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| CSFL > SEC Filings for CSFL > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
COMPARISON OF BALANCE SHEETS AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
Overview
Total assets were $1,783,823,000 as of September 30, 2009, compared to $1,333,143,000 at December 31, 2008, an increase of $450,680,000 or 34%. The increase was due primarily from the acquisition of the Ocala branches from the FDIC in January 2009, growth in correspondent bank deposits (i.e., federal funds purchased), and internally generated deposit growth.
Federal funds sold
Federal funds sold were $168,190,000 at September 30, 2009 (approximately 9.4% 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 $508,290,000 at September 30, 2009 (approximately 28% of total assets) compared to $252,080,000 at December 31, 2008 (approximately 19% of total assets), an increase of $256,210,000 or 102%. 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 the amount of correspondent bank deposits 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, we anticipate 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 the vast majority 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 September 30, 2009, were $921,405,000, or 57% of average earning assets, as compared to $861,786,000, or 80% of average earning assets, for the quarter ending September 30, 2008. Total loans, net of unearned fees and cost, at September 30, 2009 and December 31, 2008 were $947,303,000 and $892,001,000, respectively, an increase of $55,302,000, or 6.2%. This represents a loan to total asset ratio of 53% and 67% and a loan to deposit ratio of 75% and 90% at September 30, 2009 and December 31, 2008, respectively.
Our residential real estate loans totaled $253,363,000 or 27% of our total loans as of September 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 $426,025,000, or 45% of our total loans. Construction, development, and land loans totaled $124,306,000, or 13% of our loans. As a group, all of our real estate collateralized loans represent approximately 85% of our total loans at September 30, 2009. The remaining 15% is comprised of non real estate commercial loans (9%) 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).
September 30, December 31,
2009 2008
Real estate loans
Residential $ 253,363 $ 223,290
Commercial 426,025 434,488
Construction, development, land (1) 124,306 92,475
Total real estate 803,694 750,253
Commercial 88,116 80,523
Consumer and other 56,268 61,939
Gross loans 948,078 892,715
Unearned fees/costs (775 ) (714 )
Total loans net of unearned fees 947,303 892,001
Allowance for loan losses (17,553 ) (13,335 )
Total loans net of unearned fees and allowance
for loan losses $ 929,750 $ 878,666
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(1) The increase in this category was due to several reclassifications from commercial real estate to land and land development loans at several of the Company's banks during the second quarter of 2009 and the reclassification of single family lot loans from residential real estate to land and land development loans at one of the Company's subsidiary banks during the third quarter of 2009.
Credit quality and allowance for loan losses
We maintain an allowance for loan losses that we believe is adequate to absorb probable losses incurred 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 generally accepted accounting principles. Impaired loans are those loans whereby management has arrived at a determination that the Company 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 September 30, 2009 and December 31, 2008.
Sept 30, Dec 31, Increase
(amounts are in thousands of dollars) 2009 2008 (decrease)
Impaired loans $ 56,947 $ 24,191 $ 32,756
Component 1 (specific allowance) 1,737 1,799 (62 )
Specific allowance as percentage of
impaired loans 3.05 % 7.44 % (439 bps )
Total loans other than impaired loans 890,356 867,810 22,546
Component 2 (general allowance) 15,816 11,536 4,280
General allowance as percentage of non
impaired loans 1.78 % 1.33 % 45 bps
Total loans 947,303 892,001 55,302
Total allowance for loan losses 17,553 13,335 4,218
Allowance for loan losses as percentage of
total loans 1.85 % 1.49 % 36 bps
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As shown in the table above, our allowance for loan losses ("ALLL") as a percentage of total loans outstanding was 1.85% at September 30, 2009 compared to 1.49% at December 31, 2008. Our ALLL increased by a net amount of $4,218,000 during this nine month period. Component 2 (general allowance) increased by $4,280,000 during the period. This increase is primarily due to changes in our historical charge-off rates, changes in our current environmental factors, changes in the loan portfolio mix, and the increase in our loan portfolio.
