ending June 30, 2011


	Commercial and retail banking			Correspondent banking and bond sales division			Corporate overhead and administration			Elimination entries			Total
Interest income	$	39,276		$	1,806			—					$	41,082
Interest expense		(6,332	)		(31	)		(206	)					(6,569	)

Net interest income		32,944			1,775			(206	)					34,513
Provision for loan losses		(22,915	)		(6	)		—						(22,921	)
Non interest income		22,835			11,289			—						34,124
Non interest expense		(41,065	)		(10,704	)		(1,409	)					(53,178	)

Net income before taxes		(8,201	)		2,354			(1,615	)					(7,462	)
Income tax benefit (provision)		3,574			(885	)		592						3,281

Net (loss) income	$	(4,627	)	$	1,469		$	(1,023	)				$	(4,181	)

Total assets	$	1,960,804		$	192,882		$	265,670		$	(262,830	)	$	2,156,526

Three month period ending June 30, 2011


	Commercial and retail banking			Correspondent banking and bond sales division			Corporate overhead and administration			Elimination entries			Total
Interest income	$	19,581		$	1,124			—					$	20,705
Interest expense		(3,052	)		(11	)		(103	)					(3,166	)

Net interest income		16,529			1,113			(103	)					17,539
Provision for loan losses		(11,639	)		(6	)		—						(11,645	)
Non interest income		6,913			6,305			—						13,218
Non interest expense		(20,174	)		(5,726	)		(629	)					(26,529	)

Net income before taxes		(8,371	)		1,686			(732	)					(7,417	)
Income tax benefit (provision)		3,437			(634	)		268						3,071

Net (loss) income	$	(4,934	)	$	1,052		$	(464	)				$	(4,346	)

Total assets	$	1,960,804		$	192,882		$	265,670		$	(262,830	)	$	2,156,526

Commercial and retail banking: The Company’s primary business is commercial and retail banking. Currently, the Company operates its subsidiary bank and a non bank subsidiary, R4ALL, with 59 locations in 18 counties throughout Central Florida providing traditional deposit and lending products and services to its commercial and retail customers.

Corresponding banking and bond sales division: Operating as a division of our subsidiary bank, its primary revenue generating activities are as follows: 1) the first, and largest, revenue generator is commissions earned on fixed income security sales; 2) the second category includes spread income earned on correspondent bank deposits (i.e. federal funds purchased) and service fees on correspondent bank checking accounts; and, 3) the third revenue generating category, includes 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 Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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.

NOTE 5:

Investment Securities Available for Sale

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:


	June 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Obligations of U.S. government sponsored entities and agencies	$	26,640	$	177	$	0	$	26,817
Mortgage backed securities		394,186		9,887		0		404,073
Municipal securities		41,071		2,202		58		43,215

Total	$	461,897	$	12,266	$	58	$	474,105


	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Obligations of U.S. government sponsored entities and agencies	$	78,455	$	422	$	—	$	78,877
Mortgage backed securities		464,237		7,309		552		470,994
Municipal securities		39,312		2,141		160		41,293

Total	$	582,004	$	9,872	$	712	$	591,164

The cost of securities sold is determined using the specific identification method. Sales of available for sale securities were as follows:


For the six months ended:	June 30, 2012		June 30, 2011
Proceeds	$	115,077	$	153,193
Gross gains		1,610		3,260
Gross losses		282		131

The tax provision related to these net realized gains was $500 and $1,177, respectively.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The fair value of available for sale securities at June 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


Investment securities available for sale	Fair Value		Amortized Cost
Due in one year or less	$	—	$	—
Due after one year through five years		1,947		1,828
Due after five years through ten years		21,408		20,723
Due after ten years through thirty years		46,676		45,160
Mortgage backed securities		404,074		394,186

	$	474,105	$	461,897

Securities pledged at June 30, 2012 and December 31, 2011 had a carrying amount (estimated fair value) of $139,766 and $147,620 respectively. These securities were pledged primarily to secure public deposits and repurchase agreements.

At June 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities and agencies, in an amount greater than 10% of stockholders’ equity.

The following tables show the Company’s 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 June 30, 2012 and December 31, 2011.


	June 30, 2012
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government sponsored entities and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage backed securities		—		—		—		—		—		—
Municipal securities		4,119		58		—		—		4,119		58

Total temporarily impaired securities	$	4,119	$	58	$	—	$	—	$	4,119	$	58


	December 31, 2011
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. government sponsored entities and agencies	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage backed securities		96,004		552		—		—		96,004		552
Municipal securities		4,426		152		597		8		5,023		160

Total temporarily impaired securities	$	100,430	$	704	$	597	$	8	$	101,027	$	712

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Municipal securities: Unrealized losses on municipal securities have not been recognized into income because the issuers bonds are of high quality, and because management does not intend to sell these investments or more likely than not will not be required to sell these investments before their anticipated recovery. The fair value is expected to recover as the securities approach maturity.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 6:

Loans

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.


	Jun 30, 2012			Dec 31, 2011
Loans not covered by FDIC loss share agreements (note 2)
Real estate loans
Residential	$	422,687		$	405,923
Commercial		461,405			447,459
Construction, development, land		66,890			89,517

Total real estate		950,982			942,899
Commercial		127,880			126,064
Consumer and other loans, at fair value (note 1)		2,072			1,392
Consumer and other		47,973			49,999

Loans before unearned fees and cost		1,128,907			1,120,354
Unearned fees/costs		(644	)		(639	)
Allowance for loan losses for noncovered loans		(23,634	)		(27,585	)

Total loans not covered by FDIC loss share agreements		1,104,629			1,092,130

Loans covered by FDIC loss share agreements
Real estate loans
Residential		168,786			99,270
Commercial		140,628			54,184
Construction, development, land		9,663			8,231

Total real estate		319,077			161,685
Commercial		8,248			2,366

Total loans covered by FDIC loss share agreements		327,325			164,051
Allowance for loan losses for covered loans		(1,549	)		(359	)

Net loans covered by FDIC loss share agreements		325,776			163,692

Total loans, net of allowance for loan losses	$	1,430,405		$	1,255,822


Note 1:		Consumer loans acquired pursuant to three FDIC assisted transactions of failed financial institutions during the third quarter of 2010 and two in the first quarter of 2012. These loans are not covered by an FDIC loss share agreement. The loans have been written down to estimated fair value and are being accounted for pursuant to ASC Topic 310-30.
Note 2:		Includes $74,617 of loans that are subject to a two year put back option with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank. This put back period ends January 20, 2013. Also includes $147,172 of loans that are subject to a one year put back option with The Hartford Insurance Group, Inc. (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford. This put back period ends November 1, 2012.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The table below sets forth the activity in the allowance for loan losses for the periods presented.


	Loans not covered by FDIC loss share agreements			Loans covered by FDIC loss share agreements			Total
Three months ended June 30, 2012
Balance at beginning of period	$	25,569		$	441		$	26,010
Loans charged-off		(3,322	)		—			(3,322	)
Recoveries of loans previously charged-off		601			—			601

Net charge-offs		(2,721	)		—			(2,721	)
Provision for loan loss		786			1,108			1,894

Balance at end of period	$	23,634		$	1,549		$	25,183


Six months ended June 30, 2012
Balance at beginning of period	$	27,585		$	359		$	27,944
Loans charged-off		(8,148	)		—			(8,148	)
Recoveries of loans previously charged-off		761			—			761

Net charge-offs		(7,387	)		—			(7,387	)
Provision for loan losses		3,436			1,190			4,626

Balance at end of period	$	23,634		$	1,549		$	25,183


Three months ended June 30, 2011
Balance at beginning of period	$	28,245		$	—		$	28,245
Loans charged-off		(12,303	)		(293	)		(12,596	)
Recoveries of loans previously charged-off		124			—			124

Net charge-offs		(12,179	)		(293	)		(12,472	)
Provision for loan loss		11,352			293			11,645

Balance at end of period	$	27,418		$	—		$	27,418


Six months ended June 30, 2011
Balance at beginning of period	$	26,267		$	—		$	26,267
Loans charged-off		(21,761	)		(293	)		(22,054	)
Recoveries of loans previously charged-off		284			—			284

Net charge-offs		(21,477	)		(293	)		(21,770	)
Provision for loan losses		22,628			293			22,921

Balance at end of period	$	27,418		$	—		$	27,418

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


	Real Estate Loans
	Residential			Commercial			Constr., develop., land			Comm. & industrial			Consumer & other			Total

Loans not covered by FDIC loss share agreements:

Three months ended June 30, 2012
Beginning of the period	$	5,633		$	7,594		$	9,737		$	1,575		$	1,030		$	25,569
Charge-offs		(482	)		(491	)		(2,100	)		(17	)		(232	)		(3,322	)
Recoveries		131			420			21			7			22			601
Provisions		(422	)		568			210			73			357			786

Balance at June 30, 2012	$	4,860		$	8,091		$	7,868		$	1,638		$	1,177		$	23,634


Six months ended June 30, 2012
Beginning of the period	$	6,700		$	8,825		$	9,098		$	1,984		$	978		$	27,585
Charge-offs		(1,777	)		(1,579	)		(4,208	)		(61	)		(523	)		(8,148	)
Recoveries		152			423			85			11			90			761
Provisions		(215	)		422			2,893			(296	)		632			3,436

Balance at June 30, 2012	$	4,860		$	8,091		$	7,868		$	1,638		$	1,177		$	23,634


Three months ended June 30, 2011
Beginning of the period	$	7,456		$	10,150		$	8,069		$	1,661		$	909		$	28,245
Charge-offs		(2,751	)		(5,954	)		(3,083	)		(368	)		(147	)		(12,303	)
Recoveries		(30	)		62			10			4			78			124
Provisions		3,257			5,281			2,592			196			26			11,352

Balance at June 30, 2011	$	7,932		$	9,539		$	7,588		$	1,493		$	866		$	27,418


Six months ended June 30, 2011
Beginning of the period	$	7,704		$	8,587		$	6,893		$	2,182		$	901		$	26,267
Charge-offs		(5,523	)		(9,931	)		(5,184	)		(625	)		(498	)		(21,761	)
Recoveries		78			74			12			15			105			284
Provisions		5,673			10,809			5,867			(79	)		358			22,628

Balance at June 30, 2011	$	7,932		$	9,539		$	7,588		$	1,493		$	866		$	27,418

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


	Real Estate Loans
	Residential		Commercial		Constr., develop., land			Comm. & industrial			Total

Loans covered by FDIC loss share agreements:

Three months ended June 30, 2012
Beginning of the period	$	82	$	292	$	40		$	27		$	441
Charge-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Provisions		—		1,163		(40	)		(15	)		1,108

Balance at June 30, 2012	$	82	$	1,455	$	—		$	12		$	1,549


Six months ended June 30, 2012
Beginning of the period	$	82	$	223	$	40		$	14		$	359
Charge-offs		—		—		—			—			—
Recoveries		—		—		—			—			—
Provisions		—		1,232		(40	)		(2	)		1,190

Balance at June 30, 2012	$	82	$	1,455	$	—		$	12		$	1,549


Three months ended June 30, 2011
Beginning of the period	$	—	$	—	$	—		$	—		$	—
Charge-offs		—		—		(293	)		—			(293	)
Recoveries		—		—		—			—			—
Provisions		—		—		293			—			293

Balance at June 30, 2011	$	—	$	—	$	—		$	—		$	—


Six months ended June 30, 2011
Beginning of the period	$	—	$	—	$	—		$	—		$	—
Charge-offs		—		—		(293	)		—			(293	)
Recoveries		—		—		—			—			—
Provisions		—		—		293			—			293

Balance at June 30, 2011	$	—	$	—	$	—		$	—		$	—

CenterState Banks, Inc. 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 loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012 and December 31, 2011. Accrued interest receivable and unearned fees/costs are not included in the recorded investment because they are not material.


