SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 17, 2014
CENTERSTATE BANKS, INC.
(Exact name of registrant as specified in its charter)
Florida | 000-32017 | 59-3606741 | ||
(State or other jurisdiction of incorporation) |
(Commission file number) |
(IRS employer identification no.) |
42745 U.S. Highway 27, Davenport, FL | 33837 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (863) 419-7750
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On January 17, 2014, CenterState Banks, Inc. (the Company, CSFL or CenterState) furnished a Current Report on Form 8-K to report the January 17, 2014 completion of its previously announced transaction as described in the Agreement and Plan of Merger dated July 29, 2013, as amended (the Agreement) with Gulfstream Bancshares, Inc. (GS or Gulfstream) whereby GS merged with and into the Company. Pursuant to and simultaneously with the merger of GS with and into the Company, GSs wholly owned subsidiary bank, Gulfstream Business Bank (GSB), merged with and into the Companys wholly owned subsidiary bank, CenterState Bank of Florida, N.A. (the Bank).
This Current Report on Form 8-K/A amends and supplements the disclosures provided in Item 2.01 and 9.01 of the Current Report on Form 8-K furnished on January 17, 2014. Except as otherwise provided herein, the other disclosures made in the Current Report furnished on January 17, 2014 remain unchanged. The Company does not anticipate that it will further amend this Current Report.
Statements made in this amendment, other than those concerning historical financial information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. These forward-looking statements include, without limitation, statements regarding the Companys expectations concerning its financial condition, operating results, cash flows, liquidity and capital resources, including the effects of the GS and GSB acquisitions and the final determination of the assets and liabilities acquired and their respective valuations. A discussion of risks, uncertainties and other factors that could cause actual results to differ materially from managements expectations is set forth under the captions BusinessNote about Forward-Looking Statements, Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
Item 2.01. | Completion of Acquisition of Assets |
On January 17, 2014 the Company completed its previously announced merger transaction as set forth in the Agreement with GS, whereby GS merged with and into the Company. Pursuant to and simultaneously with the merger of GS with and into the Company, GSs wholly owned subsidiary bank, GSB merged with and into the Bank.
Pursuant to the terms of the Agreement, the Company purchased approximately $377.9 million of loans. The purchase price and estimated fair market value of the loans was approximately $359.6 million or 95% of their outstanding unpaid principal balance.
The Company acquired four banking offices from GS. Two banking offices were purchased at fair market value based on current appraisals, approximately $5.5 million, and the Company assumed the existing leases on two locations, which terms approximated current fair market values.
All of the deposits, approximately $478.2 million, were assumed by the Bank. The Company did not pay a premium for the deposits assumed.
The Company also assumed two trust preferred securities issued by GS, one for $7 million and another for $3 million, which qualify for Tier 1 capital. Interest payments are due quarterly at a rate of LIBOR plus 1.90% on the $7 million trust preferred security and a rate of LIBOR plus 1.70% on the $3 million trust preferred security. The instruments mature in 2035 and 2037, respectively.
2
On February 14, 2014, the four purchased GSB branches were converted to the Companys core processing system. The Bank hired substantially all of GSBs loan officers and branch employees, releasing primarily back office and support staff. Approximately 62 former GSB employees, about 77% of GSBs former work force, were hired by the Bank.
The Company expects to recognize goodwill on this acquisition of approximately $31.1 million. This Goodwill is calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Fair values are preliminary estimates due to pending appraisals on loan and other real estate owned.
The foregoing summary is not complete and is qualified in its entirety by reference to the full text of the form of the Agreement, incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-4 (File No. 333-191536.
Item 9.01 | Financial Statements and Exhibits |
(a) | Financial Statements of Business Acquired |
Discussion
As set forth in Item 2.01 above, on January 17, 2014, the Company acquired assets and assumed all of the deposits and other liabilities of GS and GSB pursuant to the Agreement. A narrative description of the anticipated effects of the GS acquisition (the Acquisition) on the Companys financial condition, liquidity, capital resources and operating results is presented below. This discussion should be read in conjunction with the historical financial statements and the related notes of the Company, which have been filed with the Securities and Exchange Commission (the Commission) and the Audited Statements, which are attached hereto as Exhibits 99.1 and 99.2.
The Companys primary reasons for the transaction included to further solidify its market share in the southeast Florida market and expand its customer base to enhance deposit fee income and leverage operating costs through economies of scale. The acquisition increased the Companys total assets and total deposits by approximately 23% and 23%, respectively, as compared with the balances at December 31, 2013, and is expected to positively affect the Companys operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities. The ability of the Company to successfully collect interest and principal on the loans acquired will also impact cash flows and operating results.
The Company estimated the acquisition date fair value of the acquired assets and assumed liabilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations (ASC Topic 805) and ASC Topic 820, Fair Value Measurements. However, the amount that the Company realizes on these assets may differ materially from these carrying values primarily as a result of changes in the timing and amount of collections on the acquired loans in future periods.
3
Calculation of Purchase Price
The Company acquired 100% of the outstanding common stock of Gulfstream. The purchase price consisted of both cash and stock. Each share of Gulfstream common stock was exchanged for $14.65 cash and 3.012 shares of the Companys common stock. Based on the closing price of the Companys common stock on January 16, 2014, the resulting purchase price was $82,040. The table below summarizes the purchase price calculation. Dollar amounts are in thousands, except per share data.
Number of shares of Gulfstream common stock outstanding at January 16, 2014 |
1,569,364 | |||
Gulfstream preferred shares that converted to Gulfstream common shares upon the change in control |
155,629 | |||
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Total Gulfstream common shares including converted preferred shares |
1,724,993 | |||
Per share exchange ratio |
3.012 | |||
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Number of shares of CenterState common stock - as converted |
5,195,679 | |||
Multiplied by CenterState common stock price on January 16, 2014 |
$ | 10.23 | ||
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Fair value of CenterState common stock issued |
$ | 53,152 | ||
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Total Gulfstream common shares including converted preferred shares |
1,724,993 | |||
Multiplied by the cash consideration each Gulfstream share is entitled to receive |
$ | 14.65 | ||
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Total Cash Consideration |
$ | 25,271 | ||
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Total Stock Consideration |
$ | 53,152 | ||
Total Cash Consideration |
25,271 | |||
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Total consideration paid to Gulfstream common shareholders |
$ | 78,423 | ||
Fair value of current Gulfstream stock options converted to CenterState stock options |
3,617 | |||
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Total purchase price |
$ | 82,040 | ||
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Financial Condition
The total purchase price as shown in the table above is allocated to Gulfstreams tangible and intangible assets and liabilities as of January 17, 2014 based on fair values as follows. Amounts are in thousands of dollars.
Cash and cash equivalents |
$ | 102,278 | ||
Investment securities available for sale |
60,816 | |||
Loans, held for investment |
329,515 | |||
Purchased credit impaired loans |
30,068 | |||
Loans held for sale |
247 | |||
Other real estate owned |
3,365 | |||
Bank premises and equipment |
5,519 | |||
Bank owned life insurance |
4,939 | |||
Other assets |
13,236 | |||
Core deposit intangible |
4,173 | |||
Goodwill |
31,104 | |||
Deposits |
(478,999 | ) | ||
Other borrowings |
(13,284 | ) | ||
Corporate debentures |
(6,745 | ) | ||
Other liabilities |
(4,192 | ) | ||
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Total Preliminary Estimated Acquisition Consideration |
$ | 82,040 | ||
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4
The list below summarizes the preliminary estimates of the fair value of the assets purchased, excluding goodwill, and liabilities assumed as of the January 17, 2014 purchase date. Amounts are in thousands of dollars.
Fair Value at Jan 17, 2014 |
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Cash and cash items |
$ | 102,278 | ||
Loans, held for investment |
329,515 | |||
Purchased credit impaired loans |
30,068 | |||
Loan held for sale |
247 | |||
Investments |
60,816 | |||
Interest receivable |
1,087 | |||
Branch real estate |
5,519 | |||
Furniture and fixtures |
262 | |||
FHLB stock |
885 | |||
Bank owned life insurance |
4,939 | |||
Other real estate owned |
3,365 | |||
Core deposit intangible |
4,173 | |||
Other assets |
11,002 | |||
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Total assets acquired |
$ | 554,156 | ||
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Deposits |
$ | 478,999 | ||
Federal Home loan advances |
5,708 | |||
Repurchase agreements |
7,576 | |||
Interest payable |
125 | |||
Official checks outstanding |
826 | |||
Trust Preferred Security |
6,745 | |||
Other liabilities |
3,241 | |||
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Total liabilities assumed |
$ | 503,220 | ||
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Net assets acquired, excluding goodwill |
$ | 50,936 | ||
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In the acquisition, the Company purchased $359.6 million of loans at fair value, net of $18.3 million, or 4.8%, estimated discount to the outstanding principal balance, representing 24.4% of the Companys total loans at December 31, 2013. Of the total loans acquired, management identified approximately $30.1 million of loans with credit deficiencies. All loans that were on non-accrual status and all loan relationships that were greater than $500,000 and identified as impaired as of the acquisition date were considered by CenterStates management to be credit impaired and will be accounted for pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, managements estimate of expected total cash payments and fair value of the loans as of January 17, 2014 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments. Amounts are in thousands of dollars.
Contractually required principal and interest |
$ | 48,289 | ||
Non-accretable difference |
(11,766 | ) | ||
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Cash flows expected to be collected |
36,523 | |||
Accretable yield |
(6,455 | ) | ||
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Total purchased credit-impaired loans acquired |
$ | 30,068 | ||
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5
The table below presents information with respect to the fair value of acquired loans and other interest earning assets, as well as their unpaid principal balance (Book Balance) at acquisition date, contractual term and average contractual yield as of the January 17, 2014 acquisition date. Amounts are in thousands of dollars.
book balance |
fair value |
weighted average months to maturity |
average contractual interest rate |
effective interest rate |
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Interest bearing deposits at Federal Reserve Bank |
$ | 84,857 | $ | 84,857 | | 0.22 | % | 0.22 | % | |||||||||||
Interest bearing deposits, other |
6,194 | 6,194 | | 0.15 | % | 0.15 | % | |||||||||||||
Available for sale securities |
60,816 | 60,816 | 68 | 2.78 | % | 2.78 | % | |||||||||||||
Loans: |
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Single family residential real estate |
33,506 | 32,319 | 57 | 4.12 | % | 5.39 | % | |||||||||||||
Commercial real estate |
185,250 | 183,189 | 71 | 4.90 | % | 5.17 | % | |||||||||||||
Construction/development/land |
30,387 | 27,704 | 74 | 4.35 | % | 5.63 | % | |||||||||||||
Commercial loans |
85,940 | 84,203 | 55 | 4.70 | % | 4.73 | % | |||||||||||||
Consumer and other loans |
2,112 | 2,100 | 24 | 4.71 | % | 4.35 | % | |||||||||||||
Purchased credit-impaired |
40,655 | 30,068 | 37 | 5.47 | % | 7.33 | % | |||||||||||||
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Total earning assets |
$ | 377,850 | $ | 359,583 | 62 | 4.80 | % | 5.36 | % | |||||||||||
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Total earning assets |
$ | 529,717 | $ | 511,450 | ||||||||||||||||
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The difference between the fair value of the loans acquired and their related book balance will be accreted into interest income over the life of the related loan. The following table reflects the scheduled maturities of the acquired loans at January 17, 2014. Amounts are in thousands of dollars.
single family residential real estate |
commercial real estate |
construction, dev., & land |
commercial & industrial |
consumer | total loans |
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Contractual maturities: |
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1 year or less |
$ | 8,744 | $ | 15,354 | $ | 8,548 | $ | 28,251 | $ | 1,041 | $ | 61,938 | ||||||||||||
1 - 5 years |
16,449 | 115,466 | 9,200 | 36,474 | 999 | 178,588 | ||||||||||||||||||
After 5 years |
8,801 | 72,273 | 13,729 | 24,194 | 60 | 119,057 | ||||||||||||||||||
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Total |
$ | 33,994 | $ | 203,093 | $ | 31,477 | $ | 88,919 | $ | 2,100 | $ | 359,583 | ||||||||||||
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Rate sensitivity: |
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Fixed |
$ | 15,679 | $ | 121,222 | $ | 24,728 | $ | 46,857 | $ | 1,840 | $ | 210,326 | ||||||||||||
Variable |
18,315 | 81,871 | 6,749 | 42,062 | 260 | 149,257 | ||||||||||||||||||
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Total |
$ | 33,994 | $ | 203,093 | $ | 31,477 | $ | 88,919 | $ | 2,100 | $ | 359,583 | ||||||||||||
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6
In the acquisition, the Company assumed $479.0 million in deposits at estimated fair value. The amount represents approximately 23% of the Companys total deposits of $2,056.2 million at December 31, 2013. Non-interest bearing deposits comprise about 37%, money market accounts comprise about 37%, and time deposits comprise about 17% of the assumed deposits. The remainder is in interest bearing accounts and regular savings accounts. A schedule of the deposits assumed at January 17, 2014 at fair value is listed in the table below. Amounts are in thousands of dollars.
fair value at Jan 17, 2013 |
weighted average interest rate |
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Non-interest bearing deposits |
$ | 178,748 | | % | ||||
Interest bearing deposits: |
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Interest bearing demand deposits |
33,192 | 0.10 | % | |||||
Savings deposits |
2,941 | 0.76 | % | |||||
Money market deposits |
179,123 | 0.24 | % | |||||
Time deposits less than $100,000 |
35,326 | 1.07 | % | |||||
Time deposits of $100,000 or greater |
49,669 | 1.26 | % | |||||
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Total deposits assumed |
$ | 478,999 | 0.31 | % | ||||
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The following table presents the amount of time deposits assumed at January 17, 2014, maturing during the periods reflected below. Amounts are in thousands of dollars.