Component 1 (specific allowance) decreased by $62,000. This Component is the result of specific allowance analyses prepared for each of our impaired loans. Although our impaired loans increased by $32,756,000, our specific allowance related to impaired loans decreased. Our specific
allowance is the result of specific allowance analyses prepared for each of our impaired loans. The decrease in our specific allowance is the result of charge-offs taken during the period, as well as the change in mix and evaluation of impaired loans. The Company aggressively charged-down loans during the current quarter. Of the $7,554,000 gross charge-offs, $3,684,000 were partial charge-offs related to impaired loans. A summary of the Company's impaired loans at September 30, 2009 is presented below. Amounts are in thousands of dollars.
Impaired loans, par value $ 61,269
partial charge-offs taken during the current quarter (3,684 )
partial charge-offs taken prior to the current quarter (638 )
Impaired loans at September 30, 2009 $ 56,947
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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 Nine month period
ended September 30, ended September 30,
2009 2008 2009 2008
Allowance at beginning of period $ 16,409 $ 11,599 $ 13,335 $ 10,828
Charge-offs
Residential real estate loans (1,287 ) (664 ) (2,084 ) (1,516 )
Commercial real estate loans (1,531 ) - (2,011 ) (218 )
Construction, development and land loans (4,566 ) (210 ) (5,439 ) (210 )
Non real estate commercial loans (113 ) (44 ) (655 ) (216 )
Non real estate consumer and other loans (57 ) (202 ) (170 ) (443 )
Total charge-offs (7,554 ) (1,120 ) (10,359 ) (2,603 )
Recoveries
Residential real estate loans 5 3 11 84
Commercial real estate loans 1 4 6 4
Construction, development and land loans - - - -
Non real estate commercial loans 2 6 15 13
Non real estate consumer and other loans 8 13 35 60
Total recoveries 16 26 67 161
Net charge-offs (7,538 ) (1,094 ) (10,292 ) (2,442 )
Provision for loan losses 8,682 1,764 14,510 3,883
Allowance at end of period $ 17,553 $ 12,269 $ 17,553 $ 12,269
Net charge-offs as a percentage of average
Loans during the period 0.82 % 0.13 % 1.13 % 0.29 %
Net chare-offs as a percentage of average
Loans during the period (annualized) 3.28 % 0.52 % 1.51 % 0.39 %
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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. Generally we place loans on non accrual status when they are past due 90 days and management believes the borrower's financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is doubtful. When we place a loan on non accrual status, interest accruals cease and uncollected interest is reversed and charged against current income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are reasonably assured. Non performing loans as a percentage of total loans were 3.12% at September 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 $39,319,000 at September 30, 2009, compared to $24,835,000 at December 31, 2008. Non performing assets as a percentage of total assets were 2.20% at September 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).
Sept 30, Dec 31,
2009 2008
Non-accrual loans $ 29,519 $ 19,863
Past due loans 90 days or more and still accruing
interest 27 50
Total non-performing loans (NPLs) 29,546 19,913
Other real estate owned (OREO) 8,983 4,494
Repossessed assets other than real estate 790 428
Total non-performing assets (NPAs) $ 39,319 $ 24,835
Total NPLs as a percentage of total loans 3.12 % 2.23 %
Total NPAs as a percentage of total assets 2.20 % 1.86 %
Loans past due between 30 and 89 days and accruing
interest as a percentage of total loans 1.34 % 2.12 %
Allowance for loan losses $ 17,553 $ 13,335
Allowance for loan losses as a percentage of NPLs 59 % 67 %
Allowance for loan losses as a percentage of NPAs 45 % 54 %
Troubled debt restructured loans $ 25,094 -
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Troubled debt restructured loans total $25,094,000 at September 30, 2009. We did not reduce the interest rates on the majority of these loans and in no cases was any principal forgiven. In addition, there are no commitments to lend additional funds to these borrowers. The restructuring was generally the deferral of partial payments normally for a twelve month period. In a few cases the interest rate was lowered, but only during a short period generally not more than twelve months. Many of these loans were modified as part of our commitment pursuant to our past participation in the U.S. Treasury's TARP CPP program, which ended September 30, 2009.