	Real Estate Loans
As of June 30, 2012	Residential		Commercial		Constr., develop., land		Comm. & industrial		Consumer & other		Total

Allowance for loan losses:

Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	250	$	217	$	126	$	1	$	40	$	634
Collectively evaluated for impairment		4,610		7,874		7,742		1,637		1,111		22,974
Acquired with deteriorated credit quality		82		1,455		—		12		26		1,575

Total ending allowance balance		4,942		9,546		7,868		1,650		1,177		25,183


Loans:

Loans individually evaluated for impairment		9,987		31,539		2,942		3,169		458		48,095
Loans collectively evaluated for impairment (1)		412,700		429,866		63,948		124,711		47,515		1,078,740
Loans acquired with deteriorated credit quality		168,786		140,628		9,663		8,248		2,072		329,397


Total ending loans balance	$	591,473	$	602,033	$	76,553	$	136,128	$	50,045	$	1,456,232


	Real Estate Loans
As of December 31, 2011	Residential		Commercial		Constr., develop., land		Comm. & industrial		Consumer & other		Total

Allowance for loan losses:

Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	783	$	188	$	2,292	$	1	$	40	$	3,304
Collectively evaluated for impairment		5,917		8,637		6,806		1,983		912		24,255
Acquired with deteriorated credit quality		82		223		40		14		26		385

Total ending allowance balance	$	6,782	$	9,048	$	9,138	$	1,998	$	978	$	27,944


Loans:
Loans individually evaluated for impairment		10,647		24,213		11,955		6,333		520		53,668
Loans collectively evaluated for impairment (1)		395,276		423,246		77,562		119,731		49,479		1,065,294
Loans acquired with deteriorated credit quality		99,270		54,184		8,231		2,366		1,392		165,443


Total ending loans balance	$	505,193	$	501,643	$	97,748	$	128,430	$	51,391		1,284,405

(1)

Includes $74,617 and $81,189, at June 30, 2012 and December 31, 2011, respectively, of loans that are subject to a two year put back option with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank. This put back period ends January 20, 2013. Also includes $147,172 and $152,723, at June 30, 2012 and December 31, 2011, respectively, of loans that are subject to a one year put back option with The Hartford Insurance Group, Inc. (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford. This put back period ends November 1, 2012.

CenterState Banks, Inc. 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.


	June 30, 2012		Dec 31, 2011
Impaired loans with a specific valuation allowance	$	7,981	$	13,203
Impaired loans without a specific valuation allowance		40,114		40,465

Total impaired loans	$	48,095	$	53,668
Amount of allowance for loan losses allocated to impaired loans		634	$	3,304

Performing TDRs	$	6,799	$	6,554
Non performing TDRs, included in NPLs		4,923		5,807

Total TDRs (TDRs are required to be included in impaired loans)	$	11,722	$	12,361
Impaired loans that are not TDRs		36,373		41,307

Total impaired loans	$	48,095	$	53,668

In this current real estate environment it has become more common to restructure or modify the terms of certain loans under certain conditions (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 an unfavorable real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about twelve months. We have not forgiven any material principal amounts on any loan modifications to date. We have approximately $11,722 of TDRs. Of this amount $6,799 are performing pursuant to their modified terms, and $4,923 are not performing and have been placed on non accrual status and included in our non performing loans (“NPLs”).


Troubled debt restructured loans (“TDRs”):	June 30, 2012		Dec 31, 2011
Performing TDRs	$	6,799	$	6,554
Non performing TDRs		4,923		5,807

Total TDRs	$	11,722	$	12,361

TDRs as of June 30, 2012 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non performing loans) are presented in the table below.


TDRs	Accruing		Non Accrual		Total
Real estate loans:
Residential	$	4,932	$	3,338	$	8,270
Commercial		831		1,370		2,201
Construction, development, land		284		175		459

Total real estate loans		6,047		4,883		10,930
Commercial		334		—		334
Consumer and other		418		40		458

Total TDRs	$	6,799	$	4,923	$	11,722

Our policy is to return non accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. Our policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of $351 and $579 and partial charge offs of $326 and $588 on the TDR loans described above during the three and six month period ending June 30, 2012, respectively.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Loans are modified to minimize loan losses when we believe the modification will improve the borrower’s financial condition and ability to repay the loan. We typically do not forgive principal. We generally either reduce interest rates or decrease monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. A summary of the types of concessions made are presented in the table below.


	June 30, 2012
3 months interest only	$	132
6 months interest only		1,257
12 months interest only		2,734
18 months interest only		187
payment reduction for 12 months		1,935
all other		5,477

Total TDRs	$	11,722

While we do not have long-term experience with these types of activities, approximately 58% of our TDRs are current pursuant to their modified terms, and about $4,923, or approximately 42% of our total TDRs are not performing pursuant to their modified terms. Long-term success with our performing TDRs is an unknown, and will depend to a great extent on the future of our economy and our local real estate markets. Thus far, there does not appear to be any significant difference in success rates with one type of concession versus another. However, it appears that the longer the period from the loan modification date, the higher the probability of the loan will become non-performing pursuant to its modified terms. Non performing TDRs average approximately 22 months in age from their modification date through June 30, 2012. Performing TDRs average approximately 19 months in age from their modification date through June 30, 2012.

The following table presents loans by class modified for which there was a payment default within twelve months following the modification during the period ending June 30, 2012.


	Number of Loans		Recorded Investment
Residential		9	$	678
Commercial real estate		—		—
Construction, development, land		—		—
Commercial		—		—
Consumer and other		—		—

Total		9	$	678

The Company recorded a provision for loan loss expense of $228 and $249 and partial charge offs of $233 and $280 on TDR loans that subsequently defaulted as described above during the three and six month period ending June 30, 2012, respectively.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2012 and December 31, 2011. The recorded investment is less than the unpaid principal balance due to partial charge-offs.


As of June 30, 2012	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated

With no related allowance recorded:
Residential real estate	$	4,369	$	3,561	$	—
Commercial real estate		33,415		30,911		—
Construction, development, land		5,793		2,484		—
Commercial		3,253		3,158		—
Consumer, other		—		—		—

With an allowance recorded:
Residential real estate		6,875		6,426		250
Commercial real estate		678		628		217
Construction, development, land		665		458		126
Commercial		11		11		1
Consumer, other		464		458		40


Total	$	55,523	$	48,095	$	634


As of December 31, 2011	Unpaid principal balance		Recorded investment		Allowance for loan losses allocated

With no related allowance recorded:
Residential real estate	$	4,314	$	3,402	$	—
Commercial real estate		26,966		23,854		—
Construction, development, land		11,665		6,888		—
Commercial		6,409		6,321		—
Consumer, other		—		—		—

With an allowance recorded:
Residential real estate		7,733		7,245		783
Commercial real estate		404		359		188
Construction, development, land		5,713		5,067		2,292
Commercial		12		12		1
Consumer, other		545		520		40


Total	$	63,761	$	53,668	$	3,304

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


Three month period ending June 30, 2012	Average of impaired loans during the period		Interest income recognized during impairment		Cash basis interest income recognized
Real estate loans:
Residential	$	9,807	$	76	$	—
Commercial		31,444		336		—
Construction, development, land		4,413		6		—

Total real estate loans		45,664		418		—

Commercial loans		4,768		30		—
Consumer and other loans		468		5		—

Total	$	50,900	$	453	$	—


Six month period ending June 30, 2012
Real estate loans:
Residential	$	9,972	$	138	$	—
Commercial		29,613		661		—
Construction, development, land		6,666		15		—

Total real estate loans		42,251		814		—

Commercial loans		5,559		46		—
Consumer and other loans		483		10		—

Total	$	52,293	$	870	$	—

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


Three month period ending June 30, 2011	Average of impaired loans during the period		Interest income recognized during impairment		Cash basis interest income recognized
Real estate loans:
Residential	$	13,720	$	84	$	—
Commercial		42,780		159		—
Construction, development, land		15,553		31		—

Total real estate loans		72,053		274		—

Commercial loans		5,850		64		—
Consumer and other loans		651		10		—

Total	$	78,554	$	348	$	—


Six month period ending June 30, 2011
Real estate loans:
Residential	$	14,125	$	110	$	—
Commercial		45,410		356		—
Construction, development, land		16,042		41		—

Total real estate loans		75,577		507		—

Commercial loans		5,728		127		—
Consumer and other loans		667		11		—

Total	$	81,972	$	645	$	—

Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The following table presents non-performing loans, excluding loans acquired from the FDIC with evidence of credit deterioration and covered by FDIC loss share agreements.


Nonperforming loans were as follows:
	Jun 30, 2012		Dec 31, 2011
Non accrual loans	$	31,769	$	38,858
Loans past due over 90 days and still accruing interest		118		120

Total non performing loans	$	31,887	$	38,978

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

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 June 30, 2012 and December 31, 2011, excluding loans acquired from the FDIC with evidence of credit deterioration and covered by FDIC loss share agreements:


As of June 30, 2012	Nonaccrual		Loans past due over 90 days still accruing
Residential real estate	$	13,181	$	—
Commercial real estate		13,055		—
Construction, development, land		3,705		—
Commercial		1,498		—
Consumer, other		330		118

Total	$	31,769	$	118


As of December 31, 2011	Nonaccrual		Loans past due over 90 days still accruing
Residential real estate	$	14,810	$	—
Commercial real estate		11,637		—
Construction, development, land		10,482		—
Commercial		1,464		—
Consumer, other		465		120

Total	$	38,858	$	120

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 and December 31, 2011, excluding loans acquired from the FDIC with evidence of credit deterioration and covered by FDIC loss share agreements:


	Accruing Loans
As of June 30, 2012	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	$	422,687	$	1,781	$	434	$	—	$	2,215	$	407,291	$	13,181
Commercial real estate		461,405		1,133		264		—		1,397		446,953		13,055
Construction/dev/land		66,890		1,287		49		—		1,336		61,849		3,705
Commercial		127,880		1,496		56		—		1,552		124,830		1,498
Consumer		50,045		289		71		118		478		49,237		330

Total	$	1,128,907	$	5,986	$	874	$	118	$	6,978	$	1,090,160	$	31,769

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


	Accruing Loans
As of December 31, 2011	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	$	405,923	$	5,551	$	2,228	$	—	$	7,779	$	383,334	$	14,810
Commercial real estate		447,459		4,479		1,037		—		5,516		430,306		11,637
Construction/dev/land		89,517		1,018		216		—		1,234		77,801		10,482
Commercial		126,064		781		119		—		900		123,700		1,464
Consumer		51,391		636		192		120		948		49,978		465

Total	$	1,120,354	$	12,465	$	3,792	$	120	$	16,377		1,065,119	$	38,858

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 includes loans with an outstanding balance greater than $500 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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. Loans listed as not rated are either less than $500 or are included in groups of homogeneous loans. As of June 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans, excluding loans with evidence of deterioration of credit quality purchased from the FDIC and covered by FDIC loss share agreements, is as follows:

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)


	As of June 30, 2012
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	391,624	$	5,450	$	25,613	$	—
Commercial real estate		370,114		50,054		41,237		—
Construction/dev/land		48,618		11,917		6,355		—
Commercial		114,684		6,542		6,654		—
Consumer\		48,608		635		802		—

Total	$	973,648	$	74,598	$	80,661	$	—


	As of December 31, 2011
Loan Category	Pass		Special Mention		Substandard		Doubtful
Residential real estate	$	373,833	$	6,723	$	25,367	$	—
Commercial real estate		363,376		52,161		31,922		—
Construction/dev/land		61,854		13,070		14,593		—
Commercial		111,782		4,314		9,968		—
Consumer		49,693		689		1,009		—

Total	$	960,538	$	76,957	$	82,859	$	—

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans, excluding loans with evidence of deterioration of credit quality purchased from the FDIC and covered by FDIC loss share agreements, based on payment activity as of June 30, 2012:


	Residential		Consumer
Performing	$	409,506	$	49,597
Nonperforming		13,181		448

Total	$	422,687	$	50,045

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

Loans purchased from the FDIC:

Income recognized on loans we purchased from the FDIC is recognized pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of June 30, 2012 and December 31, 2011. Contractually required principal and interest payments have been adjusted for estimated prepayments.