Amount | ||||
January 17, 2014 thru January 16, 2015 |
$ | 56,447 | ||
January 17, 2015 thru January 16, 2016 |
18,117 | |||
January 17, 2016 thru January 16, 2017 |
6,083 | |||
January 17, 2017 thru January 16, 2018 |
3,616 | |||
Thereafter |
732 | |||
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Total |
$ | 84,995 | ||
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In its assumption of the deposit liabilities, the Company believed that these deposits have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. The Company determined the estimated fair value of the core deposit intangible asset totaled $4.2 million, which will be amortized utilizing an accelerated amortization method over an estimated economic life not to exceed ten years. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships. The table below presents the estimated amortization expense for each of the next ten years. Amounts are in thousands of dollars.
amount | amount | |||||||||
year 1 |
$ | 626 | year 6 | $ | 363 | |||||
year 2 |
$ | 532 | year 7 | $ | 363 | |||||
year 3 |
$ | 452 | year 8 | $ | 363 | |||||
year 4 |
$ | 384 | year 8 | $ | 363 | |||||
year 5 |
$ | 363 | year 10 | $ | 364 | |||||
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Total | $ | 4,173 | ||||||||
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Future amortization of this core deposit intangible asset over the estimated life will decrease results of operations, net of any potential tax effect. Since amortization is a non cash item, it will have no effect upon future liquidity and cash flows. For the calculation of regulatory capital, core deposit intangible asset is disallowed and is a reduction to equity capital. The Company expects that disallowing this intangible asset should not materially adversely affect the Companys regulatory capital ratios.
7
The core deposit intangible asset is subject to significant estimates by management related to the value and the life of the asset. These estimates could change over time. The Company will review the valuation of this asset periodically to ensure that no impairment has occurred. If any impairment is subsequently determined, the Company will record the impairment as an expense in its consolidated statement of operations.
Non performing loans
At the acquisition date, Gulfstream had total non-accrual loans of $3.7 million and no loans that were past due 90 days or more and still accruing. All loans that were on non-accrual status and all loan relationships that were greater than $500,000 and identified as impaired as of the acquisition date were considered by CenterStates management to be credit impaired and will be accounted for pursuant to ASC Topic 310-30. Loans identified as such had an aggregate principal balance of $40.6 million and an estimated fair value, as of the acquisition date, equal to $30.1 million.
Other real estate owned
As part of the acquisition, the Company acquired OREO with a fair value less estimated selling expenses of $3.4 million that Gulfstream obtained through foreclosure and repossession. Fair value was based on current appraisals (appraisals less than one year old). OREO is further delineated below. Amounts are in thousands of dollars.
Description of other real estate owned |
fair value at Jan. 17, 2014 |
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8 commercial buildings |
$ | 690 | ||
Land / various acreages |
2,675 | |||
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Total |
$ | 3,365 |
Operating results and cash flows
Management has from time to time become aware of acquisition opportunities and has performed various levels of review related to potential acquisitions in the past. The GS acquisition was attractive to the Company for a variety of reasons including the following:
| attractiveness in the pricing of the acquired loans; |
| ability to increase the Companys market share in southeast Florida; |
| attractiveness of core deposit customer relationships; |
| opportunities to enhance income and efficiency due to duplications of effort and decentralized processes as the Company expects to enhance income by centralizing some duties and removing duplications of effort. |
Based on these and other factors, including the level of support related to the acquired loans, the Company believes that the GS acquisition will have an immediate positive impact on its earnings.
8
The total assets acquired, approximately $555 million, excluding goodwill, represented approximately 23% of the Companys $2,416 million of total assets as of December 31, 2013, and total deposits assumed, approximately $479 million, represented approximately 23% of the Companys $2,056 million of total deposits reported as of December 31, 2013. The Company believes that the transaction will improve net interest income, as the Company earns more from interest earned on its loans and investments than it pays in interest on deposits.
Liquidity and capital resources
The GS acquisition enhanced the liquidity position of the Company. The Company acquired $102 million of cash and cash equivalents. This addition to the Companys balance sheet represents additional support for the Companys liquidity needs.
Deposits with an estimated fair value of $479 million were also assumed. Of this amount approximately 37% is in noninterest bearing deposits, 37% is in money market accounts and the remainder is in checking accounts and regular savings accounts.
In the GS acquisition, the Company also assumed two Trust Preferred Securities totaling $10.0 million issued by GS that qualify for Tier 1 capital. Interest payments are due quarterly at a rate of LIBOR plus 1.90% on the $7 million trust preferred security and a rate of LIBOR plus 1.70% on the $3 million trust preferred security. The Company estimated the fair value of these instruments to approximate $6.7 million at the January 17, 2014 acquisition date.
At December 31, 2013, the Company and the Bank were considered well-capitalized based on calculations of relevant regulatory ratios. The Company and the Bank had the following capital ratios at December 3, 2013.
regulatory guideline amounts to be considered well capitalized |
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Actual at December 31, 2013 | ||||||||||||||||||||
Company | Bank | GS | GSB | |||||||||||||||||
Tier 1 leverage ratio |
5.0 | % | 10.4 | % | 8.3 | % | 11.1 | % | 11.0 | % | ||||||||||
Tier 1 risk base ratio |
6.0 | % | 16.6 | % | 13.4 | % | 15.4 | % | 15.3 | % | ||||||||||
Total risk based ratio |
10.0 | % | 17.9 | % | 14.6 | % | 16.7 | % | 16.6 | % |
The acquisition of GS did not have a material adverse effect on the Companys regulatory capital ratios. The Company and Bank remain well-capitalized after taking into consideration the results of the GS transaction
Financial Statements
Attached hereto as Exhibit 99.1 and incorporated by reference into this Item 9.01(a) are Gulfstream Bancshares, Inc. audited consolidated financial statements as of December 31, 2013 and 2012 and the years then ended.
9
(b) | Pro Forma Financial Statements |
The pro forma consolidated condensed balance sheet presented below assumes the transaction occurred at December 31, 2013. Adjusting entries are explained below. Amounts are in thousands of dollars.
CenterState Dec 31, 2013 as reported |
Gulfstream Dec 31, 2013 |
Pro Forma adjustments |
Pro Forma Dec 31, 2013 combined |
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Assets: |
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Cash and cash equivalents |
$ | 174,889 | $ | 94,419 | ($ | 25,268 | ) | a | $ | 244,040 | ||||||||
Investment securities, at fair value |
457,086 | 61,288 | (745 | ) | d | 517,629 | ||||||||||||
Loans covered by FDIC loss share agreements |
230,273 | 230,273 | ||||||||||||||||
Loans not covered by FDIC loss share |
1,243,906 | 375,624 | (18,267 | ) | e | 1,601,263 | ||||||||||||
Allowance for loan losses |
(20,454 | ) | (12,358 | ) | 12,358 | f | (20,454 | ) | ||||||||||
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Net loans |
1,453,725 | 363,266 | 1,811,082 | |||||||||||||||
OREO covered by FDIC loss share |
19,111 | 19,111 | ||||||||||||||||
OREO not covered by FDIC loss share |
6,409 | 3,365 | 9,774 | |||||||||||||||
Bank premises and equipment, net |
96,619 | 5,781 | 102,400 | |||||||||||||||
Goodwill |
44,924 | 28,991 | l | 73,915 | ||||||||||||||
Other intangibles |
6,116 | 4,173 | k | 10,289 | ||||||||||||||
Bank owned life insurance |
49,285 | 4,939 | 54,224 | |||||||||||||||
FDIC indemnification asset |
73,433 | 73,433 | ||||||||||||||||
Prepaid and other assets |
33,970 | 11,767 | (103 | ) | j | 45,634 | ||||||||||||
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Total Assets |
$ | 2,415,567 | $ | 544,825 | $ | 2,961,531 | ||||||||||||
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Liabilities and Stockholders Equity: | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Deposits - noninterest bearing |
$ | 644,915 | $ | 168,300 | 813,215 | |||||||||||||
Deposits - interest bearing |
1,411,316 | 298,271 | 783 | g | 1,710,370 | |||||||||||||
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Total deposits |
2,056,231 | 466,571 | 2,523,585 | |||||||||||||||
Other borrowings |
50,366 | 11,884 | 708 | h | 62,958 | |||||||||||||
Corporate debentures |
16,996 | 10,000 | (3,255 | ) | i | 23,741 | ||||||||||||
Payables and other liabilities |
18,595 | 2,973 | 21,568 | |||||||||||||||
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Total liabilities |
2,142,188 | 491,428 | 2,631,852 | |||||||||||||||
Stockholders Equity: | ||||||||||||||||||
Preferred Stock |
1 | (1 | ) | m | 0 | |||||||||||||
Additional paid in capital, preferred |
248 | (248 | ) | m | 0 | |||||||||||||
Common Stock |
301 | 16 | 36 | b,n | 353 | |||||||||||||
Additional paid in capital, common |
229,544 | 23,489 | 32,759 | b,c,n | 285,792 | |||||||||||||
Retained earnings |
48,018 | 30,444 | (30,444 | ) | n | 48,018 | ||||||||||||
Accumulated other comprehensive loss |
(4,484 | ) | (801 | ) | 801 | n | (4,484 | ) | ||||||||||
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Total stockholders equity |
273,379 | 53,397 | 329,679 | |||||||||||||||
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Total Liabilities and Stockholders Equity |
$ | 2,415,567 | $ | 544,825 | $ | 2,961,531 | ||||||||||||
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10
Adjusting entries:
Debit | Credit | |||||||||
a |
Cash |
$ | 25,268 | |||||||
b |
Common stock |
52 | ||||||||
b |
Additional paid in capital, common |
52,678 | ||||||||
c |
Additional paid in capital, common |
3,570 | ||||||||
d |
Investment securities |
745 | ||||||||
e |
Loans |
18,267 | ||||||||
f |
Allowance for loan losses |
$ | 12,358 | |||||||
g |
Deposits |
783 | ||||||||
h |
FHLB advance (included in other borrowings) |
708 | ||||||||
i |
Corporate debentures |
3,255 | ||||||||
j |
Loan interest receivable |
150 | ||||||||
j |
Net deferred tax (included in other assets) |
47 | ||||||||
k |
Core deposit intangible (CDI) |
4,173 | ||||||||
l |
Preliminary goodwill estimate |
28,991 | ||||||||
m |
Preferred stock |
1 | ||||||||
m |
Additional paid in capital, preferred |
248 | ||||||||
n |
Common Stock |
16 | ||||||||
n |
Additional paid in capital, common |
23,489 | ||||||||
n |
Retained earnings |
30,444 | ||||||||
n |
Accumulated other comprehensive loss |
801 |
a. | Payment of the cash consideration component of total merger consideration to Gulfstream shareholders. |
b. | CenterState common shares issued to Gulfstream shareholders representing the stock consideration component of the total merger consideration. For the purpose of this pro-forma presentation, the value of a share of CenterState common stock was assumed to equal its closing price on December 31, 2013, the pro forma date, as reported by NASDAQ ($10.15 per share). |
c. | Represents the preliminary estimated value of converting Gulfstreams existing incentive stock options to CenterState stock options. |
d. | Adjustment to investment securities to reflect the preliminary estimated fair value at acquisition date. |
e. | Adjustment to loans to reflect the preliminary estimated fair value at acquisition date. |
f. | Adjustment to allowance for loan losses to reflect the reversal of Gulfstreams allowance for loan and lease losses. |
g. | Adjustment to time deposits to reflect preliminary estimated fair value at acquisition date. |
h. | Adjustment to FHLB advances, included in other borrowings, to reflect preliminary estimated fair value at acquisition date. |
i. | Adjustment to corporate debentures (and underlying trust preferred securities) to reflect preliminary estimated fair value at acquisition date. |
j. | Adjustments to other assets to reflect the reversal of Gulfstreams loan interest receivable on purchased credit impaired loans and the net deferred tax asset generated by the net fair value adjustments using an assumed effective tax rate equal to 38.575%. |
k. | Adjustment to intangible assets to reflect the preliminary estimate of the core deposit intangible at the acquisition date. |
l. | Adjustment to goodwill to reflect the preliminary estimated goodwill generated as a result of consideration paid in excess of the fair value of the net assets acquired. |
m. | Adjustment to reflect the conversion of Gulfstreams preferred stock upon the closing date of the merger. |
n. | Adjustment to reflect the reversal of Gulfstreams common equity. |
11
The pro forma consolidated condensed income statement for the year ending December 31, 2013 presented below assumes the transaction occurred at the beginning of the period presented. Adjusting entries are explained below. Amounts are in thousands of dollars.
