COMPARISON OF BALANCE SHEETS AT JUNE 30, 2009 AND DECEMBER 31, 2008

Overview

Total assets were $1,722,865,000 as of June 30, 2009, compared to $1,333,143,000 at December 31, 2008, an increase of $389,722,000 or 29%. The increase was due primarily from the acquisition of the Ocala branches from the FDIC, growth in correspondent bank deposits (i.e., federal funds purchased), and internally generated deposit growth.

Federal funds sold

Federal funds sold were $82,356,000 at June 30, 2009 (approximately 4.8% of total assets) as compared to $57,850,000 at December 31, 2008 (approximately 4.3% of total assets). We use our available-for-sale securities portfolio, as well as federal funds sold, for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding, and to some degree the amount of correspondent bank deposits (i.e., federal funds purchased) outstanding.

Investment securities

Securities available-for-sale, consisting primarily of U.S. government agency securities and municipal tax exempt securities, were $549,870,000 at June 30, 2009 (approximately 32% of total assets) compared to $252,080,000 at December 31, 2008 (approximately 19% of total assets), an increase of $297,790,000 or 118%. We use our available-for-sale securities portfolio, as well as federal funds sold, for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans outstanding as discussed above, under the caption "Federal funds sold." The significant increase in our securities available-for-sale during the current period was due to the acquisition of the Ocala branches and the related deposits from the FDIC, the increase in correspondent bank deposits (i.e., federal funds purchased) and internally generated deposit growth. Over time, our loan growth will eventually catch up to the rapid deposit growth we experienced during this period, and future cash flows generated from our securities portfolio will be reallocated to our loan portfolio. Our securities are carried at fair value. We classify our securities as "available-for-sale" to provide for greater flexibility to respond to changes in interest rates as well as future liquidity needs, as discussed above.

Loans

Lending-related income is the most important component of our net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and it therefore generates the largest portion of revenues. The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Average loans during the quarter ended June 30, 2009, were $920,434,000, or 55% of average earning assets, as compared to $838,915,000, or 77% of average earning assets, for the quarter ending June 30, 2008. Total loans, net of unearned fees and cost, at June 30, 2009 and December 31, 2008 were $926,271,000 and $892,001,000, respectively, an increase of $34,270,000, or 3.8%. This represents a loan to total asset ratio of 54% and 67% and a loan to deposit ratio of 76% and 90% at June 30, 2009 and December 31, 2008, respectively.

Our residential real estate loans totaled $260,060,000 or 28% of our total loans as of June 30, 2009. As with all of our loans, these are originated in our geographical market area in central Florida. We do not engage in sub-prime lending or out of market lending. As of this same date, our commercial real estate loans totaled $407,511,000, or 44% of our total loans. Construction, development, and land loans totaled $112,975,000, or 12% of our loans. As a group, all of our real estate collateralized loans represent approximately 84% of our total loans at June 30, 2009. The remaining 16% is comprised of non real estate commercial loans (10%) and non real estate consumer loans (6%).

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

The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated (dollars are in thousands).

                                                         June 30,          December 31,
                                                           2009                2008
Real estate loans
Residential                                              $ 260,060        $      223,290
Commercial                                                 407,511               434,488
Construction, development, land                            112,975                92,475

Total real estate                                          780,546               750,253

Commercial                                                  89,889                80,523
Consumer and other                                          56,584                61,939

Gross loans                                                927,019               892,715

Unearned fees/costs                                           (748 )                (714 )

Total loans net of unearned fees                           926,271               892,001

Allowance for loan losses                                  (16,409 )             (13,335 )


Total loans net of unearned fees and allowance for
loan losses                                              $ 909,862        $      878,666

Credit quality and allowance for loan losses

We maintain an allowance for loan losses that we believe is adequate to absorb probable incurred losses inherent in our loan portfolio. The allowance is increased by the provision for loan losses, which is a charge to current period earnings and decreased by loan charge-offs net of recoveries of prior period loan charge-offs. Loans are charged against the allowance when management believes collection of the principal is unlikely.

The allowance consists of two components. The first component is an allocation for impaired loans, as defined by Statement of Financial Accounting Standard No. 114. Impaired loans are those loans that management has estimated will not be repaid as agreed upon. Each of these loans is required to have a written analysis supporting the amount of specific allowance allocated to the particular loan, if any. That is to say, a loan may be impaired (i.e., not expected to be repaid as agreed), but may be sufficiently collateralized such that we expect to recover all principal and interest eventually, and therefore no specific allowance is warranted.