	Jun 30, 2012			Dec 31, 2011
Contractually required principal and interest	$	594,439		$	291,531
Non-accretable difference		(164,756	)		(51,536	)

Cash flows expected to be collected		429,683			239,995
Accretable yield		(100,286	)		(74,552	)

Carrying value of acquired loans	$	329,397		$	165,443
Allowance for loan losses		(1,575	)		(385	)

Carrying value less allowance for loan losses	$	327,822		$	165,058

We adjusted our estimates of future expected losses, cash flows and renewal assumptions during the current quarter. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. We reclassified approximately $1,632 and $4,400 from non-accretable difference to accretable yield during the three month and six month periods ending June 30, 2012, respectively, to reflect our adjusted estimates of future expected cash flows. The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans during the three and six month periods ending June 30, 2012.


Activity during the three month period ending June 30, 2012	Mar 31, 2012			Effect of acquisitions		income accretion		all other adjustments			June 30, 2012
Contractually required principal and interest	$	625,538		$	—	$	—	$	(31,099	)	$	594,439
Non-accretable difference		(171,282	)		—		—		6,526			(164,756	)

Cash flows expected to be collected		454,256			—		—		(24,573	)		429,683
Accretable yield		(104,704	)		—		6,465		(2,047	)		(100,286	)

Carry value of acquired loans	$	349,552		$	—	$	6,465	$	(26,620	)	$	329,397


Activity during the six month period ending June 30, 2012	Dec 31, 2011			Effect of acquisitions			income accretion		all other adjustments			June 30, 2012
Contractually required principal and interest	$	291,531		$	363,130		$	—	$	(60,222	)	$	594,439
Non-accretable difference		(51,536	)		(125,630	)		—		12,410			(164,756	)

Cash flows expected to be collected		239,995			237,500			—		(47,812	)		429,683
Accretable yield		(74,552	)		(32,975	)		11,747		(4,506	)		(100,286	)

Carry value of acquired loans	$	165,443		$	204,525		$	11,747	$	(52,318	)	$	329,397

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 7:

FDIC indemnification asset

The FDIC Indemnification Asset represents the estimated amounts due from the FDIC pursuant to the Loss Share Agreements related to the acquisition of the three failed banks acquired in 2010 and the acquisition of two failed banks in 2012. The activity in the FDIC loss share indemnification asset is as follows:


	Six months period ended Jun 30, 2012			Six months period ended Jun 30, 2011
Beginning of the year	$	50,642		$	59,456
Effect of acquisitions		93,166			—
Discount accretion		(786	)		421
Indemnification revenue		841			1,486
Indemnification of foreclosure expense		435			936
Proceeds from FDIC		(4,193	)		(3,590	)
Impairment of loan pool		952			235

End of the year	$	141,057		$	58,944

Impairment of loan pools

Loan pools covered by FDIC loss share agreements were impaired by $1,190 which was an expense included in our loan loss provision expense. The 80% FDIC reimbursable amount of this expense ($952) was included in the Company’s non interest income and as an increase in the Company’s FDIC indemnification asset.

Indemnification revenue

Indemnification Revenue represents approximately 80% of the cost incurred pursuant to the repossession process and losses incurred on the sale of OREO, or writedown of OREO values to current fair value. These costs are reimbursable from the FDIC.

Discount accretion

If expected cash flows from loan pools are greater than previously expected, the accretable yield increases and is accreted into interest income over the remaining lives of the related loan pools. The increase in future accretable income may result in less reimbursements from the FDIC (i.e. if the expected losses decrease, then the expected reimbursements from the FDIC decrease). The expected decrease in FDIC reimbursements is amortized over the period of the related increase in accretable yield from the related loan pools.

NOTE 8:

Note payable

On January 25, 2012 the Company borrowed $10,000 on a short term basis at the holding company level to help facilitate the acquisition from the Federal Deposit Insurance Corporation (“FDIC”) of Central Florida State Bank (“Central FL”) and First Guaranty Bank & Trust (“FGB”) during January 2012 by our subsidiary bank. The Company invested those funds in its subsidiary bank such that the bank would have sufficient capital to support the initial balance sheets of the two acquired banks. Subsequent to the acquisitions, we exercised our option to reprice approximately $127,856 of internet time deposits assumed pursuant to the acquisition of FGB to current market interest rates. Subsequently, all of these

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

deposits were withdrawn prior to maturity without penalty. By shrinking the balance sheet of its subsidiary bank, it freed up excess capital at the bank which returned the funds to the holding company in the form of a dividend on July 2, 2012. The holding company then used these funds to immediately repay the note. The interest rate on the note was 90 day LIBOR plus 400 bps.

NOTE 9:

Business combinations

The Company, through its subsidiary bank, purchased two failed financial institutions from the FDIC. On January 20, 2012 it purchased Central FL in Belleview, Florida. On January 27, it purchased FGB in Jacksonville, Florida. As a result of these acquisitions, the Company expects to further solidify its market share in the Florida market, expand its customer base to enhance deposit fee income, and reduce operating costs through economies of scale.

The Company exercised its option, pursuant to the FDIC purchase and assumption agreement, not to purchase Central FL’s branch real estate. During the first quarter of 2012, the Company consolidated three of the four Central FL branches into nearby existing CenterState branches. The fourth branch has been consolidated into a nearby CenterState existing branch during July 2012.

The Company also exercised its option, pursuant to the FDIC purchase and assumption agreement, and did not purchase six of the eight branch real estate locations of FGB. It has purchased two of the offices and consolidated the remaining six branches into the remaining two existing branches, which have approximately 75% of FGB’s deposits as of the acquisition date, during the second quarter. The two office locations were purchased at current market value based on current appraisals.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

All of the goodwill and other intangibles listed below is tax deductible over a 15 year period on a straight line basis. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.


Acquired institution Date of acquisition	Central FL Jan 20, 2012			FGB Jan 27, 2012
Assets:
Cash due from banks, Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”)	$	4,870		$	77,642
Federal funds sold		8,550			—
Securities available for sale		1,942			3,500
Loans covered by FDIC loss share agreements		31,376			171,949
Loans not covered by FDIC loss share agreements		239			961
Covered repossessed real estate owned (“OREO”)		2,347			15,318
FDIC indemnification asset		15,018			78,143
FHLB stock and FRB stock		168			1,627
Goodwill		—			8,750
Core deposit intangible		375			1,521
Trust intangible		—			1,580
Other assets		1,109			2,742

Total assets acquired	$	65,994		$	363,733

Liabilities:
Deposits	$	65,209		$	353,099
FHLB advances		—			10,060
Other liabilities		332			574

Total liabilities assumed	$	65,541		$	363,733

Net assets acquired (bargain purchase gain)	$	453

Deferred tax impact		(170	)

Net assets acquired, including deferred tax impact	$	283

The Company entered into loss share agreements with the FDIC that collectively cover legal unpaid balances of substantially all the loans acquired (except those loans identified above as not covered by FDIC loss share) and all the OREO acquired (collectively, the “Covered Assets”). Pursuant to the terms of the loss sharing agreements, the FDIC’s obligation to reimburse the Company for losses with respect to Covered Assets begins with the first dollar of loss incurred. The FDIC will reimburse the Company for 80% of losses with respect to the Covered Assets. The Company will reimburse the FDIC for its share of recoveries with respect to losses for which the FDIC paid the Company a reimbursement under the loss sharing agreements. The loss share agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and Company reimbursement to the FDIC for recoveries for ten years. The loss share agreements applicable to commercial loans and other Covered Assets provides for FDIC loss sharing for five years and Company reimbursement to the FDIC for a total of eight years for recoveries.

The acquisitions were accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair values of assets and liabilities, especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values become available for loans, OREO and indemnification asset due to pending real estate appraisals.

All of the loans acquired are being accounted for pursuant to ASC Topic 310-30. We arrived at this conclusion as follows.

First, we segregated all acquired loans with specifically identified credit deficiency factor(s). The factors we used were all acquired loans that were non-accrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”), graded “special mention” or “substandard,” had more than five 30 day past due notices or had any 60 day or 90 day past due notices during the loan term. For this disclosure purpose, we refer to these loans as Type A loans. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. Second, all remaining acquired loans, those without specifically identified credit deficiency factors, we refer to as Type B loans for disclosure purposes, were then grouped into pools with common risk characteristics. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the poor economic environment both nationally and locally as well as the unfavorable real estate market particularly in Florida. In addition, these loans were acquired from two failed financial institutions, which implies potentially deficient, or at least questionable, credit underwriting. Based on management’s estimate of fair value, each of these pools was assigned a discount credit mark. We have applied ASC Topic 310-30 accounting treatment by analogy to Type B loans. The result is that all loans acquired from these two failed financial institutions will be accounted for under ASC Topic 310-30.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the respective acquisition dates. Contractually required principal and interest payments have been adjusted for estimated prepayments.


	at acquisition dates
	Type A loans			Type B loans			Total
Contractually required principal and interest	$	118,393		$	244,737		$	363,130
Non-accretable difference		(68,097	)		(57,533	)		(125,630	)

Cash flows expected to be collected		50,296			187,204			237,500
Accretable yield		(2,418	)		(30,557	)		(32,975	)

Total acquired loans	$	47,878		$	156,647		$	204,525

Type A loans: acquired loans with specifically identified credit deficiency factor(s).

Type B loans: all other acquired loans.

The operating results of the Company for the three month and six month periods ended June 30, 2012 include the operating results of the acquired assets and assumed liabilities since the acquisition date of January 20, 2012 for Central FL and January 27, 2012 for FGB. Due primarily to the significant amount of fair value adjustments and the Loss Share Agreements now in place, historical results of Central FL and FGB are not believed to be relevant to the Company’s results, and thus no pro forma information is presented.

CenterState Banks, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of dollars, except per share data)

NOTE 10:

Effect of new pronouncements

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective during interim and annual periods beginning after December 15, 2011. The effect of adopting this new guidance was not material.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment has changed the presentation of the components of comprehensive income for the Company as part of the consolidated statement of shareholder’s equity, and the consolidated statement of earnings.

In September 2011, the FASB amended guidance on the annual goodwill impairment test performed by the Company. Under the amended guidance, the Company will have the option to first assess qualitative factors to determine whether it is necessary to perform a two-step impairment test. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than the carrying value, the quantitative impairment test is required. If the Company believes the fair value of a reporting unit is greater than the carrying value, no further testing is required. A company can choose to perform the qualitative assessment on some or none of its reporting entities. The amended guidance includes examples of events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entity’s operating environment, entity-specific events such as declining financial performance, and other events such as an expectation that a reporting unit will be sold. The amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company is currently evaluating the impact of this amendment on the consolidated financial statements.

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All dollar amounts presented herein are in thousands, except per share data.

COMPARISON OF BALANCE SHEETS AT JUNE 30, 2012 AND DECEMBER 31, 2011

Overview

Our total assets increased approximately 6.8% during the six month period ending June 30, 2012 primarily due to the acquisitions of Central Florida State Bank in Belleveiw, Florida (“Central FL”) and First Guaranty Bank and Trust Company of Jacksonville in Jacksonville, Florida (“FGB”) discussed in Note 9. These changes are discussed and analyzed below and on the following pages.

Federal funds sold and Federal Reserve Bank deposits

Federal funds sold and Federal Reserve Bank deposits were $93,361 at June 30, 2012 (approximately 3.8% of total assets) as compared to $133,202 at December 31, 2011 (approximately 5.8% of total assets). We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding, and to some degree the amount of correspondent bank deposits (i.e. federal funds purchased) outstanding.

Investment securities available for sale

Securities available-for-sale, consisting primarily of U.S. government sponsored entities and agency securities and municipal tax exempt securities, were $474,105 at June 30, 2012 (approximately 19% of total assets) compared to $591,164 at December 31, 2011 (approximately 26% of total assets), a decrease of $117,059 or 20%. We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding as discussed above, under the caption “Federal funds sold and Federal Reserve Bank deposits.” Our securities are carried at fair value. We classify our securities as “available-for-sale” to provide for greater flexibility to respond to changes in interest rates as well as future liquidity needs.

Trading securities

We also have a trading securities portfolio. Realized and unrealized gains and losses are included in trading securities revenue, a component of our non interest income, in our Condensed Consolidated Statement of Earnings. Securities purchased for this portfolio have primarily been various municipal securities. At June 30, 2012 our trading securities had a fair market value of $1,061, which were two securities. A list of the activity in this portfolio is summarized below.