CenterState Dec 31, 2013 as reported |
Gulfstream Dec 31, 2013 as reported |
Gulfstream reclass |
Pro Forma adjustments |
Pro Forma Dec 31, 2013 combined |
||||||||||||||||||||
Interest income: |
||||||||||||||||||||||||
Loans |
$ | 88,274 | $ | 18,778 | $ | 2,107 | t | $ | 109,159 | |||||||||||||||
Investment securities available for sale |
||||||||||||||||||||||||
Taxable |
9,889 | 841 | 10,730 | |||||||||||||||||||||
Tax-exempt |
1,430 | | 1,430 | |||||||||||||||||||||
Federal funds sold and other |
785 | 309 | 1,094 | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total interest income |
100,378 | 19,928 | 122,413 | |||||||||||||||||||||
Interest expense: |
||||||||||||||||||||||||
Deposits |
5,184 | 1,778 | (517 | ) | s | 6,445 | ||||||||||||||||||
Other borrowings |
701 | 628 | 150 | r | 1,479 | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total interest expense |
5,885 | 2,406 | 7,924 | |||||||||||||||||||||
Net interest income |
94,493 | 17,522 | 114,489 | |||||||||||||||||||||
Provision for loan losses |
(76 | ) | 168 | 92 | ||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Net interest income after loan loss provision |
94,569 | 17,354 | 114,397 | |||||||||||||||||||||
Non interest income: |
||||||||||||||||||||||||
Income from correspondent banking and bond sales division |
17,023 | | 17,023 | |||||||||||||||||||||
Other correspondent banking revenue |
3,387 | | 3,387 | |||||||||||||||||||||
Service charges on deposit accounts |
8,457 | 509 | 8,966 | |||||||||||||||||||||
Debit, prepaid, ATM and merchant card related fees |
5,420 | | 5,420 | |||||||||||||||||||||
Wealth management related revenue |
4,551 | 410 | 4,961 | |||||||||||||||||||||
FDIC indemnification income |
5,542 | | 5,542 | |||||||||||||||||||||
FDIC indemnification asset amortization |
(13,807 | ) | | (13,807 | ) | |||||||||||||||||||
Bank owned life insurance income |
1,328 | 170 | 1,498 | |||||||||||||||||||||
Net gain on sale of securities available for sale |
1,060 | | 1,060 | |||||||||||||||||||||
Other service charges and fees |
985 | 1,083 | (137 | ) | n | 1,931 | ||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Total non interest income |
33,946 | 2,172 | 35,981 | |||||||||||||||||||||
Non interest expense: |
||||||||||||||||||||||||
Salary, wages and employee benefits |
60,369 | 8,869 | 69,238 | |||||||||||||||||||||
Occupancy expense |
13,578 | 1,066 | 14,644 | |||||||||||||||||||||
Data processing expense |
3,784 | 604 | 4,388 | |||||||||||||||||||||
Professional fees |
3,754 | | 470 | o | 4,224 | |||||||||||||||||||
Bank regulatory expenses |
2,369 | | 396 | p | 2,765 | |||||||||||||||||||
Credit related expenses |
12,726 | 346 | (137 | ) | n | 12,935 | ||||||||||||||||||
Marketing expenses |
2,517 | 358 | 2,875 | |||||||||||||||||||||
All other expenses |
11,665 | 2,551 | (866 | ) | o,p | 626 | q | 13,976 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
110,762 | 13,794 | 125,045 |
12
CenterState Dec 31, 2013 as reported |
Gulfstream Dec 31, 2013 as reported |
Gulfstream reclass |
Pro Forma adjustments |
Pro Forma Dec 31, 2013 combined |
||||||||||||||||
Other than temporary impairment on securities: |
||||||||||||||||||||
Net impairment losses |
| 53 | 53 | |||||||||||||||||
Income before provision for income taxes |
17,753 | 5,679 | 25,280 | |||||||||||||||||
Provision for income taxes |
5,510 | 2,100 | 713 | u | 8,323 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net income |
12,243 | 3,579 | 16,957 | |||||||||||||||||
Preferred stock dividend requirements and accretion of preferred discount |
331 | (331 | ) | v | | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Net income available to common shareholders |
$ | 12,243 | $ | 3,248 | $ | 16,957 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Earnings available to common shareholders, per share: |
||||||||||||||||||||
Basic |
$ | 0.41 | $ | 2.07 | $ | 0.48 | ||||||||||||||
Diluted |
$ | 0.41 | $ | 2.04 | $ | 0.48 | ||||||||||||||
Weighted average common shares outstanding |
||||||||||||||||||||
Basic |
30,102,777 | 1,566,134 | 35,297,854 | |||||||||||||||||
Diluted |
30,220,127 | 1,594,394 | 35,606,288 |
Income Statements reclassifications
The following reclassifications adjusted Gulfstreams historical income statements to conform to CenterStates historical income statements.
n | Credit related expenses include net gains and losses on OREO sales and valuation write-downs. Gulfstreams net gain on sale of OREO, included in non-interest income, has been reclassified to credit related expenses and netted with net losses on OREO, included in non-interest expense. |
o | Professional fees included in Gulfstreams all other expenses have been reclassified to Professional fees to conform to CenterStates historical income statement. |
p | Bank regulatory expenses included in Gulfstreams other expenses have been reclassified to Bank regulatory expenses to conform to CenterStates historical income statement. |
Income Statements Pro Forma Adjustments
In thousands of dollars Pro Forma Adjusting entries (Income Statement): |
Year ended Dec 31, 2013 |
|||||
q |
Amortization expense of core deposit intangible |
$ | 626 | |||
r |
TRUPs amortization of fair value adjustment at acquisition date |
150 | ||||
s |
Time Deposits amortization of fair value adjustment at acquisition date |
(517 | ) | |||
t |
Estimate of loan interest accretion |
2,107 | ||||
u |
Income tax expense of pro-forma adjustments |
713 | ||||
v |
Effect of redeeming perpetual preferred stock, series D |
(331 | ) |
13
q. | The preliminary estimated core deposit intangible (CDI) is expected to approximate $4.2 million and will be amortized over a ten year period on an accelerated basis which is expected to produce approximately $626,000 of amortization expense during the first year of combined operations. Below is the preliminary estimated amortization schedule. Amounts are in thousands of dollars. |
amount | amount | |||||||||
year 1 |
$ | 626 | year 6 |
$ | 363 | |||||
year 2 |
$ | 532 | year 7 |
$ | 363 | |||||
year 3 |
$ | 452 | year 8 |
$ | 363 | |||||
year 4 |
$ | 384 | year 8 |
$ | 363 | |||||
year 5 |
$ | 363 | year 10 |
$ | 364 | |||||
|
|
|||||||||
Total |
$ | 4,173 | ||||||||
|
|
r. | CenterState will assume Gulfstreams $10 million of Corporate Debentures and the underlying Trust Preferred Securities pursuant to the merger. This debt will be adjusted to fair value at the acquisition date. The preliminary estimate of the related fair value adjustment at acquisition date is expected to approximate $3.3 million. This amount will be amortized over the remaining term of the two debt instruments as an increase to interest expense. The amortization expense during the first year of combined operations is expected to approximate $150,000. One of the debt securities ($7 million) matures on January 18, 2035 and the other ($3 million) matures on March 6, 2037. The amortization is expected to be on a straight line basis over their respective terms. |
s. | The time deposits acquired from Gulfstream will be adjusted to fair value at the acquisition date. The preliminary estimate of the fair value adjustment at acquisition date is approximately $783,000. This amount will be amortized as a decrease to interest expense on a pro rata basis based on the maturities of the underlying time deposits. The first year of amortization is estimated to approximate $517,000. |
t. | Represents preliminary estimate of interest income accretion related to the estimate of the fair value adjustment of the loans acquired pursuant to the merger. |
u. | Adjustment to reflect the income tax benefit of the Pro Forma Adjustments using 38.575% as the incremental effective tax rate. |
v. | Adjustment to reflect Gulfstreams redemption of the non-cumulative perpetual preferred stock, series D prior to the closing date of the merger. This is a condition of closing the transaction. |
Gulfstream owns two of its four banking locations and leases the other two. Based on recent appraisals, the two owned office buildings are carried on Gulfstreams books at approximately current fair value. The lease terms of the other two locations approximate current fair value based on managements estimates. As such, management did not record a fair value adjustment to these assets at the closing date of the merger and no adjustments have been made to the proforma combined condensed financial statements presented in this document.
14
(d) | Exhibits |
2.1 | Agreement and Plan of Merger by and between CenterState Banks, Inc. and Gulfstream Bancshares, Inc., dated as of July 29, 2013. Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-4 (File No. 333-191536). | |
23.1 | Consent of Hacker, Johnson & Smith, P.A. | |
99.1 | Report of Independent Registered Public Accounting Firm, Gulfstream Bancshares, Inc. Financial Statements for the year ended December 31, 2013, and Notes to the Consolidated Financial Statements |
15
SIGNATURE
Pursuant to 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 hereunto duly authorized.
CENTERSTATE BANKS, INC. | ||
By: | /s/ James J. Antal | |
James J. Antal | ||
Senior Vice President and Chief Financial Officer |
Date: March 12, 2014
16
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation in this Form 8-K/A of our report dated February 20, 2014 with respect to the consolidated financial statements of Gulfstream Bancshares, Inc. as of December 31, 2013 and for each of the years in the two-year period ended December 31, 2013.
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
March 12, 2014
Exhibit 99.1
Audited Consolidated Financial Statements
December 31, 2013 and 2012 and the Years then Ended
(Together with Independent Auditors Report)
Independent Auditors Report
The Board of Directors
CenterState Banks, Inc.
Florida:
We have audited the accompanying consolidated financial statements of Gulfstream Bancshares, Inc. and Subsidiary (the Company), which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of earnings, comprehensive income, stockholders equity and cash flows for the years then ended and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of their operations, comprehensive income and cash flows for the each of the years in the three-year period ended December 31, 2013 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As disclosed in Note 25 of the consolidated financial statements, the Company completed a merger with CenterState Banks, Inc. (CenterState) on January 17, 2014. CenterState is the surviving entity. Our opinion is not modified with respect to this matter.