The second component is a general allowance on all of the Company's loans other than those identified as impaired. We group these loans into five general categories with similar characteristics, and then apply an adjusted loss factor to each group of loans to determine the total amount of this second component of our allowance for loan losses. The adjusted loss factor for each category of loans is a derivative of our historical loss factor for that category, adjusted for current internal and external environmental factors, as well as for certain loan grading factors.

In the table below we have shown the two components, as discussed above, of our allowance for loan losses at June 30, 2009 and December 31, 2008.

                                                   Jun 30,          Dec 31,           Increase
(amounts are in thousands of dollars)               2009             2008            (decrease)
Impaired loans                                    $  40,467        $  24,191        $     16,276
Component 1 (specific allowance)                      3,067            1,799               1,268
Specific allowance as percentage of impaired
loans                                                  7.58 %           7.44 %            14 bps

Total loans other than impaired loans               885,804          867,810              17,994
Component 2 (general allowance)                      13,342           11,536               1,806
General allowance as percentage of non
impaired loans                                         1.51 %           1.33 %            18 bps

Total loans                                         926,271          892,001              34,270
Total allowance for loan losses                      16,409           13,335               3,074
Allowance for loan losses as percentage of
total loans                                            1.77 %           1.49 %            28 bps

As shown in the table above, our allowance for loan losses ("ALLL") as a percentage of total loans outstanding was 1.77% at June 30, 2009 compared to 1.49% at December 31, 2008. Our ALLL increased by a net amount of $3,074,000 during this six month period. Component 2 (general allowance) increased by $1,806,000 during the period. This increase is primarily due to changes in this component's historical and environmental risk factors as well as an increase in our loan portfolio. Component 1 (specific allowance) increased by $1,268,000. This Component is the result of specific allowance analyses prepared for each of our impaired loans.

The following table sets forth information concerning the activity in the allowance for loan losses during the periods indicated (in thousands of dollars).

                                                   Three month period             Six month period
                                                     ended June 30,                ended June 30,
                                                  2009            2008           2009           2008
Allowance at beginning of period                $  13,472       $ 11,258       $ 13,335       $ 10,828
Charge-offs
Residential real estate loans                        (484 )         (626 )         (797 )         (852 )
Commercial real estate loans                          (63 )         (218 )         (480 )         (218 )
Construction, development and land loans             (250 )           -            (872 )           -
Non real estate commercial loans                     (358 )         (172 )         (542 )         (172 )
Non real estate consumer and other loans              (53 )         (169 )         (114 )         (241 )

Total charge-offs                                  (1,208 )       (1,185 )       (2,805 )       (1,483 )

Recoveries
Residential real estate loans                           2              3              6             81
Commercial real estate loans                           -              -               5             -
Construction, development and land loans               -              -              -              -
Non real estate commercial loans                        2              1             13              7
Non real estate consumer and other loans               16              7             27             47

Total recoveries                                       20             11             51            135

Net charge-offs                                    (1,188 )       (1,174 )       (2,754 )       (1,348 )
Provision for loan losses                           4,125          1,515          5,828          2,119

Allowance at end of period                      $  16,409       $ 11,599       $ 16,409       $ 11,599

Non performing loans and non performing assets

Non performing loans are defined as non accrual loans plus loans past due 90 days or more and still accruing interest. We place loans on non accrual status when they are past due 90 days and management believes the borrower's financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. When we place a loan on non accrual status, interest accruals cease and uncollected interest is reversed and charged against current income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Non performing loans as a percentage of total loans were 3.94% at June 30, 2009, compared to 2.23% at December 31, 2008.

Non performing assets (which we define as non performing loans, as defined above, plus (a) OREO (i.e., real estate acquired through foreclosure, in substance foreclosure, or deed in lieu of foreclosure); and (b) other repossessed assets that are not real estate), were $44,312,000 at June 30, 2009, compared to $24,835,000 at December 31, 2008. Non performing assets as a percentage of total assets were 2.57% at June 30, 2009, compared to 1.86% at December 31, 2008.

The following table sets forth information regarding the components of nonperforming assets at the dates indicated (in thousands of dollars).