	Six month period ended Jun 30, 2012			Six month period ended Jun 30, 2011
Beginning balance	$	—		$	2,225
Purchases		191,078			118,082
Proceeds from sales		(190,294	)		(119,325	)
Net realized gain on sales		277			261
Mark to market adjustment		—			6

Ending balance	$	1,061		$	1,249

Loans held for sale

We also have a loans held for sale portfolio, whereby we originate single family home loans and sell those mortgages into the secondary market, servicing released. These loans are recorded at the lower of cost or market. Gains and losses on the sale of loans held for sale are included as a component of non interest income in our Condensed Consolidated Statement of Earnings. A list of the activity in this portfolio is summarized below.


	Six month period ended Jun 30, 2012			Six month period ended Jun 30, 2011
Beginning balance	$	3,741		$	673
Loans originated		7,342			3,140
Proceeds from sales		(9,510	)		(2,966	)
Net realized gain on sales		119			52

Ending balance	$	1,692		$	899

Loans

Lending-related income is the most important component of our net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and it therefore generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Average loans during the six month period ended June 30, 2012, were $1,442,883, or 69% of average earning assets, as compared to $1,214,772, or 64% of average earning assets, for the similar period in 2011. Total loans at June 30, 2012 and December 31, 2011 were $1,455,588 and $1,283,766, respectively, an increase of $171,822, or 13.4%. This represents a loan to total asset ratio of 59.6% and 56.2% and a loan to deposit ratio of 70.8% and 66.9%, at June 30, 2012 and December 31, 2011, respectively.

Our total loans, excluding loans covered by FDIC loss share agreements, increased by $8,548 during the six month period ending June 30, 2012, an annualized rate of 1.5%. The weak economy in general and the struggling Florida real estate market in particular, have made it difficult to grow our loan portfolio. However, we have seen improvement in our credit metrics over the past two quarters, and did have better loan growth in the second quarter. Loans decreased by $10,710 during the first quarter of the year and increased by $19,258 during the second quarter.

Total loans covered by FDIC loss share agreements increased by $163,274 during the six month period ending June 30, 2012. This was due to the acquisitions of Central FL and FGB as described in Note 9. Excluding these purchased loans (carrying balance of approximately $183,592 at June 30, 2012), our FDIC covered loan portfolio decreased by approximately $20,318 during the six month period.

Approximately 22.5% of our loans, or $327,325, is covered by FDIC loss sharing agreements. Pursuant to and subject to the terms of the loss sharing agreements, the FDIC is obligated to reimburse CenterState for 80% of losses with respect to the covered loans beginning with the first dollar of loss incurred. CenterState will reimburse the FDIC for its share of recoveries with respect to the covered loans. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and CenterState reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provide for FDIC loss sharing for five years and CenterState reimbursement to the FDIC for a total of eight years for recoveries. All of the covered loans acquired are accounted for pursuant to ASC Topic 310-30. Within the FDIC covered loan portfolio, 52%

are collateralized by single family residential real estate and 43% are collateralized by commercial real estate. The remainder is a mix of commercial non real estate loans and land, land development and construction loans.

Approximately 5.1% of the Company’s loans, or $74,617, are subject to a two year put back option, commencing January 20, 2011, with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank.

Approximately 10.1% of the Company’s loans, or $147,172, are subject to a one year put back option, commencing November 1, 2011, with Hartford Insurance Group (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford.

Approximately 62.3% of the Company’s loans, or $906,474, is not covered by FDIC loss sharing agreements or subject to a put back option with TD Bank, N.A. or Hartford.

Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged in similar activities, which collectively could be similarly impacted by economic or other conditions and when the total of such amounts would exceed 25% of total capital. Due to the lack of diversified industry and the relative proximity of markets served, the Company has concentrations in geographic as well as in types of loans funded.

Our total loans, including those with and without loss protection agreements, total $1,455,588 at June 30, 2012. Of this amount approximately 87% are collateralized by real estate, 9% are commercial non real estate loans and the remaining 4% are consumer and other non real estate loans. We have approximately $591,473 of single family residential loans which represents about 40% of our total loan portfolio. Our largest category of loans is commercial real estate which represents approximately 41% of our total loan portfolio.

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated.


	Jun 30, 2012			Dec 31, 2011
Loans not covered by FDIC loss share agreements (note 2)
Real estate loans
Residential	$	422,687		$	405,923
Commercial		461,405			447,459
Construction, development, land		66,890			89,517

Total real estate		950,982			942,899
Commercial		127,880			126,064
Consumer and other loans (note 1)		2,072			1,392
Consumer and other loans		47,973			49,999

Loans before unearned fees and cost		1,128,907			1,120,354
Unearned fees/costs		(644	)		(639	)
Allowance for loan losses for non covered loans		(23,634	)		(27,585	)

Total loans not covered by FDIC loss share agreements		1,104,629			1,092,130

Loans covered by FDIC loss share agreements
Real estate loans
Residential		168,786			99,270
Commercial		140,628			54,184
Construction, development, land		9,663			8,231

Total real estate		319,077			161,685
Commercial		8,248			2,366

		327,325			164,051
Allowance for loan losses for covered loans		(1,549	)		(359	)

Net loans covered by FDIC loss share agreements		325,776			163,692

Total loans		1,430,405		$	1,255,822

Note 1:

Consumer loans acquired pursuant to three FDIC assisted transactions of failed financial institutions during the third quarter of 2010 and two in the first quarter of 2012. These loans are not covered by an FDIC loss share agreement. The loans have been written down to estimated fair value and are being accounted for pursuant to ASC Topic 310-30.

Note 2:

Includes $74,617 of loans that are subject to a two year put back option with TD Bank, N.A., such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to TD Bank. This put back period ends January 20, 2013. Also includes $147,172 of loans that are subject to a one year put back option with The Hartford Insurance Group, Inc. (“Hartford”), such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loan to Hartford. This put back period ends November 1, 2012.

Credit quality and allowance for loan losses

Commercial, commercial real estate, construction, land, and land development loans in excess of $500 are monitored and evaluated for impairment on an individual loan basis. Commercial, commercial real estate, construction, land, and land development loans less than $500 are evaluated for impairment on a pool basis. All consumer and single family residential loans are evaluated for impairment on a pool basis.

On at least a quarterly basis, management reviews each impaired loan to determine whether it should have a specific reserve or partial charge-off. Management relies on appraisals to help make this determination. Updated appraisals are obtained for collateral dependent loans when a loan is scheduled for renewal or refinance. In addition, if the classification of the loan is downgraded to substandard, identified as impaired, or placed on non accrual status (collectively “Problem Loans”), an updated appraisal is obtained if the loan amount is greater than $500 and individually evaluated for impairment.

After an updated appraisal is obtained for a Problem Loan, as described above, an additional updated appraisal will be obtained on at least an annual basis. Thus, current appraisals for Problem Loans in excess of $500 will not be older than one year.

After the initial updated appraisal is obtained for a Problem Loan and before its next annual appraisal update is due, management considers the need for a downward adjustment to the current appraisal amount to reflect current market conditions, based on management’s analysis, judgment and experience. In an extremely volatile market, management may update the appraisal prior to the one year anniversary date.

We maintain an allowance for loan losses that we believe is adequate to absorb probable losses incurred in our non covered loan portfolio. The FDIC is obligated to reimburse us for 80% of losses incurred in our covered loan portfolio subject to the terms of our loss share agreements with the FDIC. Our covered loan portfolio, loans purchased from the FDIC with specific identified credit deficiencies and those with implied credit deficiencies, has been marked to fair value at the acquisition date, which considers an estimate of probable losses, and is evaluated for impairment on a pool basis on a quarterly basis, pursuant to ASC Topic 310-30.

Performing loans purchased pursuant to the January 20, 2011 TD Bank transaction, are performing loans without any specific or implied credit deficiencies. These loans are included in our allowance for loan loss analysis, but do not have any loss factor assigned to them since they are at fair value at the acquisition date and due to the two year put back option in place with TD Bank, as described in Note 8 in our Form 10-Q for the period ending March 31, 2011, filed on May 10, 2011.

Performing loans purchased pursuant to the November 1, 2011 acquisition of Federal Trust Corporation (“FTC”), are performing loans without any specific or implied credit deficiencies. These loans are included in our allowance for loan loss analysis, but do not have any loss factor assigned to them since they are at fair value at the acquisition date and due to the one year put back option in place with The Hartford Insurance Group, Inc. (“Hartford”), as described in Note 26 in our Form 10-K for the period ending December 31, 2011, filed on March 13, 2012.

We expect to provide an allowance for loan losses for the FTC purchased loans in the fourth quarter of 2012 and for the TD Bank purchased loans in the first quarter of 2013. Because these were selected performing loans and because we have the option to put back any loan that becomes 30 days past due or is adversely classified, the initial allowance for loan losses related to these two groups of loans are not expected to be material.

The allowance consists of three components. The first component is an allocation for impaired loans, as defined by generally accepted accounting principles. Impaired loans are those loans whereby management has arrived at a determination that the Company will not be repaid according to the original terms of the loan agreement. Each of these loans is required to have a written analysis supporting the amount of specific allowance allocated to the particular loan, if any. That is to say, a loan may be impaired (i.e., not expected to be repaid as agreed), but may be sufficiently collateralized such that we expect to recover all principal and interest eventually, and therefore no specific allowance is warranted.

The second component is a general allowance on all of the Company’s loans other than those identified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. The portfolio segments identified by the Company are residential loans, commercial real estate loans, construction and land development loans, commercial and industrial and consumer and other. This actual

loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The third component consists of amounts reserved for purchased credit-impaired loans. On a quarterly basis, the Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after the acquisition date are recognized through the provision for loan losses. Probable and significant increases in expected principal cash flows would first reverse any previously recorded allowance for loan losses; any remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan from the purchased credit impaired portfolio. The aggregate of these three components results in our total allowance for loan losses.

In the table below we have shown the components, as discussed above, of our allowance for loan losses at June 30, 2012 and December 31, 2011.


	June 30, 2012							Dec 31, 2011							increase (decrease)
	loan balance		ALLL balance		%			loan balance		ALLL balance		%			loan balance			ALLL balance
Impaired loans	$	48,095	$	634		1.32	%	$	53,668	$	3,304		6.16	%	$	(5,573	)	$	(2,670	)	-484bps
Non impaired loans		858,379		23,000		2.68	%		819,767		24,281		2.96	%		38,612			(1,281	)	-28bps
TD loans (note 1)		74,617		—					90,457		—					(15,840	)		—
FTC loans (note 2)		147,172		—					155,823		—					(8,651	)		—

Loans (note 3)		1,128,263		23,634		2.09	%		1,119,715		27,585		2.46	%		8,548			(3,951	)	-37bps
Covered loans (note 4)		327,325		1,549					164,051		359					163,274			1,190

Total loans	$	1,455,588	$	25,183		1.73	%	$	1,283,766	$	27,944		2.18	%	$	171,822		$	(2,761	)	-45bps

Note 1:

Performing loans purchased from TD Bank subject to a two year put back option commencing on January 20, 2011, such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loans to TD Bank.

Note 2:

Performing loans purchased from Hartford’s then wholly owned bank, FTC, subject to a one year put back option commencing on November 1, 2011, such that if any of these loans become 30 days past due or are adversely classified pursuant to bank regulatory guidelines, the Company has the option to put back the loans to Hartford.

Note 3:

Total loans not covered by FDIC loss share agreements.

Note 4:

Loans covered by FDIC loss share agreements. Eighty percent of any losses in this portfolio will be reimbursed by the FDIC and recognized as FDIC Indemnification income and included in non-interest income within the Company’s condensed consolidated statement of operations.

The general loan loss allowance (non-impaired loans) decreased by $1,281, or 28 bps to 2.68% of the non-impaired loan balance outstanding as of the end of the current period as compared to 2.96% at December 31, 2011. This is a result of changes in historical charge off rates, changes in environmental factors and changes in the loan portfolio mix.