As shown in the table above, the largest component of non performing loans is non accrual loans. As of September 30, 2009 management had identified 123 non accrual loans with an aggregate book value of $29,519,000. 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 $ 5,592 19 % 37
Commercial real estate loans 13,267 45 % 31
Construction, development and land
loans 10,068 34 % 32
Non real estate commercial loans 294 1 % 11
Non real estate consumer and other
loans 298 1 % 12
Total non accrual loans at
September 30, 2009 $ 29,519 100 % 123
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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 $10,068,000 at September 30, 2009. Of this amount, approximately 18% is construction and the remaining 82% is developed lots and other land. The largest loan in this category is $2,250,000 collateralized by single family residential building lots, and there are no other non accrual loans in the category in excess of $1,000,000. We believe this is the loan category where the most risk is present. The category represents only 13% of our total loan portfolio, yet 34% of our total non accrual loans are in this category. During the nine month period ended September 30, 2009, we have partially charged off approximately $5,439,000 of the loans in this category.
OREO (repossessed real estate) at September 30, 2009 was $8,983,000, which is further delineated in the table below (in thousands of dollars).
Estimated
market value
Description of repossessed real estate at Sept 30, 2009
22 single family homes $ 2,355
7 mobile homes with land 321
5 office condominium units 539
7 commercial buildings 2,507
Mixed (9 duplexes/ 1 single fam/ 9 vac lots) 521
17 residential building lots 996
Vacant land / various acreages 1,606
1 parcel commercial vacant lot 138
Total $ 8,983
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Bank premises and equipment
Bank premises and equipment was $64,716,000 at September 30, 2009 compared to $61,343,000 at December 31, 2008, an increase of $3,373,000 or 5%. This amount is the result of purchases and construction cost totaling $5,533,000 less $2,160,000 of depreciation expense. We have purchased two branch office buildings in Ocala, related to our January 2009 transaction with the FDIC, and are also remodeling one of the buildings. The cost to date on the purchase plus the construction in process is approximately $1,964,000. We have also purchased a parcel of real estate for a future branch site in Polk County for $1,057,000. We have made leasehold improvements and purchased furniture and equipment for our new leased correspondent banking office in Atlanta, Georgia for approximately $262,000. We have also completed construction on our new branch office building in Leesburg. Construction cost during this period was $953,000. We are relocating an existing branch from a leased facility to this new building. We have started construction on a new building ($183,000 construction cost to date) on land that we have owned for a long period of time. We will move an existing office into this new building when completed. We have incurred remodeling cost of approximately $199,000 related to the main office of our lead bank. The remaining $915,000 relates to purchases of equipment, furniture and other minor building improvements.
Deposits
Total deposits were $1,256,248,000 at September 30, 2009, compared to $993,800,000 at December 31, 2008, an increase of $262,448,000 or 26%. 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 September 30, 2009 and December 31, 2008 (amounts shown in the table are in thousands of dollars).
% of % of
Sept 30, 2009 total Dec 31, 2008 total
Demand - non-interest bearing $ 218,509 17 % $ 141,229 14 %
Demand - interest bearing 168,486 13 % 143,510 14 %
Savings and money market accounts 283,975 23 % 222,367 23 %
Time deposits 585,278 47 % 486,694 49 %
Total deposits $ 1,256,248 100 % $ 993,800 100 %
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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 $23,328,000 at September 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 September 30, 2009 we had $218,273,000 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 nine month period ending September 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 September 30, 2009 and December 31, 2008, advances from the Federal Home Loan Bank were as follows (amounts are in thousands of dollars).
Sept 30, 2009 Dec 31, 2008
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 $ 27,000 $ 25,750
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Corporate debentures
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