                                                     June 30,        Mar 31,        Dec 31,
                                                       2009            2009           2008
Non-accrual loans                                    $  34,772       $ 20,819       $ 19,863
Past due loans 90 days or more and still accruing
interest                                                 1,752          1,304             50

Total non-performing loans (NPLs)                       36,524         22,123         19,913

Other real estate owned (OREO)                           7,012         11,903          4,494
Repossessed assets other than real estate                  776            416            428

Total non-performing assets (NPAs)                   $  44,312       $ 34,442       $ 24,835


Total NPLs as a percentage of total loans                 3.94 %         2.45 %         2.23 %
Total NPAs as a percentage of total assets                2.57 %         1.91 %         1.86 %
Allowance for loan losses                            $  16,409       $ 13,472       $ 13,335
Allowance for loan losses as a percentage of NPLs           45 %           61 %           67 %

As shown in the table above, the largest component of non performing loans is non accrual loans. As of June 30, 2009 management had identified 120 non accrual loans with an aggregate book value of $34,772,000. This amount is further delineated by collateral category and number of loans in the table below (in thousands of dollars).

                                                                  Percentage           Number of
                                               Total amount        of total           non accrual
                                               in thousands       non accrual          loans in
Collateral category                             of dollars           loans             category
Residential real estate loans                 $        6,502               19 %                43
Commercial real estate loans                          13,937               40 %                24
Construction, development and land loans              13,310               38 %                36
Non real estate commercial loans                         953                3 %                 9
Non real estate consumer and other loans                  70               -  %                 8

Total non accrual loans at June 30, 2009      $       34,772              100 %               120

We have no construction or development loans with national builders. We do business with local builders and developers that have typically been long time customers. As indicated above, non accrual construction, acquisition and development, and land loans totaled $13,310,000 at June 30, 2009. We have specific loan loss allowances of approximately $1,149,000 set aside specifically for these loans. Four of the 36 loans in this category are in excess of $1,000,000. The largest loan in this category is $2,250,000 collateralized by residential building lots.

In terms of collateral type, in total we have one loan in this category for $1,034,000 collateralized by five completed and unsold townhouses, one multi-family construction/development loan for $1,690,000, and the remaining 34 loans have an aggregate balance of approximately $10,586,000 collateralized primarily by residential building lots and undeveloped land.

OREO (repossessed real estate) at June 30, 2009 was $7,012,000, which is further delineated in the table below (in thousands of dollars).

                                                         Estimated
                                                        market value
           Description of repossessed real estate     at June 30, 2009
           18 single family homes                    $            1,999
           8 mobile homes with land                                 367
           5 office condominium units                               539
           3 commercial retail/warehouse buildings                1,554
           3 commercial real estate buildings                       820
           9 residential building lots                              810
           10 acres of vacant land                                  195
           Vacant land zoned multi-family                            69
           2 parcels commercial vacant lots                         539
           Vacant parcel of land                                    120

           Total                                     $            7,012

Bank premises and equipment

Bank premises and equipment was $63,135,000 at June 30, 2009 compared to $61,343,000 at December 31, 2008, an increase of $1,792,000 or 3%. This amount is the result of purchases and construction cost totaling $3,224,000 less $1,432,000 of depreciation expense. We purchased a branch building in Ocala, related to our January 2009 transaction with the FDIC for $709,000 and in an unrelated transaction we purchased a parcel of real estate for a future branch site in Polk County for $1,033,000. We also incurred construction in process costs related to two new buildings and leasehold improvements at several other locations aggregating approximately $921,000. One building is to replace an old branch that will be demolished and the other is to replace a branch location we are currently leasing. We also purchased equipment for approximately $561,000 during this period as well.

Deposits

Total deposits were $1,224,805,000 at June 30, 2009, compared to $993,800,000 at December 31, 2008, an increase of $231,005,000 or 23%. Most of this increase is due to our acquisition of the Ocala branches from the FDIC, whereby we acquired approximately $178,000,000 of deposits. The rest of the growth was internally generated and included several large deposits from several local municipalities.

The table below sets forth our deposits by type and as a percentage of total deposits at June 30, 2009 and December 31, 2008 (amounts shown in the table are in thousands of dollars).

                                                      % of                        % of
                                      Jun 30, 2009    total       Dec 31, 2008    total
 Demand - non-interest bearing       $      200,875      16 %    $      141,229      14 %
 Demand - interest bearing                  170,574      14 %           143,510      14 %
 Savings and money market accounts          265,344      22 %           222,367      23 %
 Time deposits                              588,012      48 %           486,694      49 %

 Total deposits                      $    1,224,805     100 %    $      993,800     100 %

Securities sold under agreement to repurchase

Our subsidiary banks enter into borrowing arrangements with our retail business customers ("securities sold under agreements to repurchase") under which the banks pledge investment securities owned and under their control as collateral against the one-day borrowing arrangement. These short-term borrowings totaled $26,300,000 at June 30, 2009 compared to $26,457,000 at December 31, 2008.