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
February 20, 2014
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except share amounts)
December 31, | ||||||||
2013 | 2012 | |||||||
Assets |
||||||||
Cash and due from banks |
$ | 7,975 | 9,978 | |||||
Interest-bearing deposits with banks |
78,931 | 114,144 | ||||||
Federal funds sold |
7,513 | 7,511 | ||||||
|
|
|
|
|||||
Total cash and cash equivalents |
94,419 | 131,633 | ||||||
Securities available for sale |
61,288 | 48,300 | ||||||
Loans held for sale |
664 | 468 | ||||||
Loans, net of allowance for loan losses of $12,358 and $16,104 |
363,266 | 342,974 | ||||||
Premises and equipment, net |
5,781 | 6,087 | ||||||
Federal Home Loan Bank stock, at cost |
885 | 1,044 | ||||||
Foreclosed real estate, net |
3,365 | 4,658 | ||||||
Accrued interest receivable |
1,255 | 1,257 | ||||||
Deferred income taxes |
7,022 | 9,029 | ||||||
Bank-owned life insurance |
4,939 | 4,769 | ||||||
Other assets |
1,941 | 1,645 | ||||||
|
|
|
|
|||||
Total assets |
$ | 544,825 | 551,864 | |||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Liabilities: |
||||||||
Noninterest-bearing demand deposits |
168,300 | 170,192 | ||||||
Savings, NOW and money-market deposits |
213,852 | 199,826 | ||||||
Time deposits |
84,419 | 102,875 | ||||||
|
|
|
|
|||||
Total deposits |
466,571 | 472,893 | ||||||
Federal Home Loan Bank advances |
5,000 | 5,000 | ||||||
Junior subordinated debentures |
10,310 | 10,310 | ||||||
Other borrowings |
6,884 | 2,597 | ||||||
Other liabilities |
2,663 | 3,426 | ||||||
|
|
|
|
|||||
Total liabilities |
491,428 | 494,226 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Notes 5, 14 and 22) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $.01 par value; 1,000,000 shares authorized: |
||||||||
Nonvoting Series A, 200,000 shares designated, 155,629 issued and outstanding, liquidation value $23.88 per share |
1 | 1 | ||||||
Designated Series D, 0 and 7,500 shares issued and outstanding, liquidation value $7,500 |
| | ||||||
Additional paid-in capital, preferred |
248 | 7,748 | ||||||
Common stock, $.01 par value; 3,000,000 shares authorized, 1,569,164 and 1,562,504 shares issued and outstanding |
16 | 16 | ||||||
Additional paid-in capital, common |
23,489 | 23,140 | ||||||
Retained earnings |
30,444 | 27,196 | ||||||
Accumulated other comprehensive loss |
(801 | ) | (463 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
53,397 | 57,638 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 544,825 | 551,864 | |||||
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
2
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(In thousands)
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Interest income: |
||||||||
Loans |
$ | 18,778 | 20,639 | |||||
Securities |
841 | 882 | ||||||
Other |
309 | 300 | ||||||
|
|
|
|
|||||
Total interest income |
19,928 | 21,821 | ||||||
|
|
|
|
|||||
Interest expense: |
||||||||
Deposits |
1,778 | 2,216 | ||||||
Borrowings |
628 | 1,100 | ||||||
|
|
|
|
|||||
Total interest expense |
2,406 | 3,316 | ||||||
|
|
|
|
|||||
Net interest income |
17,522 | 18,505 | ||||||
Provision for loan losses |
168 | 1,335 | ||||||
|
|
|
|
|||||
Net interest income after provision for loan losses |
17,354 | 17,170 | ||||||
|
|
|
|
|||||
Noninterest income: |
||||||||
Service charges and fees on deposit accounts |
509 | 517 | ||||||
Investment fees |
410 | 352 | ||||||
Gain on sale of loans |
243 | 307 | ||||||
Gain (loss) on sale of foreclosed real estate |
137 | 532 | ||||||
Earnings on bank-owned life insurance |
170 | 173 | ||||||
Other |
703 | 824 | ||||||
|
|
|
|
|||||
Total noninterest income |
2,172 | 2,705 | ||||||
|
|
|
|
|||||
Noninterest expenses: |
||||||||
Salaries and employee benefits |
8,869 | 6,560 | ||||||
Occupancy and equipment |
1,066 | 1,046 | ||||||
Data processing |
604 | 576 | ||||||
Advertising and business development |
358 | 405 | ||||||
Foreclosed real estate expense |
346 | 1,180 | ||||||
Other |
2,551 | 2,915 | ||||||
|
|
|
|
|||||
Total noninterest expenses |
13,794 | 12,682 | ||||||
|
|
|
|
|||||
Other-than-temporary impairment on securities: |
||||||||
Total other-than-temporary impairment losses |
135 | 1,938 | ||||||
Portion of losses recognized in other comprehensive income |
(82 | ) | (866 | ) | ||||
|
|
|
|
|||||
Net impairment losses |
53 | 1,072 | ||||||
|
|
|
|
|||||
Earnings before income taxes |
5,679 | 6,121 | ||||||
Income taxes |
2,100 | 2,101 | ||||||
|
|
|
|
|||||
Net earnings |
3,579 | 4,020 | ||||||
Preferred stock dividend requirement and accretion of preferred stock discount |
(331 | ) | (373 | ) | ||||
|
|
|
|
|||||
Net earnings applicable to common shareholders |
$ | 3,248 | 3,647 | |||||
|
|
|
|
|||||
Earnings per share: |
||||||||
Basic |
$ | 2.07 | 2.35 | |||||
|
|
|
|
|||||
Diluted |
$ | 2.04 | 2.31 | |||||
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
3
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Net earnings |
$ | 3,579 | 4,020 | |||||
|
|
|
|
|||||
Other comprehensive (loss) income: |
||||||||
Net change in unrealized loss on securities available for sale: |
||||||||
Unrealized loss arising during the year |
(725 | ) | (162 | ) | ||||
Reclassification adjustment for other-than-temporary impairment losses recognized |
53 | 1,072 | ||||||
|
|
|
|
|||||
Net change in unrealized (loss) gain |
(672 | ) | 910 | |||||
Net change in fair value of cash flow hedges |
128 | (17 | ) | |||||
|
|
|
|
|||||
Total other comprehensive (loss) income before (income tax benefit) taxes |
(544 | ) | 893 | |||||
Deferred (income tax benefit) taxes on above changes |
(206 | ) | 336 | |||||
|
|
|
|
|||||
Total other comprehensive (loss) income |
(338 | ) | 557 | |||||
|
|
|
|
|||||
Comprehensive income |
$ | 3,241 | 4,577 | |||||
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
4
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders Equity
Years Ended December 31, 2013 and 2012
($ in thousands, except share amounts)
Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
Series A | Series D | Additional Paid-In |
Additional Paid-In |
Retained | Other Comprehensive |
Total Stockholders |
||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Shares | Amount | Capital | Earnings | Loss | Equity | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 |
155,629 | $ | 1 | 7,500 | $ | | $ | 7,748 | 1,540,654 | $ | 15 | 22,508 | 23,549 | (1,020 | ) | 52,801 | ||||||||||||||||||||||||||||
Net earnings |
| | | | | | | | 4,020 | | 4,020 | |||||||||||||||||||||||||||||||||
Change in net unrealized loss on securities available for sale, net of income taxes of $342 |
| | | | | | | | | 568 | 568 | |||||||||||||||||||||||||||||||||
Decrease in fair value of cash flow hedges, net of income tax benefit of $6 |
| | | | | | | | | (11 | ) | (11 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividend requirements |
| | | | | | | | (373 | ) | | (373 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock related to compensation plans |
| | | | | 21,850 | 1 | 449 | | | 450 | |||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | 183 | | | 183 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Balance at December 31, 2012 |
155,629 | 1 | 7,500 | | 7,748 | 1,562,504 | 16 | 23,140 | 27,196 | (463 | ) | 57,638 | ||||||||||||||||||||||||||||||||
Net earnings |
| | | | | | | | 3,579 | | 3,579 | |||||||||||||||||||||||||||||||||
Change in net unrealized loss on securities available for sale, net of income tax benefit of $254 |
| | | | | | | | | (418 | ) | (418 | ) | |||||||||||||||||||||||||||||||
Increase in fair value of cash flow hedges, net of income taxes of $48 |
| | | | | | | | | 80 | 80 | |||||||||||||||||||||||||||||||||
Repurchase of Series D preferred stock from U.S Treasury |
| | (7,500 | ) | | (7,500 | ) | | | | | | (7,500 | ) | ||||||||||||||||||||||||||||||
Preferred stock dividend requirements |
| | | | | | | | (331 | ) | | (331 | ) | |||||||||||||||||||||||||||||||
Issuance of common stock related to compensation plans |
| | | | | 6,660 | | 184 | | | 184 | |||||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | | 165 | | | 165 | |||||||||||||||||||||||||||||||||
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Balance at December 31, 2013 |
155,629 | $ | 1 | | $ | | $ | 248 | 1,569,164 | $ | 16 | 23,489 | 30,444 | (801 | ) | 53,397 | ||||||||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
5
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings |
$ | 3,579 | 4,020 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
410 | 450 | ||||||
Provision for loan losses |
168 | 1,335 | ||||||
Deferred income taxes (benefit) |
2,213 | (918 | ) | |||||
Net amortization of loan fees |
(137 | ) | (231 | ) | ||||
Net amortization of discounts on securities |
1,672 | 2,025 | ||||||
Gain on sale of loans |
(243 | ) | (307 | ) | ||||
Originations of loans held for sale |
(13,269 | ) | (13,617 | ) | ||||
Proceeds from sales of loans held for sale |
13,316 | 14,189 | ||||||
Other-than-temporary impairment of securities available for sale |
53 | 1,072 | ||||||
Gain on sale of foreclosed real estate |
(137 | ) | (532 | ) | ||||
Provision for losses on foreclosed real estate |
144 | 605 | ||||||
Earnings on bank-owned life insurance |
(170 | ) | (173 | ) | ||||
Decrease in accrued interest receivable |
2 | 144 | ||||||
Decrease in other assets |
(168 | ) | 1,381 | |||||
(Decrease) increase in other liabilities |
(763 | ) | 1,109 | |||||
Stock compensation expense |
165 | 183 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
6,835 | 10,735 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Purchase of securities available for sale |
(27,481 | ) | (26,451 | ) | ||||
Maturities/calls of securities available for sale |
2,000 | 20,510 | ||||||
Principal repayments of securities available for sale |
10,096 | 12,799 | ||||||
Redemption of Federal Home Loan Bank stock |
159 | 1,938 | ||||||
Net increase in loans |
(20,413 | ) | (1,705 | ) | ||||
Proceeds from sale of foreclosed real estate |
1,376 | 5,818 | ||||||
Purchase of premises and equipment, net |
(104 | ) | (233 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by investing activities |
(34,367 | ) | 12,676 | |||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net (decrease) increase in deposits |
(6,322 | ) | 35,524 | |||||
Decrease in Federal Home Loan Bank advances |
| (35,000 | ) | |||||
Net increase (decrease) in other borrowings |
4,287 | (2,113 | ) | |||||
Proceeds from the exercise of stock options |
184 | 450 | ||||||
Series D preferred stock dividend requirements |
(331 | ) | (373 | ) | ||||
Redemption of Series D preferred stock |
(7,500 | ) | | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(9,682 | ) | (1,512 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
(37,214 | ) | 21,899 | |||||
Cash and cash equivalents at beginning of year |
131,633 | 109,734 | ||||||
|
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|
|
|||||
Cash and cash equivalents at end of year |
$ | 94,419 | 131,633 | |||||
|
|
|
|
(continued)
6
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(In thousands)
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 2,425 | 3,478 | |||||
|
|
|
|
|||||
Income taxes |
$ | 1,718 | 1,830 | |||||
|
|
|
|
|||||
Noncash transactions: |
||||||||
Accumulated other comprehensive (loss) gain, net change in net unrealized loss on securities available for sale, net tax benefit (taxes) |
$ | (418 | ) | 568 | ||||
|
|
|
|
|||||
Accumulated other comprehensive loss, increase in fair value of cash flow hedges, net of taxes (benefit) |
$ | 80 | (11 | ) | ||||
|
|
|
|
|||||
Transfer from loans to foreclosed real estate |
$ | 1,320 | 4,620 | |||||
|
|
|
|
|||||
Transfer from foreclosed real estate to loans |
$ | 1,230 | | |||||
|
|
|
|
|||||
Accrual of preferred stock dividend |
$ | | 94 | |||||
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
7
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2013 and 2012 and the Years Then Ended
(1) | Summary of Significant Accounting Policies |
Organization. Gulfstream Bancshares, Inc. (the Holding Company) owns all of the common stock of Gulfstream Business Bank (the Bank). The Holding Company operates as a one-bank holding company and its only business activity is the operation of the Bank. The Bank is a state (Florida)-chartered commercial bank and its deposits are insured, up to the applicable limits, by the Federal Deposit Insurance Corporation (FDIC). The Bank offers a variety of community banking services to individual and corporate customers through its banking offices located in Stuart, Martin County, Port St. Lucie, St. Lucie County, Jupiter and Delray Beach, Palm Beach County, Florida. The Banks wholly-owned subsidiary is Stream Asset Holdings, LLC and is primarily engaged in the managing and disposal of real estate property transferred from the Bank. Collectively, all entities are referred to as Company.
The following is a description of the significant accounting policies and practices followed by the Company, which conform to accounting principles generally accepted in the United States of America (GAAP) and prevailing practices within the banking industry.
Subsequent Events. Management has evaluated events occurring subsequent to the balance sheet date through February 20, 2014 (the financial statement issuance date), determining no events require additional disclosure in these consolidated financial statements, except as noted in Footnote 25.
Basis of Presentation. The consolidated financial statements include the accounts of the Holding Company, the Bank and Stream Asset Holdings, LLC. All significant intercompany balances have been eliminated in consolidation.
Use of Estimates. In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of foreclosed real estate and deferred income tax valuation allowances.
Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits with banks, and federal funds sold, all of which have original maturities of less than ninety days.
The Bank is required under Federal Reserve Board regulations to maintain reserves, generally consisting of cash or noninterest-earning accounts, against its transaction accounts. At December 31, 2013 and 2012, balances maintained as reserves were $1,017,000 and $944,000, respectively.
(continued)
8
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Securities. Securities may be classified as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are excluded from earnings and reported in other comprehensive (loss) income. Gains and losses on the sale of available-for-sale securities are recorded on the trade date determined using the specific-identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.
The Company views the determination of whether a security is temporarily or other-than-temporarily impaired as a critical accounting policy, as the estimate is susceptible to significant change from period to period because it requires management to make significant judgments, assumptions and estimates in the preparation of its consolidated financial statements. The Company assesses individual securities in its portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (OTTI) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Companys position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.
Loans Held for Sale. Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to earnings.
(continued)
9
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Loans. Loans management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.
Loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.
The accrual of interest on loans is discontinued at the time the loan is ninety-days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these 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 reasonable assured.
Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. There were no changes in the Companys accounting policies or methodology during the year ended December 31, 2013.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical loss experience adjusted for qualitative factors.
(continued)
10
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Allowance for Loan Losses, Continued. The historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding eighteen months. This is supplemented by the risks for each portfolio segment. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer and business spending as a result of continued high unemployment and reduced credit availability and lack of confidence in a sustainable recovery. The historical experience is adjusted for qualitative factors such as loan volume and loan delinquency trends, classified and underperforming asset trends, potential loss and charge-off trends, loan quality reviews, policies and procedures, staff experience and credit concentration that could affect managements estimate of probable losses.
A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate, construction and land development loans by either the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential real estate and consumer and other loans for impairment disclosures.
Foreclosed Real Estate. Real estate acquired through, or in lieu of, foreclosure, is initially recorded at fair value less the estimated costs to sell at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of the new cost basis or fair value less the estimated costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in earnings.
Premises and Equipment. Land is carried at cost. Building, leasehold improvements and furniture fixtures, equipment, software and automobiles are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the straight-line method over the shorter of the lease term or the estimated useful life of each type of asset.
(continued)
11
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Transfer of Financial Assets. Transfers of financial assets or a participating interest in an entire financial asset are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest holder.
Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
(continued)
12
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Fair Value Measurements, Continued. The following describes valuation methodologies used for assets measured at fair value:
Securities Available for Sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain U.S. Government Agency bonds, state, county and municipal bonds, mortgage-backed securities and interest-only strips. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 include certain mortgage-backed securities.
Derivative Instruments. Exchange-traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the Companys derivative positions are valued by a third-party using proprietary models and are classified within Level 2 of the valuation hierarchy. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation hierarchy.
Impaired Loans. Estimates of fair value for impaired loans is based on the estimated value of the underlying collateral which is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Companys management related to values of properties in the Companys market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.
Foreclosed Assets. Estimates of fair values are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Companys senior lending officers related to values of properties in the Companys market areas. These officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair values estimates for foreclosed real estate are classified as Level 3.
(continued)
13
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Income Taxes. There are two components of income taxes: current and deferred. Current income taxes reflect taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income taxes result from changes in deferred tax assets and liabilities between periods.
Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to managements judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company adopted accounting guidance relating to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. As of December 31, 2013, management is not aware of any uncertain tax positions that would have a material effect on the Companys consolidated financial statements.