Currently, there is no general loan loss allowance associated with the performing loans purchased from TD Bank and for the FTB performing loans purchased from Hartford for the reasons described in notes 1 and 2 above.

The specific loan loss allowance (impaired loans) is the aggregate of the results of individual analyses prepared for each one of the impaired loans not covered by an FDIC loss sharing agreement on a loan by loan basis. We recorded partial charge offs in lieu of specific allowance for a number of the impaired loans. The Company’s impaired loans have been written down by $7,428 to $48,095 ($47,461 when the $634 specific allowance is considered) from their legal unpaid principal balance outstanding of $55,523. As such, in the aggregate, our total impaired loans have been written down to approximately 85% of their legal unpaid principal balance.

Any losses in loans covered by FDIC loss share agreements, as described in note 3 above, are reimbursable from the FDIC to the extent of 80% of any losses. These loans are being accounted for pursuant to ASC Topic 310-30. On a quarterly basis, the Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan principal cash flows trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments that occur after the acquisition date are recognized through the provision for loan losses.

The allowance is increased by the provision for loan losses, which is a charge to current period earnings and decreased by loan charge-offs net of recoveries of prior period loan charge-offs. Loans are charged against the allowance when management believes collection of the principal is unlikely. We believe our allowance for loan losses was adequate at June 30, 2012. However, we recognize that many factors can adversely impact various segments of the Company’s market and customers, and therefore there is no assurance as to the amount of losses or probable losses which may develop in the future. The tables below summarize the changes in allowance for loan losses during the periods presented.


	Loans not covered by FDIC loss share agreements			Loans covered by FDIC loss share agreements			Total
Three months ended June 30, 2012
Balance at beginning of period	$	25,569		$	441		$	26,010
Loans charged-off		(3,322	)		—			(3,322	)
Recoveries of loans previously charged-off		601			—			601

Net charge-offs		(2,721	)		—			(2,721	)
Provision for loan loss		786			1,108			1,894

Balance at end of period	$	23,634		$	1,549		$	25,183


Three months ended June 30, 2011
Balance at beginning of period	$	28,245		$	—		$	28,245
Loans charged-off		(12,303	)		(293	)		(12,596	)
Recoveries of loans previously charged-off		124			—			124

Net charge-offs		(12,179	)		(293	)		(12,472	)
Provision for loan losses		11,352			293			11,645

Balance at end of period	$	27,418		$	—		$	27,418


	Loans not covered by FDIC loss share agreements			Loans covered by FDIC loss share agreements			Total
Six months ended June 30, 2012
Balance at beginning of period	$	27,585		$	359		$	27,944
Loans charged-off		(8,148	)		—			(8,148	)
Recoveries of loans previously charged-off		761			—			761

Net charge-offs		(7,387	)		—			(7,387	)
Provision for loan loss		3,436			1,190			4,626

Balance at end of period	$	23,634		$	1,549		$	25,183


Six months ended June 30, 2011
Balance at beginning of period	$	26,267		$	—		$	26,267
Loans charged-off		(21,761	)		(293	)		(22,054	)
Recoveries of loans previously charged-off		284			—			284

Net charge-offs		(21,477	)		(293	)		(21,770	)
Provision for loan losses		22,628			293			22,921

Balance at end of period	$	27,418		$	—		$	27,418

We acquired two FDIC failed financial institutions during the first quarter of 2012, including loans covered by FDIC loss share agreements. All of the loans acquired are being accounted for pursuant to ASC Topic 310-30. We arrived at this conclusion as follows.

Second, all remaining acquired loans, those without specifically identified credit deficiency factors, we refer to as Type B loans for disclosure purposes, were then grouped into pools with common risk characteristics. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the challenging economic environment both nationally and locally as well as the unfavorable real estate market particularly in Florida. In addition, these loans were acquired from three failed financial institutions, which implies potentially deficient, or at least questionable, credit underwriting. Based on management’s estimate of fair value, each of these pools was assigned a discount credit mark. We have applied ASC Topic 310-30 accounting treatment by analogy to Type B loans. The result is that all loans acquired from these three failed financial institutions will be accounted for under ASC Topic 310-30.


	at acquisition dates
	Type A loans			Type B loans			Total
Contractually required principal and interest	$	118,393		$	244,737		$	363,130
Non-accretable difference		(68,097	)		(57,533	)		(125,630	)

Cash flows expected to be collected		50,296			187,204			237,500
Accretable yield		(2,418	)		(30,557	)		(32,975	)

Total acquired loans	$	47,878		$	156,647		$	204,525

Type A loans: acquired loans with specifically identified credit deficiency factor(s).

Type B loans: all other acquired loans.

Income on acquired loans, whether Type As or Type Bs, is recognized in the same manner pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected. We accreted approximately $2,682 and $4,583 into interest income during the three and six month periods ending June 30, 2012, respectively, from these purchased loans.

Each quarter, management reevaluates expected future losses and expected future cash flows compared to previously estimated expected losses and cash flows. To the extent revised expected cash flows are higher than previously expected cash flows, the estimated difference is reclassified from non-accretable difference to accretable yield, and future yield accretion will increase over the remaining life of the loans in the related pool. To the extent future expected cash flows are determined to be less than previously estimated future expected cash flows, then that particular pool is impaired. When a pool is deemed to be impaired the estimated loss is recognized in the current period.

Nonperforming loans and nonperforming assets

Non performing loans, excluding loans covered by FDIC loss share agreements, are defined as non accrual loans plus loans past due 90 days or more and still accruing interest. Generally we place loans on non accrual status when they are past due 90 days and management believes the borrower’s financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. When we place a loan on non accrual status, interest accruals cease and uncollected interest is reversed and charged against current income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Non performing loans, excluding loans covered by FDIC loss share agreements, as a percentage of total loans, excluding loans covered by FDIC loss share agreements, were 2.83% at June 30, 2012, compared to 3.48% at December 31, 2011.

Non performing assets, excluding assets covered by FDIC loss share agreements, (which we define as non performing loans, as defined above, plus (a) OREO (i.e., real estate acquired through foreclosure, in substance foreclosure, or deed in lieu of foreclosure); and (b) other repossessed assets that are not real estate), were $39,383 at June 30, 2012, compared to $49,309 at December 31, 2011. Non performing assets as a percentage of total assets were 1.61% at June 30, 2012, compared to 2.16% at December 31, 2011.

The following table sets forth information regarding the components of nonperforming assets at the dates indicated. All loans, OREO and other repossessed assets covered by FDIC loss share agreements are excluded.


	Jun 30, 2012			Dec 31, 2011
Non-accrual loans	$	31,769		$	38,858
Past due loans 90 days or more and still accruing interest		118			120

Total non-performing loans (NPLs)		31,887			38,978

Other real estate owned (OREO)		6,855			8,712
Repossessed assets other than real estate		641			1,619

Total non-performing assets (NPAs)	$	39,383		$	49,309


Total NPLs as a percentage of total loans		2.83	%		3.48	%
Total NPAs as a percentage of total assets		1.61	%		2.16	%
Loans past due between 30 and 89 days and accruing interest as a percentage of total loans		0.61	%		1.45	%
Allowance for loan losses	$	23,634		$	27,585
Allowance for loan losses as a percentage of NPLs		74	%		71	%

As shown in the table above, the largest component of non performing loans excluding loans covered by FDIC loss share agreements is non accrual loans. As of June 30, 2012 the Company had reported a total of 226 non accrual loans with an aggregate book value of $31,769, compared to December 31, 2011 when 221 non accrual loans with an aggregate book value of $38,858 were reported. Most of the $7,089 decrease came from the land, development and construction loan category. The other categories remained approximately the same or slight decreases except for commercial real estate which increased by approximately $1,418. This amount is further delineated by collateral category and number of loans in the table below.


collateral category (unaudited)	carrying balance		percentage of total non accrual loans			number of non accrual loans in category
Residential real estate loans	$	13,181		41	%		93
Commercial real estate loans		13,055		41	%		43
Land, development, construction loans		3,705		12	%		35
Non real estate commercial loans		1,498		5	%		28
Non real estate consumer and other loans		330		1	%		27

Total non accrual loans at June 30, 2012	$	31,769		100	%		226

The second largest component of non performing assets after non accrual loans is OREO, excluding OREO covered by FDIC loss share agreements. At June 30, 2012, total OREO was $37,098. Of this amount, $30,243 is covered by FDIC loss sharing agreements. Pursuant and subject to the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Company for 80% of losses with respect to the covered OREO beginning with the first dollar of loss incurred. The Company will reimburse the FDIC for its share of recoveries with respect to the covered OREO. The loss sharing agreements applicable to single family residential mortgage loans provide for FDIC loss sharing and the Company reimbursement to the FDIC for recoveries for ten years. The loss sharing agreements applicable to commercial loans provides for FDIC loss sharing for five years and Company reimbursement to the FDIC for a total of eight years for recoveries.

OREO not covered by FDIC loss share agreements is $6,855 at June 30, 2012. OREO is carried at the lower of cost or market less the estimated cost to sell. Further declines in real estate values can affect the market value of these assets. Any further decline in market value beyond its cost basis is recorded as a current expense in the Company’s Statement of Operations. OREO is further delineated in the table below.


(unaudited) description of repossessed real estate	carrying amount at June 30, 2012
16 single family homes	$	1,187
1 mobile homes with land		126
38 residential building lots		1,335
6 commercial buildings		1,446
Land / various acreages		2,761

Total, excluding OREO covered by FDIC loss share agreements	$	6,855

Impaired loans are defined as loans that management has concluded will not repay as agreed upon pursuant to the terms of the original loan agreements. (Small balance homogeneous loans are not considered for impairment purposes.) Once management has determined a loan is impaired, we perform a specific reserve analysis to determine if it is probable that we will eventually collect all contractual cash flows. If management determines that a shortfall is probable, then a specific valuation allowance is placed against the loan. This loan is then placed on non accrual basis, even if the borrower is current with his/her contractual payments, and will remain on non accrual until payments collected reduce the loan balance such that it eliminates the specific valuation allowance or equivalent partial charge-down or other economic conditions change. At June 30, 2012 we have identified a total of $48,095 impaired loans, excluding loans covered by FDIC loss share agreements. A specific valuation allowance of $634 has been attached to $7,981 of the total identified impaired loans. It should also be noted that the total carrying balance of the impaired loans, or $48,095, has been partially charged down by $7,428 from their aggregate legal unpaid balance of $55,523. The table below summarizes impaired loan data for the periods presented.


	June 30, 2012		Dec 31, 2011
Impaired loans with a specific valuation allowance	$	7,981	$	13,203
Impaired loans without a specific valuation allowance		40,114		40,465

Total impaired loans	$	48,095	$	53,668
Amount of allowance for loan losses allocated to impaired loans		634	$	3,304

Performing TDRs	$	6,799	$	6,554
Non performing TDRs, included in NPLs		4,923		5,807

Total TDRs (TDRs are required to be included in impaired loans)	$	11,722	$	12,361
Impaired loans that are not TDRs		36,373		41,307

Total impaired loans	$	48,095	$	53,668

We continually analyze our loan portfolio in an effort to recognize and resolve problem assets as quickly and efficiently as possible. As of June 30, 2012, we believe the allowance for loan losses was adequate. However, we recognize that many factors can adversely impact various segments of the market. Accordingly, there is no assurance that losses in excess of such allowance will not be incurred.

Bank premises and equipment

Bank premises and equipment was $100,902 at June 30, 2012 compared to $94,358 at December 31, 2011, an increase of $6,544 or 7%. This amount is the result of purchases, net of dispositions, and construction in process of $9,897 less $2,683 of depreciation expense and $670 carrying value transfer of bank property to held-for-sale. The building was transferred at its $505 net realizable value resulting in an impairment expense of $165. The $9,897 of purchases and construction cost, net of disposals, was primarily the result of: the construction of two new branches, one of which was a permanent replacement for a previously leased temporary location; purchase of two office locations from the FDIC in Jacksonville; remodel and reconfigure construction cost; and, acquisition of additional furniture, fixtures

and equipment relating to our acquisitions of Central FL and FGB, as well as the two newly constructed offices referred to above, and normal replacements and upgrading of existing equipment, furniture and software.