Federal funds purchased

Federal funds purchased are overnight deposits from correspondent banks. We commenced accepting correspondent bank deposits during September 2008. Federal funds purchased acquired from other than our correspondent bank deposits are included with Federal Home Loan Bank advances and other borrowed funds as described below. At June 30, 2009 we had $221,659,000 of correspondent bank deposits or federal funds purchased, compared to $88,976,000 at December 31, 2008. This growth along with the Ocala deposit acquisition and the deposit growth internally generated were the primary reasons for the asset growth we experienced during the six month period ending June 30, 2009.

Federal Home Loan Bank advances and other borrowed funds

From time to time, we borrow either through Federal Home Loan Bank advances or Federal Funds Purchased, other than correspondent bank deposits (i.e., federal funds purchased) listed above. At June 30, 2009 and December 31, 2008, advances from the Federal Home Loan Bank were as follows (amounts are in thousands of dollars).

                                                          Jun 30, 2009       Dec 31, 2008
Daily overnight advances, at June 30, 2009 the
interest rate is 0.43%                                   $       16,500     $           -
Daily overnight advances, at December 31, 2008 the
interest rate is 0.46%                                               -               6,750
Matures February 2, 2009, interest rate is fixed at
2.72%                                                                -              10,000
Matures June 29, 2009, interest rate is fixed at
1.18%                                                                -               3,000
Matures January 7, 2011, interest rate is fixed at
3.63%                                                             3,000              3,000
Matures June 27, 2011, interest rate is fixed at
3.93%                                                             3,000              3,000
Matures January 11, 2010, interest rate is fixed at
1.04%                                                             3,000                 -
Matures January 12, 2010, interest rate is fixed at
1.04%                                                             3,000                 -
Matures July 12, 2010, interest rate is fixed at
1.50%                                                             3,000                 -
Matures January 10, 2011, interest rate is fixed at
1.84%                                                             3,000                 -
Matures January 21, 2011, interest rate is fixed at
1.97%                                                             3,000                 -
Matures December 30, 2011, interest rate is fixed at
2.30%                                                             3,000                 -
Matures January 21, 2012, interest rate is fixed at
2.30%                                                             3,000                 -

Total                                                    $       43,500     $       25,750

Corporate debentures

We formed CenterState Banks of Florida Statutory Trust I (the "Trust") for the purpose of issuing trust preferred securities. On September 22, 2003, we issued a floating rate corporate debenture in the amount of $10,000,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture of the Company. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 305 basis points). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

In September 2004, Valrico Bancorp Inc. ("VBI") formed Valrico Capital Statutory Trust ("Valrico Trust") for the purpose of issuing trust preferred securities. On September 9, 2004, VBI issued a

floating rate corporate debenture in the amount of $2,500,000. The Trust used the proceeds from the issuance of a trust preferred security to acquire the corporate debenture. On April 2, 2007, the Company acquired all the assets and assumed all the liabilities of VBI pursuant to the merger agreement, including VBI's corporate debenture and related trust preferred security discussed above. The trust preferred security essentially mirrors the corporate debenture, carrying a cumulative preferred dividend at a variable rate equal to the interest rate on the corporate debenture (three month LIBOR plus 270 basis points). The corporate debenture and the trust preferred security each have 30-year lives. The trust preferred security and the corporate debenture are callable by the Company or the Valrico Trust, at their respective option after five years, and sooner in specific events, subject to prior approval by the Federal Reserve, if then required. The Company has treated the trust preferred security as Tier 1 capital up to the maximum amount allowed under the Federal Reserve guidelines for federal regulatory purposes.

Stockholders' equity

Stockholders' equity at June 30, 2009, was $179,709,000, or 10.4% of total assets, compared to $179,165,000, or 13.4% of total assets at December 31, 2008. The increase in stockholders' equity was due to the following items:

$ 179,165,000        Total stockholders' equity at December 31, 2008
       40,000        Net income during the period
   (1,472,000 )      Dividends paid and/or accrued, common and preferred
    1,710,000        Net increase in market value of securities available for sale,
                     net of deferred taxes
       57,000        Employee stock options exercised
      214,000        Employee stock based compensation expense consistent with SFAS
                     #123(R)
       (5,000 )      Other

$ 179,709,000        Total stockholders' equity at June 30, 2009

The federal bank regulatory agencies have established risk-based capital . . .