The Company files consolidated federal and state income tax returns. Income taxes are allocated between the Holding Company and its subsidiaries as though separate income tax returns were filed.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
Advertising. Media advertising costs are expensed as incurred.
Stock-Based Compensation. The Company has adopted the fair value recognition method and expenses the fair value of any stock options and restricted stock awards as they vest. Under the fair value recognition method, the Company recognizes stock-based compensation in the accompanying consolidated statements of earnings.
(continued)
14
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Off-Balance-Sheet Instruments. In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of unused lines of credit, undisbursed construction loans and stand-by letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.
Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:
Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.
Securities. Fair values for securities are based on the framework for measuring fair value.
Loan Held for Sale. Fair values of loans held for sale are based on commitments on hand from investors or prevailing market prices.
Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial 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. Fair values for nonperforming loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.
Federal Home Loan Bank Stock. Fair value of the Companys investment in Federal Home Loan Bank stock is its redemption value.
Accrued Interest Receivable. The carrying amounts of accrued interest approximate their fair values.
Deposits. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.
Federal Home Loan Bank Advances and Other Borrowings. Fair values are estimated using discounted cash flow analysis based on the Companys current incremental borrowing rates for similar types of borrowing arrangements.
Junior Subordinated Debentures. The junior subordinated debentures are only transferable in the case of a merger, therefore, the fair value is estimated to be their settlement value which approximates par.
(continued)
15
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Fair Values of Financial Instruments, Continued.
Derivatives. The fair value of derivative instruments are based on the framework for measuring fair value.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.
Comprehensive Income. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and fair value adjustments on cash flow hedges, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net earnings, are components of comprehensive income. The components of accumulated other comprehensive loss are as follows:
The components of accumulated other comprehensive loss are as follows (in thousands):
At December 31, | ||||||||
2013 | 2012 | |||||||
Unrealized loss on securities available for sale |
$ | (898 | ) | 558 | ||||
Noncredit portion of other-than-temporary impairment losses on securities |
(82 | ) | (866 | ) | ||||
Net change in fair value of cash flow hedges |
(306 | ) | (434 | ) | ||||
|
|
|
|
|||||
Gross unrealized amount |
(1,286 | ) | (742 | ) | ||||
Income tax benefit |
485 | 279 | ||||||
|
|
|
|
|||||
Net unrealized amount |
$ | (801 | ) | (463 | ) | |||
|
|
|
|
Interest-Rate Swap Agreements. For asset/liability management purposes, the Company entered into interest-rate cap agreements to cap interest rates on specific variable-rate junior subordinated debentures. These interest-rate caps qualify as cash flow hedges. GAAP requires the gain or loss on a derivative designated as a cash flow hedge to be included in other comprehensive loss if the hedge is considered highly effective. If the cash flow hedge is not considered highly effective the gain or loss would be recorded in the statement of earnings. Interest-rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest-rate risk arising from the liabilities identified as exposing the Company to risk.
(continued)
16
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Recent Pronouncements. In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which limits the scope of the new balance sheet offsetting disclosures in ASU 2011-11 to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The adoption of this guidance had no effect on the Companys consolidated financial statements.
In February 2013, the FASB Issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires entities to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. This guidance is effective prospectively January 1, 2014. Upon adoption, this guidance is not expected to impact the Companys consolidated financial statements.
In February 2013, the FASB Issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for obligations within the scope of this ASU, which is effective January 1, 2014. Upon adoption, this guidance is not expected to impact the Companys consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this guidance had no effect on the Companys consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which among other things, require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as denoted within the ASU. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Upon adoption, this guidance is not expected to impact the Companys consolidated financial statements.
(continued)
17
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) | Summary of Significant Accounting Policies, Continued |
Recent Regulatory Developments
Basel III Rules. On July 2, 2013, the Federal Reserve Board (FRB) approved the final rules implementing the Basel Committee on Banking Supervisions capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. The FDICs rule is identical in substance to the final rules issued by the FRB.
The phase-in period for the final rules will begin for the Bank on January 1, 2015, with full compliance with all of the final rules requirements phased in over a multi-year schedule. The Company is currently evaluating the provisions of the final rules and their expected impact on the Company.
(2) | Securities Available for Sale |
Securities have been classified according to managements intention. The carrying amount of securities and their fair values are as follows (in thousands):
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
At December 31, 2013: |
||||||||||||||||
U.S. Government Agency bonds |
$ | 7,413 | 15 | (297 | ) | 7,131 | ||||||||||
State, county and municipal |
12,170 | 3 | (639 | ) | 11,534 | |||||||||||
Mortgage-backed securities |
40,041 | 594 | (786 | ) | 39,849 | |||||||||||
Interest-only strips |
2,644 | 250 | (120 | ) | 2,774 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 62,268 | 862 | (1,842 | ) | 61,288 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
At December 31, 2012: |
||||||||||||||||
U.S. Government Agency bonds |
5,495 | 57 | | 5,552 | ||||||||||||
State, county and municipal |
10,049 | 330 | (18 | ) | 10,361 | |||||||||||
Mortgage-backed securities |
29,093 | 1,060 | (98 | ) | 30,055 | |||||||||||
Interest-only strips |
3,971 | | (1,639 | ) | 2,332 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities available for sale |
$ | 48,608 | 1,447 | (1,755 | ) | 48,300 | ||||||||||
|
|
|
|
|
|
|
|
There were no sales of securities available for sale in 2013 and 2012.
(continued)
18
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) | Securities Available for Sale, Continued |
The scheduled maturities of securities at December 31, 2013 are as follows (in thousands):
Amortized Cost |
Fair Value |
|||||||
Due in less than one year |
$ | 1,499 | 1,513 | |||||
Due in over five years through ten years |
9,978 | 9,583 | ||||||
Due in over ten years |
8,106 | 7,569 | ||||||
Mortgage-backed securities |
40,041 | 39,849 | ||||||
Interest-only strips |
2,644 | 2,774 | ||||||
|
|
|
|
|||||
$ | 62,268 | 61,288 | ||||||
|
|
|
|
At December 31, 2013 and 2012, securities with a carrying value of $18,102,000 and $14,164,000, respectively were pledged to secure public deposits and repurchase agreements with customers.
Securities with gross unrealized losses at December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
Less Than Twelve Months | Over Twelve Months | |||||||||||||||
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
U.S. Government Agency bonds |
$ | (297 | ) | 3,700 | | | ||||||||||
State, county and municipal |
(639 | ) | 10,411 | | | |||||||||||
Mortgage-backed securities |
(701 | ) | 27,518 | (85 | ) | 13 | ||||||||||
Interest-only strips |
| | (120 | ) | 1,116 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (1,637 | ) | 41,629 | (205 | ) | 1,129 | |||||||||
|
|
|
|
|
|
|
|
During 2013 and 2012, the Company had a $53,000 and $1,072,000, respectively, OTTI loss related to one mortgage-backed security and one interest-only strips. The table below provides a cumulative roll forward of credit losses recognized in earnings relating to the Companys securities (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Beginning cumulative credit losses |
$ | 1,267 | 195 | |||||
Additions for credit losses not previously recognized |
53 | 1,072 | ||||||
|
|
|
|
|||||
Ending cumulative credit losses |
$ | 1,320 | 1,267 | |||||
|
|
|
|
(continued)
19
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) | Securities Available for Sale, Continued |
Management will continue to evaluate the investment ratings in the securities portfolio, severity in pricing declines, market price quotes along with timing and receipt of amounts contractually due. Based upon these and other factors, the securities portfolio may experience further impairment.
The unrealized losses on five investment securities available for sale not deemed OTTI impaired were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered OTTI.
(3) | Loans |
The segments of loans are as follows (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Commercial real estate |
$ | 214,531 | 184,031 | |||||
Residential real estate |
19,762 | 16,211 | ||||||
Construction and land development |
14,355 | 30,331 | ||||||
Commercial |
110,022 | 110,448 | ||||||
Consumer and other |
17,462 | 18,556 | ||||||
|
|
|
|
|||||
Total loans |
376,132 | 359,577 | ||||||
Deduct: |
||||||||
Deferred loan fees, net |
(508 | ) | (499 | ) | ||||
Allowance for loan losses |
(12,358 | ) | (16,104 | ) | ||||
|
|
|
|
|||||
Loans, net |
$ | 363,266 | 342,974 | |||||
|
|
|
|
The Company has divided the loan portfolio into five portfolio segments and classes, each with different risk characteristics and methodologies for assessing risk. The portfolio segments and class are the same and are identified by the Company as follows:
Commercial Real Estate Loans. Commercial real estate loans consist of loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. These loans are secured by first liens on office buildings, apartments, farms, retail and mixed-use properties, churches, warehouses and restaurants located within the Companys market area. The Companys underwriting analysis includes credit verification, independent appraisals, a review of the borrowers financial condition, and a detailed analysis of the borrowers underlying cash flows. Commercial real estate loans are larger than residential loans and involve greater credit risk. The repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions also affect the repayment ability to a greater extent than residential real estate loans.
(continued)
20
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
Residential Real Estate Loans. The Company originates adjustable-rate and fixed-rate, residential real estate loans for the purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Companys market area. Residential real estate loans are underwritten in accordance with polices set forth and approved by the Companys board of directors. Such standards include repayment capacity and source, value of the underlying property, credit history stability.
Construction and Land Development Loans. Construction and land development loans consist of loans to individuals for the construction of their primary residences and, to a limited extent, loans to builders and commercial borrowers. These loans are categorized as construction and land development loans during the construction period, and may convert to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Construction and land development loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. The funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. To the extent construction loans are not made to owner-occupants of single-family homes, they are more vulnerable to changes in economic conditions. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. The risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the propertys value upon completion of the project and the estimated cost (including interest) of the project.
Commercial. Commercial loans consist of loans to small- and medium-sized companies in the Companys market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or fixtures. Primarily all of the Companys commercial loans are secured loans, along with a small amount of unsecured loans. The Companys underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrowers ability to make repayment from the cash flow of the borrowers business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.
Consumer and Other. Consumer loans mainly consist of variable-rate and fixed-rate home equity lines-of-credit secured by a lien on the borrowers primary residence. Most of the Companys consumer loans share approximately the same level of risk as residential mortgages.
(continued)
21
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
An analysis of the change in allowance for loan losses follow (in thousands):
Commercial Real Estate |
Residential Real Estate |
Construction and Land Development |
Commercial | Consumer and Other |
Total | |||||||||||||||||||
Year Ended December 31, 2013: |
||||||||||||||||||||||||
Beginning balance |
$ | 7,623 | 97 | 1,689 | 6,395 | 300 | 16,104 | |||||||||||||||||
(Credit) provision for loan losses |
(110 | ) | 51 | 225 | 25 | (23 | ) | 168 | ||||||||||||||||
Charge-offs |
(80 | ) | | (1,437 | ) | (3,204 | ) | (62 | ) | (4,783 | ) | |||||||||||||
Recoveries |
193 | | 411 | 259 | 6 | 869 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 7,626 | 148 | 888 | 3,475 | 221 | 12,358 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Individually evaluated for impairment: |
||||||||||||||||||||||||
Recorded investment |
$ | 15,663 | | 1,616 | 11,401 | | 28,680 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance in allowance for loan losses |
$ | 5,086 | | 689 | 878 | | 6,653 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment: |
||||||||||||||||||||||||
Recorded investment |
$ | 198,868 | 19,762 | 12,739 | 98,621 | 17,462 | 347,452 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance in allowance for loan losses |
$ | 2,540 | 148 | 199 | 2,597 | 221 | 5,705 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Year Ended December 31, 2012: |
||||||||||||||||||||||||
Beginning balance |
8,693 | 739 | 1,394 | 5,696 | 517 | 17,039 | ||||||||||||||||||
Provision (credit) for loan losses |
308 | (646 | ) | 717 | 1,197 | (241 | ) | 1,335 | ||||||||||||||||
Charge-offs |
(1,866 | ) | | (422 | ) | (578 | ) | (12 | ) | (2,878 | ) | |||||||||||||
Recoveries |
488 | 4 | | 80 | 36 | 608 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending balance |
$ | 7,623 | 97 | 1,689 | 6,395 | 300 | 16,104 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Individually evaluated for impairment: |
||||||||||||||||||||||||
Recorded investment |
$ | 11,927 | | 6,422 | 13,366 | | 31,715 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance in allowance for loan losses |
$ | 4,008 | | 1,082 | 4,423 | | 9,513 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Collectively evaluated for impairment: |
||||||||||||||||||||||||
Recorded investment |
$ | 172,104 | 16,211 | 23,909 | 97,082 | 18,556 | 327,862 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance in allowance for loan losses |
$ | 3,615 | 97 | 607 | 1,972 | 300 | 6,591 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
22
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
The following summarizes the loan credit quality (in thousands):
Commercial Real Estate |
Residential Real Estate |
Construction and Land Development |
Commercial | Consumer and Other |
Total | |||||||||||||||||||
Credit Risk Profile by Internally Assigned Grade: |
||||||||||||||||||||||||
At December 31, 2013: |
||||||||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
$ | 197,417 | 19,762 | 12,739 | 98,046 | 15,553 | 343,517 | |||||||||||||||||
Special mention |
| | | 482 | | 482 | ||||||||||||||||||
Substandard |
17,114 | | 1,616 | 11,494 | 1,909 | 32,133 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
Loss |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 214,531 | 19,762 | 14,355 | 110,022 | 17,462 | 376,132 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At December 31, 2012: |
||||||||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
171,534 | 16,211 | 23,722 | 96,845 | 18,081 | 326,393 | ||||||||||||||||||
Special mention |
| | | | | | ||||||||||||||||||
Substandard |
12,497 | | 6,609 | 13,603 | 475 | 33,184 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
Loss |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 184,031 | 16,211 | 30,331 | 110,448 | 18,556 | 359,577 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial loans over $500,000 are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade.
Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of a deterioration in the credit worthiness of the borrower; or (c) the borrower contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off. The Company uses the following definitions for risk ratings:
Pass A Pass loans primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.
(continued)
23
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
Special Mention A Special Mention loan has potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Companys credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
Age analysis of past-due loans is as follows (in thousands):
Accruing Loans | ||||||||||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Greater Than 90 Days Past Due |
Total Past Due |
Current | Nonaccrual Loans |
Total Loans |
||||||||||||||||||||||
At December 31, 2013: |
||||||||||||||||||||||||||||
Commercial real estate |
$ | 751 | 1,305 | | 2,056 | 210,371 | 2,104 | 214,531 | ||||||||||||||||||||
Residential real estate |
2,559 | | | 2,559 | 17,203 | | 19,762 | |||||||||||||||||||||
Construction and land development |
| | | | 14,355 | | 14,355 | |||||||||||||||||||||
Commercial |
42 | 35 | | 77 | 108,218 | 1,727 | 110,022 | |||||||||||||||||||||
Consumer and other |
101 | | | 101 | 17,138 | 223 | 17,462 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 3,453 | 1,340 | | 4,793 | 367,285 | 4,054 | 376,132 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
At December 31, 2012: |
||||||||||||||||||||||||||||
Commercial real estate |
107 | 145 | | 252 | 183,302 | 477 | 184,031 | |||||||||||||||||||||
Residential real estate |
| | | | 16,211 | | 16,211 | |||||||||||||||||||||
Construction and land development |
| | | | 28,112 | 2,219 | 30,331 | |||||||||||||||||||||
Commercial |
1,499 | | | 1,499 | 108,145 | 804 | 110,448 | |||||||||||||||||||||
Consumer and other |
352 | 49 | | 401 | 18,155 | | 18,556 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,958 | 194 | | 2,152 | 353,925 | 3,500 | 359,577 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
24
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
The following summarizes the amount of impaired loans (in thousands):
With No Related Allowance Recorded |
With an Allowance Recorded | Total | ||||||||||||||||||||||||||||||
Recorded Investment |
Unpaid Contractual Principal Balance |
Recorded Investment |
Unpaid Contractual Principal Balance |
Related Allowance |
Recorded Investment |
Unpaid Contractual Principal Balance |
Related Allowance |
|||||||||||||||||||||||||
At December 31, 2013: |
||||||||||||||||||||||||||||||||
Commercial real estate |
$ | 2,387 | 2,412 | 13,276 | 13,332 | 5,086 | 15,663 | 15,744 | 5,086 | |||||||||||||||||||||||
Construction and land development |
| | 1,616 | 1,616 | 689 | 1,616 | 1,616 | 689 | ||||||||||||||||||||||||
Commercial |
9,509 | 9,780 | 1,892 | 1,892 | 878 | 11,401 | 11,672 | 878 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 11,896 | 12,192 | 16,784 | 16,840 | 6,653 | 28,680 | 29,032 | 6,653 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
At December 31, 2012: |
||||||||||||||||||||||||||||||||
Commercial real estate |
1,869 | 2,344 | 10,058 | 10,114 | 4,008 | 11,927 | 12,458 | 4,008 | ||||||||||||||||||||||||
Construction and land development |
3,929 | 7,703 | 2,493 | 2,493 | 1,082 | 6,422 | 10,196 | 1,082 | ||||||||||||||||||||||||
Commercial |
6,058 | 6,058 | 7,308 | 9,368 | 4,423 | 13,366 | 15,426 | 4,423 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 11,856 | 16,105 | 19,859 | 21,975 | 9,513 | 31,715 | 38,080 | 9,513 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):
Average Recorded Investment |
Interest Income Recognized |
Interest Income Received |
||||||||||
Year Ended December 31, 2013: |
||||||||||||
Commercial real estate |
$ | 9,586 | 649 | 679 | ||||||||
Construction and land development |
1,184 | 110 | 110 | |||||||||
Commercial |
11,056 | 471 | 565 | |||||||||
Consumer and other |
37 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | 21,863 | 1,230 | 1,354 | |||||||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2012: |
||||||||||||
Commercial real estate |
9,536 | 711 | 711 | |||||||||
Construction and land development |
5,551 | 260 | 311 | |||||||||
Commercial |
8,281 | 552 | 685 | |||||||||
Consumer and other |
510 | 35 | 35 | |||||||||
|
|
|
|
|
|
|||||||
$ | 23,878 | 1,558 | 1,742 | |||||||||
|
|
|
|
|
|
(continued)
25
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) | Loans, Continued |
The following is a summary of loans determined to be troubled debt restructuring during the years ended December 31, 2013 and 2012 (dollars in thousands):
Number of Contracts |
Pre- Modification Outstanding Recorded Investment |
Post- Modification Outstanding Recorded Investment |
||||||||||
Troubled Debt Restructurings: |
||||||||||||
Year Ended December 31, 2013: |
||||||||||||
Commercial real estate: |
||||||||||||
Modified interest rate and amortization |
1 | $ | 3,288 | 3,288 | ||||||||
Modified amortization |
1 | 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total |
2 | $ | 3,659 | 3,659 | ||||||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2012: |
||||||||||||
Commercial real estate: |
||||||||||||
Modified interest rate amortization |
1 | 3,081 | 3,081 | |||||||||
Residential real estate: |
||||||||||||
Modified interest rate and amortization |
||||||||||||
Construction and land development: |
||||||||||||
Modified amortization |
2 | 846 | 846 | |||||||||
Commercial: |
||||||||||||
Modified interest rate and amortization |
1 | 857 | 857 | |||||||||
|
|
|
|
|
|
|||||||
Total |
4 | $ | 4,784 | 4,784 | ||||||||
|
|
|
|
|
|
During the year ended December 31, 2013 and 2012, respectively, there were no loans that were determined to be a troubled debt restructuring that subsequently defaulted during the year in which they were restructured.
The Company grants the majority of its loans to borrowers throughout Martin, Palm Beach and St. Lucie Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers ability to honor their contracts is dependent upon the economy and real estate market in those counties.
(continued)
26
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) | Foreclosed Real Estate |
An analysis of the allowance for losses on foreclosed real estate is as follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Balance at beginning of year |
$ | 2,288 | 1,878 | |||||
Provision for losses |
144 | 605 | ||||||
Charge-offs |
(295 | ) | (195 | ) | ||||
|
|
|
|
|||||
Balance at end of year |
$ | 2,137 | 2,288 | |||||
|
|
|
|
Expenses applicable to foreclosed real estate follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Provision for losses |
$ | 144 | 605 | |||||
Operating expenses |
202 | 575 | ||||||
|
|
|
|
|||||
$ | 346 | 1,180 | ||||||
|
|
|
|
(continued)
27
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) | Premises and Equipment |
A summary of premises and equipment follows (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Land |
$ | 1,937 | 1,937 | |||||
Building |
5,376 | 5,305 | ||||||
Leasehold improvements |
733 | 738 | ||||||
Furniture, fixtures and equipment |
2,198 | 2,611 | ||||||
Software |
435 | 376 | ||||||
Automobiles |
143 | 140 | ||||||
|
|
|
|
|||||
Total, at cost |
10,822 | 11,107 | ||||||
Less accumulated depreciation and amortization |
(5,041 | ) | (5,020 | ) | ||||
|
|
|
|
|||||
Premises and equipment, net |
$ | 5,781 | 6,087 | |||||
|
|
|
|
The Company leases certain facilities. The lease terms vary from one to seven years and contain renewal options, escalation clauses and some provide for proration of operating expenses. The leases expire in 2014 and 2015. Rent expense for the years ended December 31, 2013 and 2012 was approximately $236,000 and $234,000, respectively. In addition, the Company leases space in its Delray and St. Lucie branch to third parties. The leases have initial terms of one to three years and rental income was approximately $74,000 and $103,000 for the years ended December 31, 2013 and 2012, respectively. Future minimum lease commitments are as follows (in thousands):
Year Ending |
Operating Lease Expense |
Operating Lease Income |
||||||
2014 |
$ | 171 | 54 | |||||
2015 |
69 | 9 | ||||||
|
|
|
|
|||||
Total |
$ | 240 | 63 | |||||
|
|
|
|
(continued)
28
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) | Deposits |
The aggregate amount of time deposits with a minimum denomination of $100,000, was $49.5 million and $63.0 million at December 31, 2013 and 2012, respectively. A schedule of maturities of time deposit follows (in thousands):
Year Ending December 31, |
Amount | |||
2014 |
$ | 55,569 | ||
2015 |
18,477 | |||
2016 |
4,922 | |||
2017 |
4,709 | |||
2018 |
742 | |||
|
|
|||
$ | 84,419 | |||
|
|
At December 31, 2013 and 2012, securities with a carrying value of $5,177,000 and $8,752,000, respectively were pledged to the State of Florida to secure public funds.
(7) | Federal Home Loan Bank (FHLB) Advances |
Maturities and interest rates of FHLB advances are as follows ($ in thousands):
Year Ending December 31, |
Call Dates |
Fixed or Adjustable Interest |
December 31, |
|||||||||||||||
Interest Rate | 2013 | 2012 | ||||||||||||||||
2017 |
N/A | Fixed | 5.19 | % | $ | 5,000 | 5,000 | |||||||||||
|
|
|
|
Pursuant to the collateral agreement with the FHLB, the advances are collateralized as follows (in thousands):
December 31, | ||||||||
2013 | 2012 | |||||||
Residential and commercial real estate loans |
$ | 74,057 | 49,486 | |||||
Home equity lines of credit |
5,737 | 4,830 | ||||||
FHLB stock |
885 | 1,044 | ||||||
|
|
|
|
|||||
$ | 80,679 | 55,360 | ||||||
|
|
|
|
Under the collateral agreement with the FHLB, at December 31, 2013, the remaining credit availability based on the current value of the collateral is $78 million. At December 31, 2013, the Bank has $135 million in remaining available credit if additional collateral is pledged.
(continued)
29
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) | Other Borrowings |
The Company enters into repurchase agreements with its customers. These agreements generally mature daily. At December 31, 2013 and 2012, the outstanding balance of such borrowings totaled $6,884,000 and $2,597,000, respectively. These agreements are collateralized by securities available for sale with fair values of $12,924,000 and $5,412,000 at December 31, 2013 and 2012, respectively.
At December 31, 2013, the Company had lines of credit of $36 million with four correspondent banks to purchase federal funds. There were no amounts outstanding in connection with these lines of credit at December 31, 2013.
(9) | Junior Subordinated Debentures |
Gulfstream Bancshares Capital Trust I was formed during 2004 for the sole purpose of issuing $7,000,000 of junior subordinated debentures in a pooled security offering. Gulfstream Bancshares Capital Trust II was formed during 2006 for the sole purpose of issuing $3,000,000 of junior subordinated debentures in a pooled security offering.
The Trusts sold junior subordinated debentures in the aggregate principal amount of $10,000,000 (the Capital Securities) in pooled junior subordinated debentures offerings. The proceeds from these sales, along with the proceeds from the sale of the Trusts common securities, were paid to the Holding Company in exchange for $10,310,000 of its adjustable-rate Junior Subordinated Debentures (the Debentures). The Debentures have the same terms as the Capital Securities. The sole assets of the Trusts, the obligors on the Capital Securities, is the Debentures.
The Holding Company has guaranteed the Trusts payment of distributions on the capital securities, payments on any redemptions of the capital securities, and any liquidation distribution with respect to the Capital Securities. Cash distributions on both the Capital Securities and the Debentures are payable quarterly in arrears. The following summarizes the Holding Companys outstanding debentures to the Trusts ($ in thousands).
Trust Name |
Interest Rate | Outstanding at December 31, |
Optional Prepayment Date |
Maturity Date |
||||||||||||||
2013 | 2012 | |||||||||||||||||
Gulfstream Bancshares Capital Trust I |
LIBOR +1.90% | $ | 7,217 | 7,217 | 01/18/2011 | 01/18/2035 | ||||||||||||
Gulfstream Bancshares Capital Trust II |
LIBOR +1.70% | 3,093 | 3,093 | 03/06/2012 | 03/06/2037 | |||||||||||||
|
|
|
|
|||||||||||||||
Total |
$ | 10,310 | 10,310 | |||||||||||||||
|
|
|
|
(continued)
30
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) | Junior Subordinated Debentures, Continued |
The Capital Securities are subject to mandatory redemption (i) in whole, but not in part, upon repayment of the Debentures at stated maturity or, at the option of the Holding Company, their earlier redemption in whole upon the occurrence of certain changes in the tax treatment or capital treatment of the Capital Securities, or a change in the law such that the Trust would be considered an investment company and (ii) in whole or in part at any time on or after five years from issuance contemporaneously with the optional redemption by the Holding Company of the Debentures in whole or in part. The Debentures are redeemable prior to maturity at the option of the Holding Company (i) on or after five years from issuance, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and continuation of certain changes in the tax treatment or capital treatment of the Capital Securities, or a change in law such that the Trust would be considered an Investment Company, required to be registered under the Investment Company Act of 1940.