Deposits

During the six month period ending June 30, 2012, total deposits increased by $136,308 (time deposits decreased by $29,710 and non time deposits increased by $166,018) primarily due to the $418,308 of deposits acquired pursuant to the Central FL and FGB acquisitions during January 2012. We assumed $127,856 of internet time deposits pursuant to the FGB acquisition. The Company exercised its option, pursuant to the FDIC purchase and assumption agreement, to immediately reprice this group of time deposits subsequent to the acquisition date to estimated market rates. Pursuant to the FDIC purchase and assumption agreement, if the Company chooses to reprice any time deposits, the customer has the option of withdrawing their deposit any time prior to maturity without penalty. All of the internet time deposits have been withdrawn early. In addition, the Company also repriced approximately $10,673 of additional time deposits to current market rates subsequent to the acquisition date. All other deposits assumed have been marked to estimated fair value in the Company’s financial statements as of the acquisition date. A summary of our deposit mix is presented in the table below.


	Jun 30, 2012		% of total			Dec 31, 2011		% of total
Demand – non-interest bearing	$	500,871		24	%	$	423,128		22	%
Demand – interest bearing		408,877		20	%		344,303		18	%
Savings deposits		243,390		12	%		205,387		10	%
Money market accounts		325,751		16	%		340,053		18	%
Time deposits		577,208		28	%		606,918		32	%

Total deposits	$	2,056,097		100	%	$	1,919,789		100	%

Securities sold under agreement to repurchase

Our subsidiary bank enters into borrowing arrangements with our retail business customers by agreements to repurchase (“securities sold under agreements to repurchase”) under which the bank pledges investment securities owned and under its control as collateral against the one-day borrowing arrangement. These short-term borrowings totaled $23,767 at June 30, 2012 compared to $14,652 at December 31, 2011.

Federal funds purchased

Federal funds purchased are overnight deposits from correspondent banks. Federal funds purchased acquired from other than our correspondent bank deposits are included with Federal Home Loan Bank advances and other borrowed funds as described below, if any. At June 30, 2012 we had $45,337 of correspondent bank deposits or federal funds purchased, compared to $54,624 at December 31, 2011.

Corporate debentures

We formed CenterState Banks of Florida Statutory Trust I (the “Trust”) for the purpose of issuing trust preferred securities. On September 22, 2003, we issued a floating rate corporate debenture in the amount of $10,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture of the Company. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the

corporate debenture (three month LIBOR plus 305 basis points). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Trust, at their respective option, subject to prior approval by the Federal Reserve Board, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

In September 2004, Valrico Bancorp Inc. (“VBI”) formed Valrico Capital Statutory Trust (“Valrico Trust”) for the purpose of issuing trust preferred securities. On September 9, 2004, VBI issued a floating rate corporate debenture in the amount of $2,500. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI’s corporate debenture and related trust preferred security discussed above. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 270 basis points). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Valrico Trust, at their respective option, subject to prior approval by the Federal Reserve, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

In November 2011, we acquired certain assets and assumed certain liabilities of Federal Trust Corporation (“FTC”) from The Hartford Financial Services Group, Inc. (“Hartford”) pursuant to an acquisition agreement, including FTC’s corporate debenture and related trust preferred security issued through FTC’s finance subsidiary Federal Trust Statutory Trust (“FTC Trust) in the amount of $5,000. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 295 basis points). The corporate debenture and the trust preferred security each have 30-year lives maturing in 2033. The trust preferred security and the corporate debenture are callable by the Company or the FTC Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company has treated the corporate debenture as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.

Stockholders’ equity

Stockholders’ equity at June 30, 2012, was $269,315, or 11.0% of total assets, compared to $262,633, or 11.5% of total assets at December 31, 2011. The increase in stockholders’ equity was due to the following items:


$262,633		Total stockholders’ equity at December 31, 2011
4,969		Net income during the period
(601	)	Dividends paid on common shares, $0.02 per common share
1,901		Net increase in market value of securities available for sale, net of deferred taxes
413		Employee equity based compensation

$269,315		Total stockholders’ equity at June 30, 2012

The federal bank regulatory agencies have established risk-based capital requirements for banks. These guidelines are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital

against such “off- balance sheet” activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity such as preferred stock that may be included in capital. As of June 30, 2012, the Company’s subsidiary bank, CenterState Bank of Florida, N.A., exceeded the minimum capital levels to be considered “well capitalized” under the terms of the guidelines.

Selected consolidated capital ratios at June 30, 2012 and December 31, 2011 for the Company and for the Company’s subsidiary bank, CenterState Bank of Florida, N.A. are presented in the tables below.


CenterState Banks, Inc. (the Company)	Actual					Well capitalized					Excess
	Amount		Ratio			Amount		Ratio			Amount
June 30, 2012
Total capital (to risk weighted assets)	$	241,479		17.8	%	$	135,718		> 10	%	$	105,761
Tier 1 capital (to risk weighted assets)		224,413		16.5	%		81,431		> 6	%		142,982
Tier 1 capital (to average assets)		224,413		9.2	%		121,596		> 5	%		102,817

December 31, 2011
Total capital (to risk weighted assets)	$	247,567		19.1	%	$	129,927		> 10	%	$	117,640
Tier 1 capital (to risk weighted assets)		231,182		17.8	%		77,956		> 6	%		153,226
Tier 1 capital (to average assets)		231,182		10.5	%		110,143		> 5	%		121,039


CenterState Bank of Florida, N.A.	Actual					Well capitalized					Excess
	Amount		Ratio			Amount		Ratio			Amount
June 30, 2012
Total capital (to risk weighted assets)	$	231,172		17.2	%	$	134,556		> 10	%	$	96,616
Tier 1 capital (to risk weighted assets)		214,252		15.9	%		80,734		> 6	%		133,518
Tier 1 capital (to average assets)		214,252		8.9	%		120,539		> 5	%		93,713

December 31, 2011
Total capital (to risk weighted assets)	$	183,942		15.9	%	$	115,569		> 10	%	$	68,374
Tier 1 capital (to risk weighted assets)		169,365		14.7	%		69,341		> 6	%		100,024
Tier 1 capital (to average assets)		169,365		8.4	%		100,589		> 5	%		68,776


Valrico State Bank	Actual					Well capitalized					Excess
	Amount		Ratio			Amount		Ratio			Amount
December 31, 2011
Total capital (to risk weighted assets)	$	23,377		17.9	%	$	13,085		> 10	%	$	10,292
Tier 1 capital (to risk weighted assets)		21,730		16.6	%		7,851		> 6	%		13,879
Tier 1 capital (to average assets)		21,730		12.8	%		8,468		> 5	%		13,262

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Overview

We recognized net income of $3,680 or $0.12 per share basic and diluted for the three month period ended June 30, 2012, compared to a net loss of $4,346 or $0.14 per share basic and diluted for the same period in 2011.

The primary differences between the two periods included the following:

•

increase in net interest income due to the acquisition of two failed financial institutions from the FDIC during the first quarter of 2012 and from the acquisition of Federal Trust Corporation (“FTC”) and its subsidiary bank, Federal Trust Bank (“FTB”) on November 1, 2011; these acquisitions were also a primary contributing factor causing the increase in operating expenses;

•

our loan loss provision expense is significantly less this quarter than the same quarter last year which was reflective of the depressed real estate market in Central Florida; we sold non performing loans during the fourth quarter of 2011 contributing to the improvement in all of our credit metrics during the first quarter of 2012 and our credit metrics continued to improve during the second quarter of 2012;

•

commission revenue from bond sales at our correspondent banking segment was higher in the current quarter compared to the similar quarter last year.

Each of the above referenced income and expense categories, along with other items are discussed and analyzed in greater detail below.

Net interest income/margin

Net interest income increased $4,636 or 26% to $22,175 during the three month period ended June 30, 2012 compared to $17,539 for the same period in 2011. The $4,636 increase was the result of a $3,774 increase in interest income and a $862 decrease in interest expense.

Interest earning assets averaged $2,089,533 during the three month period ended June 30, 2012 as compared to $1,919,109 for the same period in 2011, an increase of $170,424, or 9%. The yield on average interest earning assets increased 38bps to 4.71% (39bps to 4.78% tax equivalent basis) during the three month period ended June 30, 2012, compared to 4.33% (4.39% tax equivalent basis) for the same period in 2011. The combined effects of the $170,424 increase in average interest earning assets and the 38bps (39bps tax equivalent basis) increase in yield on average interest earning assets resulted in the $3,774 ($3,792 tax equivalent basis) increase in interest income between the two periods.

Interest bearing liabilities averaged $1,696,412 during the three month period ended June 30, 2012 as compared to $1,517,884 for the same period in 2011, an increase of $178,528, or 12%. The cost of average interest bearing liabilities decreased 29bps to 0.55% during the three month period ended June 30, 2012, compared to 0.84% for the same period in 2011. The combined effects of the $178,528 increase in average interest bearing liabilities and the 29bps decrease in cost of average interest bearing liabilities resulted in the $862 decrease in interest expense between the two periods.

The table below summarizes the analysis of changes in interest income and interest expense for the three month periods ended June 30, 2012 and 2011 on a tax equivalent basis.


	Three months ended June 30,
	2012								2011
	Average Balance			Interest Inc / Exp		Average Rate			Average Balance			Interest Inc / Exp		Average Rate
Loans (1) (2) (9)	$	1,122,268		$	14,718		5.27	%	$	1,032,592		$	13,885		5.39	%
Covered loans (10)		337,258			6,372		7.60	%		184,413			2,532		5.51	%
Securities – taxable		475,099			3,064		2.59	%		513,132			3,945		3.08	%
Securities – tax exempt (9)		38,755			521		5.41	%		35,132			500		5.71	%
Fed funds sold and other (3)		116,153			144		0.50	%		153,840			165		0.43	%

Total interest earning assets		2,089,533			24,819		4.78	%		1,919,109			21,027		4.39	%

Allowance for loan losses		(26,254	)							(26,549	)
All other assets		423,431								286,908

Total assets	$	2,486,710							$	2,179,468


Interest bearing deposits (4)		1,590,953			2,004		0.51	%		1,399,653			2,982		0.85	%
Fed funds purchased		54,131			7		0.05	%		82,118			12		0.06	%
Other borrowings (5)		24,373			25		0.41	%		23,613			69		1.17	%
Note payable (6)		10,000			111		4.42	%		—			—		—
Corporate debentures		16,955			157		3.75	%		12,500			103		3.31	%

Total interest bearing liabilities		1,696,412			2,304		0.55	%		1,517,884			3,166		0.84	%

Demand deposits		507,138								392,504
Other liabilities		15,720								15,172
Stockholders’ equity		267,440								253,908

Total liabilities and stockholders’ equity	$	2,486,710							$	2,179,468


Net interest spread (tax equivalent basis) (7)							4.23	%							3.55	%

Net interest income (tax equivalent basis)				$	22,515							$	17,861

Net interest margin (tax equivalent basis) (8)							4.33	%							3.73	%


Note 1:		Loan balances are net of deferred origination fees and costs.
Note 2:		Interest income on average loans includes amortization of loan fee recognition of $211 and $80 for the three month periods ended June 30, 2012 and 2011.
Note 3:		Includes federal funds sold, interest earned on deposits at the Federal Reserve Bank and earnings on Federal Reserve Bank stock and Federal Home Loan Bank stock.
Note 4:		Includes interest bearing deposits only. Non-interest bearing checking accounts are included in the demand deposits listed above. Also, includes net amortization of fair market value adjustments related to various acquisitions of time deposits of ($493) and ($408) for the three month periods ended June 30, 2012 and 2011.
Note 5:		Includes securities sold under agreements to repurchase and Federal Home Loan Bank advances.
Note 6:		Represents a $10,000 short-term note used to facilitate the two FDIC assisted transactions during January 2012 which was subsequently been repaid during July 2012.
Note 7:		Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.
Note 8:		Represents net interest income divided by total interest earning assets.
Note 9:		Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates to adjust tax exempt interest income on tax exempt investment securities and loans to a fully taxable basis.
Note 10:		Loans covered by FDIC loss share agreements accounted for pursuant to ASC Topic 310-30.

Provision for loan losses

The provision for loan losses decreased $9,751, or 84%, to $1,894 during the three month period ending June 30, 2012 compared to $11,645 for the comparable period in 2011. Our policy is to maintain the allowance for loan losses at a level sufficient to absorb probable incurred losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses, which is a charge to current period earnings, and is decreased by charge-offs, net of recoveries on prior loan charge-offs. Therefore, the

provision for loan losses (Income Statement effect) is a residual of management’s determination of allowance for loan losses (Balance Sheet approach). In determining the adequacy of the allowance for loan losses, we consider the conditions of individual borrowers, the historical loan loss experience, the general economic environment, the overall portfolio composition, and other information. As these factors change, the level of loan loss provision changes. See “Credit quality and allowance for loan losses” for additional information regarding the allowance for loan losses.

Non-interest income

Non-interest income for the three months ended June 30, 2012 was $16,599 compared to $13,218 for the comparable period in 2011. This increase was the result of the following components listed in the table below.


Three month period ending:	June 30, 2012			June 30, 2011			$ increase (decrease)			% increase (decrease)
Service charges on deposit accounts	$	1,595		$	1,417		$	178			12.6	%
Income from correspondent banking and bond sales division		9,966			5,759			4,207			73.1	%
Correspondent banking division – other fees		553			430			123			28.6	%
Commissions from sale of mutual funds and annuities		631			322			309			96.0	%
Debit card and ATM fees		1,017			714			303			42.4	%
Loan related fees		85			306			(221	)		(72.2	%)
BOLI income		363			235			128			54.5	%
Trading securities revenue		133			106			27			25.5	%
FDIC indemnification asset – accretion of discount rate		(290	)		(47	)		(243	)		517.0	%
FDIC OREO indemnification income		343			585			(242	)		(41.4	)
FDIC pool impairment indemnification income		886			—			886			n/a
Trust income		319			—			319			n/a
Other service charges and fees		272			271			1			0.4	%
Gain on sale of securities available for sale		726			3,120			(2,394	)		(76.7	%)

Total non-interest income	$	16,599		$	13,218		$	3,381			25.6	%

The FDIC indemnification asset (“IA”) discount amortization is producing negative amortization due to adjustments in the FDIC covered loan portfolio. That is, to the extent current adjusted projected losses in the covered loan portfolio are less than originally projected losses and therefore future loan accretion yields increase, the related projected reimbursements from the FDIC contemplated in the IA is less, which produces a negative income accretion in non-interest income. This event corresponds to the increase in yields in the FDIC covered loan portfolio.

When a FDIC covered OREO property is sold at a loss (i.e. difference between carrying value and proceeds received), the loss is included in non-interest expense as loss on sale of OREO, and approximately eighty percent of the loss is recorded as FDIC indemnification income and included in non-interest income. Eighty percent of any related FDIC loan pool impairments also are reflected in non-interest income.

We acquired a Trust department in our January 27, 2012 FDIC assisted acquisition of FGB, which is currently producing gross Trust revenue of approximately $100 per month. Income from correspondent banking and bond sales division (i.e. commissions from bond sales) increased significantly during the current quarter compared to the same quarter last year. The increase is due to volume which is reflective of the needs of the market as well as volatility in interest rates. Our bond customers are approximately 500 small and medium sized financial institutions primarily located in Florida, Georgia and Alabama. These increases in non-interest income were partially offset by less gain on sales of securities available for sale during the current quarter compared to the same period last year. We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits for liquidity management, investment yields and asset/liability management.

Non-interest expense

Non-interest expense for the three months ended June 30, 2012 increased $5,129, or 19.3%, to $31,658, compared to $26,529 for the same period in 2011. Components of our non-interest expenses are listed in the table below.


Three month period ending:	June 30, 2012			June 30, 2011			$ increase (decrease)			% Increase (decrease)
Employee salaries and wages	$	15,650		$	11,246		$	4,404			39.2	%
Employee incentive/bonus compensation		897			594			303			51.1	%
Employee stock based compensation		164			182			(18	)		(9.9	%)
Deferred compensation expense		123			115			8			7.0	%
Health insurance and other employee benefits		1,052			831			221			26.6	%
Payroll taxes		814			649			165			25.4	%
Employer 401K matching contributions		303			230			73			31.7	%
Other employee related expenses		231			104			127			122.1	%
Incremental direct cost of loan origination		(184	)		(131	)		(53	)		40.4	%

Total salaries, wages and employee benefits		19,050			13,820			5,230			37.8	%


(Gain) loss on sale of OREO		(120	)		46			(166	)		(360.9	%)
Loss (gain) on sale of FDIC covered OREO		349			(509	)		858			168.6	%
Valuation write down of OREO		418			846			(428	)		(50.6	%)
Valuation write down of FDIC covered OREO		417			389			28			7.2	%
Loss on repossessed assets other than real estate		40			82			(42	)		(51.2	%)
Foreclosure and repossession related expenses		671			1,522			(851	)		(55.9	%)
Foreclosure and repo expense, FDIC (note 1)		423			486			(63	)		(13.0	%)

Total credit related expenses		2,198			2,862			(664	)		(23.2	%)


Occupancy expense		2,481			2,114			367			17.4	%
Depreciation of premises and equipment		1,416			996			420			42.2	%
Supplies, stationary and printing		303			366			(63	)		(17.2	%)
Marketing expenses		609			760			(151	)		(19.9	%)
Data processing expense		962			1,625			(663	)		(40.8	%)
Legal, auditing and other professional fees		601			623			(22	)		(3.5	%)
Bank regulatory related expenses		658			645			13			2.0	%
Postage and delivery		264			200			64			32.0	%
ATM and debit card related expenses		255			424			(169	)		(39.9	%)
CDI and Trust intangible amortization		359			201			158			78.6	%
Impairment – bank property held for sale		165			—			165			n/a
Internet and telephone banking		224			282			(58	)		(20.6	%)
Visa/Mastercard processing and prepaid card expenses		30			35			(5	)		(14.3	%)
Put-back option amortization		182			110			72			65.5	%
Operational write-offs and losses		91			120			(29	)		(24.2	%)
Correspondent accounts and Federal Reserve charges		146			120			26			21.7	%
Conferences/Seminars/Education/Training		161			122			39			32.0	%
Director fees		80			66			14			21.2	%
Travel expenses		63			40			23			57.5	%
Other expenses		746			529			217			41.0	%

Subtotal		31,044			26,060			4,984			19.1	%
Merger, acquisition and conversion related expenses		614			469			145			30.9	%

Total non-interest expense	$	31,658		$	26,529		$	5,129			19.3	%


note 1:		These are foreclosure and repossession related expenses related to FDIC covered assets, and are shown net of FDIC reimbursable amounts pursuant to FDIC loss share agreements.

Excluding credit related expenses, correspondent banking division expenses, impairment of bank property held for sale and merger/acquisition related expenses, the Company’s remaining non-interest expenses increased approximately $3,313, or 19%, during the current quarter compared to the same quarter last year, as summarized in the table below.


	3 months ending June 30,						increase
	2012			2011			(decrease)
Total non-interest expense	$	31,658		$	26,529		$	5,129
Merger, acquisition and conversion expenses		(614	)		(469	)		(145	)
Credit related expenses		(2,198	)		(2,862	)		664
Correspondent banking division expenses		(7,896	)		(5,726	)		(2,170	)
Impairment – bank property held for sale		(165	)		—			(165	)

Non-interest expense, excluding items listed above	$	20,785		$	17,472		$	3,313

The increase in non-interest expenses, excluding items listed above, between the two periods presented above were primarily due to the January 20, 2012 acquisition of Central FL, the January 27, 2012 acquisition of FGB and the November 1, 2011 acquisition of Federal Trust Corporation and its subsidiary Federal Trust Bank.

Provision (benefit) for income taxes

We recognized an income tax provision for the three months ended June 30, 2012 of $1,542 on pre-tax income of $5,222 (an effective tax rate of 29.5%) compared to an income tax benefit of $3,071 on pre-tax loss of $7,417 (an effective tax rate of 41.4%) for the comparable quarter in 2011. Net tax exempt income generally decreases a company’s effective tax rate (compared to statutory rates) when the company reports earnings. When there is a loss, the same net tax exempt income will generally produce higher effective tax rates.

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Overview

We recognized net income of $4,969 or $0.16 per share basic and diluted for the six month period ended June 30, 2012, compared to a net loss of $4,181 or $0.14 per share basic and diluted for the same period in 2011.

The primary differences between the two periods included the following:

•

increase in net interest income due to the acquisition of two failed financial institutions from the FDIC in January 2012 and from the acquisition of Federal Trust Corporation (“FTC”) and its subsidiary bank, Federal Trust Bank (“FTB”) on November 1, 2011; these acquisitions were also a primary contributing factor causing the increase in operating expenses;

•

commission revenue from bond sales at our correspondent banking segment was higher during the first six months of 2012 compared to the similar period last year;

•

bargain purchase gain recognized in the first six months of 2012 from the Central FL acquisition was $453, which was significantly less than the $11,129 bargain purchase gain recognized from the TD Bank transaction in January 2011.

Each of the above referenced income and expense categories, along with other items are discussed and analyzed in greater detail below.

Net interest income/margin

Net interest income increased $8,566 or 25% to $43,079 during the six month period ended June 30, 2012 compared to $34,513 for the same period in 2011. The $8,566 increase was the result of a $6,811 increase in interest income and a $1,755 decrease in interest expense.

Interest earning assets averaged $2,105,844 during the six month period ended June 30, 2012 as compared to $1,907,905 for the same period in 2011, an increase of $197,939, or 10%. The yield on average interest earning assets increased 23bps to 4.57% (24bps to 4.64% tax equivalent basis) during the six month period ended June 30, 2012, compared to 4.34% (4.40% tax equivalent basis) for the same period in 2011. The combined effects of the $197,939 increase in average interest earning assets and the 23bps (24bps tax equivalent basis) increase in yield on average interest earning assets resulted in the $6,811 ($6,938 tax equivalent basis) increase in interest income between the two periods.

Interest bearing liabilities averaged $1,709,335 during the six month period ended June 30, 2012 as compared to $1,527,596 for the same period in 2011, an increase of $181,739, or 12%. The cost of average interest bearing liabilities decreased 30bps to 0.57% during the six month period ended June 30, 2012, compared to 0.87% for the same period in 2011. The combined effects of the $181,739 increase in average interest bearing liabilities and the 30bps decrease in cost of average interest bearing liabilities resulted in the $1,755 decrease in interest expense between the two periods.

The table below summarizes the analysis of changes in interest income and interest expense for the six month periods ended June 30, 2012 and 2011 on a tax equivalent basis.