(10) | Derivative Financial Instruments |
The Company utilizes interest-rate caps which are derivative financial instruments. Stand alone derivative financial instruments such as interest-rate swaps, are used to economically hedge interest rate risk related to the Companys financial instruments. These derivative instruments involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any, over the life of the contract. Such differences, which represent the fair value of the derivative instruments, is reflected on the Companys consolidated balance sheets as either derivative assets or derivative liabilities.
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to those agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect any counterparties to fail their obligations.
(continued)
31
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) | Derivative Financial Instruments, Continued |
Interest-Rate Risk Management-Cash Flow Hedging Instruments. Variable-rate junior subordinated debentures expose the Company to variability in their cash flows due to changes in the level of interest rates as well as expose the Company to interest-rate risk in a rising-rate environment. Management believes that it is prudent to limit both interest-rate risk and the variability in the cash flows of certain variable-rate liabilities. It is the Companys objective to hedge the change in cash flow of certain variable-rate junior subordinated debentures. To meet this objective, the Company utilizes interest-rate caps as an asset/liability management strategy to hedge the change in cash flows of the borrowings due to changes in interest rates. These interest rate cap agreements are contracts to make a series of variable-rate payments in exchange for receiving a series of fixed-rate payments and are based on the terms of the individual underlying borrowings, thus converting the long term variable-rate borrowings to fixed-rate borrowings. The change in the cash flows of the underlying borrowings are offset by the fixed-rate interest rate cap agreements. The Company believes it is economically prudent to keep hedge coverage ratios at acceptable risk levels, which may vary depending on current and expected interest rate movement.
The information pertaining to outstanding derivative instruments is as follows ($ in thousands):
At December 31, | ||||||||
2013 | 2012 | |||||||
Notional amount-interest rate caps |
$ | 10,310 | 10,310 | |||||
Weighted-average pay rate |
2.12 | % | 2.53 | % | ||||
Weighted-average receive rate(1) |
| | ||||||
Weighted-average maturity in years |
1.51 | 2.51 | ||||||
Net interest paid during year |
$ | 133 | 56 | |||||
Fair value adjustments on cash flow hedges |
$ | (306 | ) | (434 | ) |
(1) | The Company will continue to pay the contractual rates on the junior subordinated debentures as noted in Footnote 9. The interest-rate caps will pay the Company the difference in rates when the three-month Libor exceeds 1.50%. At December 31, 2013 and 2012, the three month Libor was below 1.50%. |
As of December 31, 2013, the Company has concluded that the interest-rate swaps are highly effective and therefore the loss on the swaps is reported, net of tax benefit, in other comprehensive income.
(continued)
32
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) | Salary Continuation Agreements |
The Company entered into Salary Continuation Agreements (the Agreements) with certain officers which requires the Company to provide salary continuation benefits to them upon retirement or in the event of a change in control of the Company. The Company is accruing the present value of the future benefits over the term of the Agreements. The Agreements also have a death benefit. The Company has purchased life insurance policies on the officers which would fund the death benefit, which although not formally linked, have future cash value which approximates estimated future benefit. The expense relating to these Agreements was $267,000 in 2012. During the year ended December 31, 2013, the Company 100% vested the benefits for the officers resulting in $2.3 million in expense recognized in salaries and employee benefits in the accompanying consolidated statements of earnings and in December 2013 the Company paid the total outstanding obligation of $3.4 million to the officers. There are no agreements outstanding at December 31, 2013.
(12) | Income Taxes |
Income taxes (benefit) consisted of the following (in thousands):
Current | Deferred (Benefit) |
Total | ||||||||||
Year Ended December 31, 2013: |
||||||||||||
Federal |
$ | (83 | ) | 1,890 | 1,807 | |||||||
State |
(30 | ) | 323 | 293 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (113 | ) | 2,213 | 2,100 | |||||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2012: |
||||||||||||
Federal |
2,626 | (811 | ) | 1,815 | ||||||||
State |
393 | (107 | ) | 286 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 3,019 | (918 | ) | 2,101 | |||||||
|
|
|
|
|
|
(continued)
33
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) | Income Taxes, Continued |
The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows ($ in thousands):
Year Ended December 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Amount | % of Pretax Earnings |
Amount | % of Pretax Earnings |
|||||||||||||
Income taxes at statutory rate |
$ | 1,931 | 34.0 | % | $ | 2,081 | 34.0 | % | ||||||||
Increases (decreases) resulting from: |
||||||||||||||||
State taxes, net of Federal tax benefit |
193 | 3.4 | 189 | 3.1 | ||||||||||||
Stock compensation expense |
50 | .9 | 55 | .9 | ||||||||||||
Nontaxable income |
(66 | ) | (1.2 | ) | (67 | ) | (1.1 | ) | ||||||||
Other |
(8 | ) | (.1 | ) | (157 | ) | (2.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income taxes |
$ | 2,100 | 37.0 | % | $ | 2,101 | 34.3 | % | ||||||||
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
At December 31, | ||||||||
2013 | 2012 | |||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 4,650 | 6,060 | |||||
Premises and equipment |
290 | 299 | ||||||
Supplemental retirement |
42 | 445 | ||||||
Stock compensation |
62 | 91 | ||||||
Unrealized loss on securities available for sale |
370 | 116 | ||||||
Unrealized loss on cash flow hedge |
115 | 163 | ||||||
Interest on nonaccrual loans |
88 | 59 | ||||||
Foreclosed real estate |
1,002 | 1,357 | ||||||
Impaired securities |
573 | 614 | ||||||
|
|
|
|
|||||
Deferred tax assets |
7,192 | 9,204 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Deferred loan costs |
(100 | ) | (103 | ) | ||||
Prepaid expenses |
(70 | ) | (72 | ) | ||||
|
|
|
|
|||||
Deferred tax liabilities |
(170 | ) | (175 | ) | ||||
|
|
|
|
|||||
Net deferred tax asset |
$ | 7,022 | 9,029 | |||||
|
|
|
|
(continued)
34
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) | Income Taxes, Continued |
The Company files consolidated income tax returns in the U.S. federal jurisdiction and the State of Florida. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2010.
(13) | Fair Value Measurements |
Securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value Measurements Using | ||||||||||||||||
Fair Value |
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
December 31, 2013: |
||||||||||||||||
U.S. Government Agency bonds |
$ | 7,131 | | 7,131 | | |||||||||||
State, county and municipal |
11,534 | | 11,534 | | ||||||||||||
Mortgage-backed securities |
39,849 | | 39,812 | 37 | ||||||||||||
Interest-only strips |
2,774 | | 2,774 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 61,288 | | 61,251 | 37 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2012: |
||||||||||||||||
U.S. Government Agency bonds |
5,552 | | 5,552 | | ||||||||||||
State, county and municipal |
10,361 | | 10,361 | | ||||||||||||
Mortgage-backed securities |
30,055 | | 29,905 | 150 | ||||||||||||
Interest-only strips |
2,332 | | 2,332 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 48,300 | | 48,150 | 150 | ||||||||||||
|
|
|
|
|
|
|
|
During 2013, no securities transferred in or out of Level 3. During 2012, one security transferred out of Level 2 and into Level 3, due to the fact that the security was deemed impaired. The transfer of these securities among Level 1, 2 and 3 were based on the change in inputs used in valuing the securities.
(continued)
35
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13) | Fair Value Measurements, Continued |
A reconciliation for all available-for-sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Balance, January 1, 2013 |
$ | 150 | 262 | |||||
Losses included in earnings |
(53 | ) | (72 | ) | ||||
(Losses) gains included in other comprehensive income |
(85 | ) | (80 | ) | ||||
Settlements |
25 | (40 | ) | |||||
Transfer into Level 3 |
| 80 | ||||||
|
|
|
|
|||||
Balance, December 31, 2013 |
$ | 37 | 150 | |||||
|
|
|
|
Derivatives measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value |
Fair Value Measurements at Reporting Date Using |
|||||||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||
As of December 31, 2013- |
||||||||||||||||
Derivative cash flow hedges (interest rate caps) |
$ | 2 | | 2 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2012- |
||||||||||||||||
Derivative cash flow hedges (interest rate caps) |
$ | 7 | | 7 | | |||||||||||
|
|
|
|
|
|
|
|
(continued)
36
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13) | Fair Value Measurements, Continued |
Impaired loans measured at fair value or a nonrecurring basis are as follows (in thousands):
At Year End | Losses Recorded |
|||||||||||||||||||||||
Fair Value |
Level 1 | Level 2 | Level 3 | Total Losses |
During the Year |
|||||||||||||||||||
December 31, 2013: |
||||||||||||||||||||||||
Commercial real estate |
$ | 400 | | | 400 | 128 | 128 | |||||||||||||||||
Commercial |
650 | | | 650 | 271 | 271 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,050 | | | 1,050 | 399 | 399 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012: |
||||||||||||||||||||||||
Commercial real estate |
6,432 | | | 6,432 | 4,539 | 613 | ||||||||||||||||||
Construction and land development |
1,458 | | | 1,458 | 3,774 | 372 | ||||||||||||||||||
Commercial |
2,726 | | | 2,726 | 5,050 | 524 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 10,616 | | | 10,616 | 13,363 | 1,509 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate measured at fair value on a nonrecurring basis are as follows (in thousands):
At Year End | Losses Recorded |
|||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total Losses |
During the Year |
|||||||||||||||||||
December 31, 2013- |
||||||||||||||||||||||||
Foreclosed real estate, net |
$ | 3,365 | | | 3,365 | 2,137 | 144 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012- |
||||||||||||||||||||||||
Foreclosed real estate, net |
$ | 4,658 | | | 4,658 | 2,288 | 605 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(14) | Off-Balance-Sheet Financial Instruments |
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are unused lines of credit, undisbursed construction loans and stand-by letters of credit and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.
(continued)
37
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) | Off-Balance-Sheet Financial Instruments, Continued |
The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and unused lines of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Stand-by letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support third-party borrowing arrangements and generally have expiration dates within one year of issuance. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Company generally holds collateral supporting those commitments.
Stand-by letters of credit and unused lines of credit typically result in loans with a market interest rate when funded.
The following is a summary of the Companys financial instruments with off-balance-sheet risk at December 31, 2013 (in thousands):
Contract Amount |
||||
Unused lines of credit |
$ | 66,800 | ||
|
|
|||
Undisbursed construction loans |
$ | 5,304 | ||
|
|
|||
Stand-by letters of credit |
$ | 1,223 | ||
|
|
(continued)
38
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) | Fair Value of Financial Instruments |
The estimated fair value of the Companys financial instruments were as follows (in thousands):
At December 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 94,419 | 94,419 | 131,633 | 131,633 | |||||||||||
Securities |
61,288 | 61,288 | 48,300 | 48,300 | ||||||||||||
Loans held for sale |
664 | 670 | 468 | 470 | ||||||||||||
Loans, net |
363,266 | 365,199 | 342,974 | 347,522 | ||||||||||||
Federal Home Loan Bank stock |
885 | 885 | 1,044 | 1,044 | ||||||||||||
Accrued interest receivable |
1,255 | 1,255 | 1,257 | 1,257 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposit |
466,571 | 467,360 | 472,893 | 474,064 | ||||||||||||
Federal Home Loan Bank advances |
5,000 | 5,431 | 5,000 | 5,588 | ||||||||||||
Junior subordinated debentures |
10,310 | 10,310 | 10,310 | 10,310 | ||||||||||||
Other borrowings |
6,884 | 6,884 | 2,597 | 2,597 | ||||||||||||
Derivative liabilities |
2 | 2 | 7 | 7 | ||||||||||||
Off-balance-sheet financial instruments |
| | | |
(16) | Stock Plans |
Stock Option Plan. The Company established a Directors Stock Option Plan and an Officers and Employees Stock Option Plan (collectively referred to as 1999 Stock Option Plans). Under these plans, the total number of shares which may be issued is 320,000. The options granted have a term of ten years and vest over five years. During 2009, the 1999 Stock Option Plans were terminated and the Company established the 2009 Stock Option Plan. Under this plan, the total number of shares which may be issued is 200,000. The options have a term of ten years and vest over three years. At December 31, 2013, 95,559 shares remain available for grant under the 2009 Stock Option Plan.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended December 31, | ||||
2013 | 2012 | |||
Risk-free interest rate |
.93-1.91% | 0.96-1.33% | ||
Expected stock volatility |
11.68% | 11.68% | ||
Expected life in years |
6.0 | 6.0 | ||
Per share grant-date fair value of options issued during the year |
$4.19-5.09 | 3.66-3.94 | ||
|
|
(continued)
39
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) | Stock Plans, Continued |
The Company used the guidance issued by the Securities and Exchange Commission to determine the estimated life of options issued. Expected volatility is based on volatility of similar companies. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Companys history and expectation of dividend payments.
A summary of stock option transactions follows ($ in thousands, except share amounts):
Number of Options |
Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
||||||||||
Outstanding at December 31, 2011 |
178,283 | $ | 26.77 | |||||||||
Options granted |
40,255 | 26.00 | ||||||||||
Options exercised |
(17,390 | ) | 14.35 | |||||||||
Options forfeited |
(3,625 | ) | 29.95 | |||||||||
|
|
|
|
|||||||||
Outstanding at December 31, 2012 |
197,523 | 27.65 | ||||||||||
Options granted |
6,725 | 30.00 | ||||||||||
Options exercised |
(5,160 | ) | 18.19 | |||||||||
Options forfeited |
(4,861 | ) | 28.59 | |||||||||
|
|
|
|
|||||||||
Outstanding at December 31, 2013 |
194,227 | $ | 27.96 | 5.60 years | ||||||||
|
|
|
|
|
|
|||||||
Exercisable at December 31, 2013 |
150,679 | $ | 28.57 | 4.85 years | ||||||||
|
|
|
|
|
|
At December 31, 2013, there was approximately $104,178 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average period of seven months. The total fair value of shares vesting and recognized as compensation expense was $164,000 and $183,000 for the years ended December 31, 2013 and 2012, respectively. The associated income tax benefit recognized was $8,000 and $8,000 for the years ended December 31, 2013 and 2012, respectively.
(continued)
40
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) | Stock Plans, Continued |
Restricted Stock Plan. The Company has set aside 30,000 shares of common stock to be awarded to officers and employees. All awards of stock and the terms of the awards must be approved by the Compensation Committee. Restricted shares are forfeited if employment is terminated before the restriction period expires. At December 31, 2013, 13,440 common shares remain available for awards. Compensation expense for restricted stock totaled $91,000 and $199,000 in 2013 and 2012, respectively.
A summary of the status of the Companys restricted stock and changes during the years then ended are presented below:
Number of Shares |
Weighted-Average Grant-Date Fair Value |
|||||||
Outstanding at December 31, 2011 |
9,100 | $ | 22 | |||||
Issued |
4,460 | 26 | ||||||
Vested |
(6,000 | ) | 23 | |||||
|
|
|||||||
Outstanding at December 31, 2012 |
7,560 | 24 | ||||||
Issued |
1,500 | 30 | ||||||
Vested, net |
(7,600 | ) | 24 | |||||
|
|
|||||||
Outstanding at December 31, 2013 |
1,460 | $ | 25 | |||||
|
|
|
|
Total unrecognized compensation cost related to these nonvested restricted stock amounted to approximately $3,000 and $94,000 at December 31, 2013 and 2012, respectively. This cost is expected to be recognized monthly over the related vesting period using the straight-line method through 2014.
(continued)
41
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) | Stockholders Equity |
On August 18, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued to the Treasury 7,500 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series D, having a liquidation preference of $1,000 per share (the Series D Preferred Stock), in exchange for 7,500 shares of the Companys Series B preferred stock. The issuance was pursuant to the SBLF program. The Series D Preferred Stock is entitled to receive noncumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, commencing October 1, 2011. The dividend rate, which is calculated on the aggregate Liquidation Amount, has been initially set at 5% per annum based upon the current level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future dividend periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. Such dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods.
On November 19, 2013, the Company redeemed the Series D Preferred Stock for $7.5 million.
(18) | Related Party Transactions |
In the ordinary course of business, the Bank accepts deposits from and grants loans to principal officers and directors and their affiliates. These transactions are summarized as follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Loans: |
||||||||
Beginning balance |
$ | 8,711 | 6,614 | |||||
Additions |
2,179 | 3,576 | ||||||
Repayments |
(1,019 | ) | (1,479 | ) | ||||
|
|
|
|
|||||
Ending balance |
$ | 9,871 | 8,711 | |||||
|
|
|
|
|||||
Deposits at year end |
$ | 9,928 | 17,898 | |||||
|
|
|
|
(19) | Dividends |
The Bank is limited in the amount of cash dividends that may be paid to the Holding Company. The amount of cash dividends that may be paid is based on the Banks net earnings of the current year combined with the Banks retained earnings of the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Bank must consider additional factors such as the amount of current period net earnings, liquidity, asset quality, capital adequacy and economic conditions. It is likely that these factors would further limit the amount of dividends which the Bank could declare. In addition, bank regulators have the authority to prohibit banks from paying dividends if they deem such payment to be an unsafe or unsound practice.
(continued)
42
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(20) | Regulatory Matters |
The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the Federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined).
As of December 31, 2013, the most recent notification from the regulatory authorities categorized the Bank as well capitalized. An institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Banks category. The Companys and the Banks actual capital amounts and percentages are also presented in the table ($ in thousands).
Actual | For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
As of December 31, 2013: |
||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Bank |
$ | 67,051 | 16.60 | % | $ | 32,306 | 8.00 | % | $ | 40,382 | 10.00 | % | ||||||||||||
Company |
67,568 | 16.65 | 32,463 | 8.00 | N/A | N/A | ||||||||||||||||||
Tier I Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Bank |
61,912 | 15.33 | 16,153 | 4.00 | 24,230 | 6.00 | ||||||||||||||||||
Company |
62,406 | 15.38 | 16,232 | 4.00 | N/A | N/A | ||||||||||||||||||
Tier I Capital to Average Assets: |
||||||||||||||||||||||||
Bank |
61,912 | 10.96 | 22,590 | 4.00 | 28,238 | 5.00 | ||||||||||||||||||
Company |
62,406 | 11.08 | 22,522 | 4.00 | N/A | N/A |
(continued)
43
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(20) | Regulatory Matters, Continued |
Actual | For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Action Provisions |
||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
As of December 31, 2012: |
||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Bank |
$ | 70,621 | 18.11 | % | $ | 31,204 | 8.00 | % | $ | 39,005 | 10.00 | % | ||||||||||||
Company |
71,542 | 18.32 | 31,235 | 8.00 | N/A | N/A | ||||||||||||||||||
Tier I Capital to Risk-Weighted Assets: |
||||||||||||||||||||||||
Bank |
65,724 | 16.85 | 15,602 | 4.00 | 23,403 | 6.00 | ||||||||||||||||||
Company |
66,523 | 17.04 | 15,617 | 4.00 | N/A | N/A | ||||||||||||||||||
Tier I Capital to Average Assets: |
||||||||||||||||||||||||
Bank |
65,724 | 11.97 | 21,970 | 4.00 | 27,462 | 5.00 | ||||||||||||||||||
Company |
66,523 | 12.14 | 21,912 | 4.00 | N/A | N/A |
(21) | Profit Sharing Plan |
The Company sponsors a 401(k) profit sharing plan available to all employees electing to participate after meeting certain length-of-service requirements. The Companys contributions to the profit sharing plan are discretionary and are determined annually. The Company made contributions of $156,000 and $173,000 during 2013 and 2012, respectively.
(22) | Contingencies |
Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Companys consolidated financial statements.
(23) | Earnings Per Share (EPS) |
Earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which was computed using the treasury stock method (dollars in thousands, except per share amounts):
2013 | 2012 | |||||||||||||||||||||||
Year Ended December 31: | Earnings | Weighted- Average Shares |
Per Share Amount |
Earnings | Weighted- Average Shares |
Per Share Amount |
||||||||||||||||||
Basic EPS: |
||||||||||||||||||||||||
Net earnings applicable to common shareholders |
$ | 3,248 | 1,566,134 | $ | 2.07 | $ | 3,647 | 1,551,571 | $ | 2.35 | ||||||||||||||
|
|
|
|
|||||||||||||||||||||
Effect of dilutive securities- |
||||||||||||||||||||||||
Incremental shares from assumed conversion of options |
28,260 | 28,846 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Diluted EPS: |
||||||||||||||||||||||||
Net earnings applicable to common shareholders |
$ | 3,248 | 1,594,394 | $ | 2.04 | $ | 3,647 | 1,580,417 | $ | 2.31 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
44
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(24) | Consolidated Financial Statements |
Consolidating Balance Sheet
December 31, 2013
(In thousands)
Gulfstream Bancshares, Inc. |
Gulfstream Business Bank |
Eliminations | Consolidated Total |
|||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 119 | 94,419 | (119 | )(a) | 94,419 | ||||||||||
Securities available for sale |
| 61,288 | | 61,288 | ||||||||||||
Loans held for sale |
| 664 | | 664 | ||||||||||||
Loans, net |
| 363,266 | | 363,266 | ||||||||||||
Premises and equipment, net |
| 5,781 | | 5,781 | ||||||||||||
Federal Home Loan Bank stock, at cost |
| 885 | | 885 | ||||||||||||
Foreclosed real estate, net |
| 3,365 | | 3,365 | ||||||||||||
Accrued interest receivable |
| 1,255 | | 1,255 | ||||||||||||
Investment in subsidiary |
61,397 | | (61,397 | )(b) | | |||||||||||
Deferred income taxes |
1,915 | 6,296 | | 8,211 | ||||||||||||
Bank-owned life insurance |
| 4,939 | | 4,939 | ||||||||||||
Other assets |
312 | 440 | | 752 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 63,743 | 542,598 | (61,516 | ) | 544,825 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities and Stockholders Equity |
||||||||||||||||
Liabilities: |
||||||||||||||||
Deposits |
| 466,690 | (119 | )(a) | 466,571 | |||||||||||
Federal Home Loan Bank advances |
| 5,000 | | 5,000 | ||||||||||||
Junior subordinated debentures |
10,310 | | | 10,310 | ||||||||||||
Other borrowings |
| 6,884 | | 6,884 | ||||||||||||
Other liabilities |
36 | 2,627 | | 2,663 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
10,346 | 481,201 | (119 | ) | 491,428 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stockholders equity: |
||||||||||||||||
Preferred stock |
1 | | | 1 | ||||||||||||
Additional paid-in capital, preferred |
248 | | | 248 | ||||||||||||
Common stock |
16 | 5,697 | (5,697 | )(b) | 16 | |||||||||||
Additional paid-in capital, common |
23,489 | 23,546 | (23,546 | )(b) | 23,489 | |||||||||||
Retained earnings |
30,444 | 32,765 | (32,765 | )(b) | 30,444 | |||||||||||
Accumulated other comprehensive loss |
(801 | ) | (611 | ) | 611 | (b) | (801 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders equity |
53,397 | 61,397 | (61,397 | ) | 53,397 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 63,743 | 542,598 | (61,516 | ) | 544,825 | ||||||||||
|
|
|
|
|
|
|
|
(a) | to eliminate intercompany deposit account |
(b) | to eliminate investment in subsidiary |
(continued)
45
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(24) | Consolidated Financial Statements, Continued |
Consolidating Statement of Operations
Year Ended December 31, 2013
(In thousands)
Gulfstream Bancshares, Inc. |
Gulfstream Business Bank |
Eliminations | Consolidated Total |
|||||||||||||
Interest income: |
||||||||||||||||
Loans |
$ | | 18,778 | | 18,778 | |||||||||||
Securities |
| 841 | | 841 | ||||||||||||
Other |
| 309 | | 309 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest income |
| 19,928 | | 19,928 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest expense: |
||||||||||||||||
Deposits |
| 1,778 | | 1,778 | ||||||||||||
Borrowings |
355 | 273 | | 628 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest expense |
355 | 2,051 | | 2,406 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest (expense) income |
(355 | ) | 17,877 | | 17,522 | |||||||||||
Provision for loan losses |
| 168 | | 168 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest (expense) income after provision for loan losses |
(355 | ) | 17,709 | | 17,354 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Noninterest income: |
||||||||||||||||
Service charges and fees on deposit accounts |
| 509 | | 509 | ||||||||||||
Investment fees |
| 410 | | 410 | ||||||||||||
Gain on sale of loans |
| 243 | | 243 | ||||||||||||
Gain on sale of foreclosed real estate |
| 137 | | 137 | ||||||||||||
Earnings on bank-owned life insurance |
| 170 | | 170 | ||||||||||||
Earnings of subsidiary |
4,046 | | (4,046 | )(a) | | |||||||||||
Other |
12 | 691 | | 703 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
4,058 | 2,160 | (4,046 | ) | 2,172 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Noninterest expenses: |
||||||||||||||||
Salaries and employee benefits |
| 8,869 | | 8,869 | ||||||||||||
Occupancy and equipment |
| 1,066 | | 1,066 | ||||||||||||
Data processing |
| 604 | | 604 | ||||||||||||
Advertising and business development |
| 358 | | 358 | ||||||||||||
Foreclosed real estate expenses |
| 346 | | 346 | ||||||||||||
Other |
406 | 2,145 | | 2,551 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest expenses |
406 | 13,388 | | 13,794 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other-than-temporary impairment on securities available for sale |
| 53 | | 53 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income (benefit) taxes |
3,297 | 6,428 | (4,046 | ) | 5,679 | |||||||||||
Income (benefit) taxes |
(282 | ) | 2,382 | | 2,100 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings |
3,579 | 4,046 | (4,046 | ) | 3,579 | |||||||||||
Preferred stock dividend requirement |
(331 | ) | | | (331 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings available to common stockholders |
$ | 3,248 | 4,046 | (4,046 | ) | 3,248 | ||||||||||
|
|
|
|
|
|
|
|
(a) | to eliminate earnings of subsidiary |
(continued)
46
GULFSTREAM BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(25) | Bank Merger |
On January 17, 2014, Gulfstream Bancshares, Inc. (Gulfstream) and CenterState Banks, Inc. (CenterState) completed the merger of the two companies for a total consideration of $77 million. Under the merger agreement, Gulfstream Business Bank merged with and into CenterState Bank of Florida, N.A. (CSB), a Florida national-chartered bank and wholly- owned subsidiary of CenterState, with CSB as the surviving bank in the merger. Subject to the terms of the merger agreement, Gulfstream Banks shareholders received 3.012 shares of CenterStates common stock and $14.65 in cash for each share of common stock they held. In the opinion of management, the transaction represents a strategic and financially attractive combination of both companies shareholders with significant earnings accretion and accelerated profitability.
47
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