	Six months ended June 30,
	2012								2011
	Average Balance			Interest Inc / Exp		Average Rate			Average Balance			Interest Inc / Exp		Average Rate
Loans (1) (2) (9)	$	1,119,536		$	29,239		5.25	%	$	1,025,342		$	27,047		5.32	%
Covered loans (10)		323,347			11,562		7.19	%		189,430			5,763		6.13	%
Securities – taxable		502,525			6,433		2.57	%		509,936			7,514		2.97	%
Securities – tax exempt (9)		38,121			1,042		5.50	%		34,517			1,009		5.89	%
Fed funds sold and other (3)		122,315			295		0.49	%		148,680			300		0.41	%

Total interest earning assets		2,105,844			48,571		4.64	%		1,907,905			41,633		4.40	%

Allowance for loan losses		(27,337	)							(26,581	)
All other assets		412,863								290,927

Total assets	$	2,491,370							$	2,172,251


Interest bearing deposits (4)		1,600,564			4,235		0.53	%		1,411,230			6,191		0.88	%
Fed funds purchased		61,487			15		0.05	%		79,728			32		0.08	%
Other borrowings (5)		21,499			49		0.46	%		24,138			140		1.17	%
Note payable (6)		8,833			194		4.42	%		—			—		—
Corporate debenture		16,952			321		3.81	%		12,500			206		3.32	%

Total interest bearing liabilities		1,709,335			4,814		0.57	%		1,527,596			6,569		0.87	%

Demand deposits		501,018								373,376
Other liabilities		15,693								18,475
Stockholders’ equity		265,324								252,804

Total liabilities and stockholders’ equity	$	2,491,370							$	2,172,251


Net interest spread (tax equivalent basis) (7)							4.07	%							3.53	%

Net interest income (tax equivalent basis)				$	43,757							$	35,064

Net interest margin (tax equivalent basis) (8)							4.18	%							3.71	%


Note 1:		Loan balances are net of deferred origination fees and costs.
Note 2:		Interest income on average loans includes amortization of loan fee recognition of $379 and $144 for the three month periods ended June 30, 2012 and 2011.
Note 3:		Includes federal funds sold, interest earned on deposits at the Federal Reserve Bank and earnings on Federal Reserve Bank stock and Federal Home Loan Bank stock.
Note 4:		Includes interest bearing deposits only. Non-interest bearing checking accounts are included in the demand deposits listed above. Also, includes net amortization of fair market value adjustments related to various acquisitions of time deposits of ($1,049) and ($881) for the three month periods ended June 30, 2012 and 2011.
Note 5:		Includes securities sold under agreements to repurchase and Federal Home Loan Bank advances.
Note 6:		Represents a $10,000 short-term note used to facilitate the two FDIC assisted transactions during January 2012 and has subsequently been repaid during July 2012.
Note 7:		Represents the average rate earned on interest earning assets minus the average rate paid on interest bearing liabilities.
Note 8:		Represents net interest income divided by total interest earning assets.
Note 9:		Interest income and rates include the effects of a tax equivalent adjustment using applicable statutory tax rates to adjust tax exempt interest income on tax exempt investment securities and loans to a fully taxable basis.
Note 10:		Loans covered by FDIC loss share agreements accounted for pursuant to ASC Topic 310-30.

Provision for loan losses

The provision for loan losses decreased $18,295, or 80%, to $4,626 during the six month period ending June 30, 2012 compared to $22,921 for the comparable period in 2011. Our policy is to maintain the allowance for loan losses at a level sufficient to absorb probable incurred losses inherent in the loan

portfolio. The allowance is increased by the provision for loan losses, which is a charge to current period earnings, and is decreased by charge-offs, net of recoveries on prior loan charge-offs. Therefore, the provision for loan losses (Income Statement effect) is a residual of management’s determination of allowance for loan losses (Balance Sheet approach). In determining the adequacy of the allowance for loan losses, we consider the conditions of individual borrowers, the historical loan loss experience, the general economic environment, the overall portfolio composition, and other information. As these factors change, the level of loan loss provision changes. See “Credit quality and allowance for loan losses” for additional information regarding the allowance for loan losses.

Non-interest income

Non-interest income for the six months ended June 30, 2012 was $30,285 compared to $34,124 for the comparable period in 2011. This decrease was the result of the following components listed in the table below.


Six month period ending:	Jun 30, 2012			Jun 30, 2011		$ increase (decrease)			% increase (decrease)
Service charges on deposit accounts	$	3,078		$	2,973	$	105			3.5	%
Income from correspondent banking and bond sales division		17,750			10,229		7,521			73.5	%
Correspondent banking division – other fees		944			769		175			22.8	%
Commissions from sale of mutual funds and annuities		1,291			761		530			69.6	%
Debit card and ATM fees		1,932			1,370		562			41.0	%
Loan related fees		285			471		(186	)		(39.5	%)
BOLI income		721			474		247			52.1	%
Trading securities revenue		277			267		10			3.8	%
FDIC indemnification asset- accretion of discount rate		(786	)		421		(1,207	)		n/a
FDIC OREO indemnification income		841			1,721		(880	)		(51.1	%)
FDIC pool impairment indemnification income		952			—		952			n/a
Trust income		527			—		527			n/a
Other service charges and fees		692			410		282			68.8	%
Gain on sale of securities		1,328			3,129		(1,801	)		(57.6	%)

Subtotal		29,832			22,995		6,837			29.7	%
Bargain purchase gain		453			11,129		(10,676	)		(95.9	%)

Total non-interest income	$	30,285		$	34,124	$	(3,839	)		(11.3	%)

We acquired a Trust department in our January 27, 2012 FDIC assisted acquisition of FGB, which is currently producing gross Trust revenue of approximately $100 per month. We also acquired approximately $8,000 of BOLI pursuant to the November 1, acquisition of Federal Trust Bank and purchased an additional $10,000 in January of 2012, resulting in higher BOLI income during the current period compared to the same period last year. Income from correspondent banking and bond sales

division (i.e. commissions from bond sales) increased during the current period compared to the same period last year. The increase is due to volume which is reflective of the needs of the market as well as volatility in interest rates. Our bond customers are approximately 500 small and medium sized financial institutions primarily located in Florida, Georgia and Alabama. These increases in non-interest income were partially offset by less gain on sales of securities available for sale during the current period compared to the same period last year. We use our available-for-sale securities portfolio, as well as federal funds sold and Federal Reserve Bank deposits for liquidity management, investment yields and asset/liability management.

The $453 bargain purchase gain recognized during the current period related to the FDIC assisted transaction Central FL in Belleview, Florida in January 2012. The other January 2012 FDIC assisted transaction of FGB did not result in a bargain purchase gain. The $11,129 bargain purchase gain recognized in January 2011 related to the TD Bank transaction.

Non-interest expense

Non-interest expense for the six months ended June 30, 2012 increased $8,566, or 16.1%, to $61,744, compared to $53,178 for the same period in 2011. Components of our non-interest expenses are listed in the table below.


Six month period ending:	Jun 30, 2012			Jun 30, 2011			$ increase (decrease)			% Increase (decrease)
Employee salaries and wages	$	29,569		$	21,818			7,751			35.5	%
Employee incentive/bonus compensation		1,659			1,206			453			37.6	%
Employee stock based compensation		324			377			(53	)		(14.1	%)
Deferred compensation expense		246			231			15			6.5	%
Health insurance and other employee benefits		2,073			1,664			409			24.6	%
Payroll taxes		1,907			1,582			325			20.5	%
Employer 401K matching contributions		640			509			131			25.7	%
Other employee related expenses		417			196			221			112.8	%
Incremental direct cost of loan origination		(324	)		(257	)		(67	)		26.1	%

Total salaries, wages and employee benefits		36,511			27,326			9,185			33.6	%


(Gain) loss on sale of OREO		(156	)		541			(697	)		(128.8	%)
Loss (gain) on sale of FDIC covered OREO		657			(486	)		1,143			235.2	%)
Valuation write down of OREO		356			1,580			(1,224	)		(77.5	%)
Valuation write down of FDIC covered OREO		734			1,690			(956	)		(56.6	%)
Loss on repossessed assets other than real estate		138			103			35			34.0	%
Foreclosure and repossession related expenses		1,320			2,069			(749	)		(36.2	%)
Foreclosure and repo expenses, FDIC (note 1)		740			926			(186	)		(20.1	%)

Total credit related fees		3,789			6,423			(2,634	)		(41.0	%)


Occupancy expense		4,542			4,208			334			7.9	%
Depreciation of premises and equipment		2,683			1,995			688			34.5	%
Supplies, stationary and printing		618			670			(52	)		(7.8	%)
Marketing expenses		1,193			1,488			(295	)		(19.8	%)
Data processing expense		1,967			2,917			(950	)		(32.6	%)
Legal, auditing and other professional fees		1,221			1,317			(96	)		(7.3	%)
Bank regulatory related expenses		1,358			1,445			(87	)		(6.0	%)
Postage and delivery		587			431			156			36.2	%
ATM and debit card related expenses		517			740			(223	)		(30.1	%)
CDI and Trust intangible amortization		677			391			286			73.1	%
Impairment – bank property held for sale		165			—			165			n/a
Internet and telephone banking		501			438			63			14.4	%
Visa/Mastercard processing and prepaid card expenses		70			70			—			0.0	%
Put-back option amortization		364			183			181			98.9	%
Operational write-offs and losses		233			241			(8	)		(3.3	%)
Correspondent accounts and Federal Reserve charges		279			238			41			17.2	%
Conferences/Seminars/Education/Training		291			196			95			48.5	%
Director fees		171			134			37			27.6	%
Travel expenses		91			77			14			18.2	%
Other expenses		1,434			1,380			54			3.9	%

Subtotal	$	59,262		$	52,308		$	6,954			13.3	%
Merger and acquisition related expenses		2,482			870			1,612			185.3	%

Total non-interest expense	$	61,744		$	53,178		$	8,566			16.1	%


note 1:		These are foreclosure related expenses related to FDIC covered assets, and are shown net of FDIC reimbursable amounts pursuant to FDIC loss share agreements.

Excluding credit related expenses, correspondent banking division expenses, impairment of bank property held for sale and merger/acquisition related expenses, the Company’s remaining non-interest expenses increased approximately $5,263, or 15%, during the current period compared to the same period last year, as summarized in the table below.


	6 months ending June 30,						increase
	2012			2011			(decrease)
Total non-interest expense	$	61,744		$	53,178		$	8,566
Merger, acquisition and conversion expenses		(2,482	)		(870	)		(1,612	)
Credit related expenses		(3,789	)		(6,423	)		2,634
Correspondent banking division expenses		(14,864	)		(10,704	)		(4,160	)
Impairment – bank property held for sale		(165	)		—			(165	)

Non-interest expense, excluding items listed above	$	40,444		$	35,181		$	5,263

Provision (benefit) for income taxes

We recognized an income tax provision for the six months ended June 30, 2012 of $2,025 on pre-tax income of $6,994 (an effective tax rate of 29.0%) compared to an income tax benefit of $3,281 on pre-tax loss of $7,462 (an effective tax rate of 44.0%) for the comparable period in 2011. Net tax exempt income generally decreases a company’s effective tax rate (compared to statutory rates) when the company reports earnings. When there is a loss, the same net tax exempt income will generally produce higher effective tax rates.

Liquidity

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily and weekly basis.

Our subsidiary bank regularly assesses the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our subsidiary bank’s asset/liability committee (ALCO) provides oversight to the liquidity management process and recommends guidelines, subject to the approval of its board of directors, and courses of action to address actual and projected liquidity needs.

Short term sources of funding and liquidity include cash and cash equivalents, net of federal requirements to maintain reserves against deposit liabilities; investment securities eligible for pledging to secure borrowings from customers pursuant to securities sold under repurchase agreements; loan repayments; deposits and certain interest rate-sensitive deposits; and borrowings under overnight federal fund lines available from correspondent banks. In addition to interest rate-sensitive deposits, the primary demand for liquidity is anticipated fundings under credit commitments to customers.

Off-Balance Sheet Arrangements

We do not currently have any material off-balance sheet arrangements except for approved and unfunded loans and letters of credit to our customers in the ordinary course of business.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES: MARKET RISK

Market risk

We believe interest rate risk is the most significant market risk impacting us. Our subsidiary bank monitors and manages its interest rate risk using interest rate sensitivity “gap” analysis to measure the impact of market interest rate changes on net interest income. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 2011. There have been no changes in the assumptions used in monitoring interest rate risk as of June 30, 2012. The impact of other types of market risk, such as foreign currency exchange risk and equity price risk, is deemed immaterial.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)). Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f)) during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1a.

Risk Factors

There have been no material changes in our risk factors from our disclosure in Item 1A of our December 31, 2011 annual report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

[Removed and Reserved]

Item 5.

Other Information

None.

Item 6.

Exhibits


Exhibit 31.1		The Chairman, President and Chief Executive Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		The Chief Financial Officer’s certification required under section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		The Chairman, President and Chief Executive Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		The Chief Financial Officer’s certification required under section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101.1		Interactive Data File

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

CENTERSTATE BANKS, INC.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CENTERSTATE BANKS, INC.
(Registrant)

Date:	August 6, 2012	By:	/s/ Ernest S. Pinner
			Ernest S. Pinner
			Chairman, President and Chief
			Executive Officer

Date:	August 6, 2012	By:	/s/ James J. Antal
			James J. Antal
			Senior Vice President
			and Chief Financial Officer