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U. S. SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the transition period from __________________ to ______________

Commission file number 333-95087

CENTERSTATE BANKS OF FLORIDA, INC.

7722 State Road 544 East
Winter Haven, Florida 33881
(Address of Principal Executive Offices)

(863) 419-0833
(Issuer’s Telephone Number, Including Area Code)

Check whether the issuer: (1) filed all reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

YES   X                NO

State the number of shares outstanding of each of the issuer’s classes of common Equity, as of the latest practicable date:

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CENTERSTATE BANKS OF FLORIDA, INC. AND SUBSIDIARIES

INDEX

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Centerstate Banks of Florida, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands of dollars)

See notes to the accompanying condensed consolidated financial statements

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Centerstate Banks of Florida, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
(in thousands of dollars, except per share data)

See notes to the accompanying condensed consolidated financial statements.

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Centerstate Banks of Florida, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars)

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Centerstate Banks of Florida, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands of dollars)
(continued)

See notes to the accompanying condensed consolidated financial statements.

CenterState Banks of Florida, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1:   Holding Company and Subsidiaries Background Information

     CenterState Banks of Florida, Inc (the “Company”) is a multi-bank holding company. The Company was formed on June 30, 2000, as part of the merger of First National Bank of Osceola County (“FNB/Osceola”), Community National Bank of Pasco County (“CNB/Pasco”) and First National Bank of Polk County (“FNB/Polk”), which were three previously independent banks in Central Florida. The business combination was accounted for using the pooling-of-interest accounting method. All historical financial information has been restated to reflect the merger.

     The Company acquired CenterState Bank of Florida (“CSB”) on December 31, 2002 in a stock and cash transaction. This transaction was accounted for using the purchase method of accounting. The excess of the purchase price over the fair market value of the tangible assets, core deposit intangible ($739,000) and liabilities was approximately $4.3 million. This amount was recognized and recorded as goodwill.

     FNB/Osceola is a national bank charted in September 1989. It operates from three full service locations within Osceola County and two full service locations in Orange County, a contiguous county. CNB/Pasco is a national bank charted in November 1989. It operates from nine full service locations within Pasco, Lake, Sumter, Hernando and Citrus Counties. FNB/Polk is a national bank charted in February 1992. It operates from four full service locations within eastern Polk County. CSB is a state bank charted in April 2000. It operates from three full service and two specialty locations within western Polk County. C. S. Processing, Inc. (“CSP”) is a wholly owned subsidiary, equally owned by the Company’s four subsidiary banks. CSP was formed in 2001. It performs item processing and check rendering services for the Company’s four subsidiary banks.

     The Company, through its subsidiary banks, provides traditional deposit and lending products and services to its retail and commercial customers.

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NOTE 2:   Basis of presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods have been made. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results expected for the full year.

NOTE 3:   Common stock outstanding and earnings per share data

     Basic earnings per share is based on the weighted average number of common shares outstanding during the periods. Diluted earnings per share includes the weighted average number of common shares outstanding during the periods and the further dilution from stock options using the treasury method. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods presented (dollars are in thousands, except per share data).

NOTE 4:   Comprehensive Income

     Under Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” certain transactions and other economic events are recorded directly in stockholders’ equity and must be displayed as other comprehensive income. The Company’s comprehensive income consists of net earnings and unrealized gains and losses on securities available-for-sale, net of deferred income taxes.

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     The table below sets forth the Company’s comprehensive income for the periods indicated below (in thousands of dollars).

NOTE 5:   Compensation programs

     Substantially all of the Company’s employees are covered under the Company’s employee benefit plan. Certain directors and key employees are covered under the Company’s stock option plans. The expenses of providing these plans are charged to income in the period the expenses are incurred.

     The Company applies Accounting Principle Board Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company’s stock-based compensation plan been determined consistent with Statement of Financial Accounting Standards (“SFAS”) No. 123, the Company’s net income would have been reduced to the pro forma amounts indicated below (amounts are in thousands of dollars except for per share data):

NOTE 6:   Effect of new pronouncements

     In June 2001, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. As used in this Statement, a legal obligation results from existing law, statute, ordinance, written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. The Company is required to adopt SFAS No. 143 for the fiscal year beginning January 1, 2003. Adoption of this Statement did not have a significant impact on the financial position or results of operations of the Company.

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     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Adoption of this Statement did not have a significant impact on the financial position or results of operations of the Company.

     In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9.” Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with SFAS No. 141, and SFAS No. 142. In addition, this Statement amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The provisions of this Statement are effective on or after October 1, 2002. The adoption of SFAS No. 147 did not have an impact on the financial position or results of operations.

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses on extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of the such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement related to Statement 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. Adoption of this Statement did not have a significant impact on the financial position or results of operations of the Company.

     In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, and interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the Company’s consolidated financial statements. The Company has made the required disclosures in the notes of the consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.

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     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to interests in variable interest entities created after January 31, 2003. For public enterprises, such as the Company, with a variable interest in a variable interest entity created before February 1, 2003, the Interpretation is applied to the enterprise beginning July 1, 2003. The application of this Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. The adoption of this Interpretation is not expected to have an effect on the financial statements of the Company.

NOTE 7:   Merger

     The Company acquired CSB, a $75 million independent commercial bank located in Winter Haven, Florida, at the close of business on December 31, 2002. The purchase price was a combination of stock and cash approximating $13.1 million. CSB stockholders received $2.40 cash and 0.53631 share of the Company’s common stock for each share of CSB common stock. The transaction was accounted for using the purchase method of accounting.

ITEM 2:   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     As discussed in other sections, the Company acquired a commercial bank, CSB, on December 31, 2002. As such, CSB’s financial position and results of operations are included in the Company’s results for the three month period ending March 31, 2003, but are not included in the results for the period ending March 31, 2002. Therefore, the reader should consider this when comparing balance sheets as well as income and expense items between the two periods.

COMPARISON OF BALANCE SHEETS AT MARCH 31, 2003 AND DECEMBER 31, 2002

Overview

     Total assets of the Company were $525.9 million as of March 31, 2003, compared to $494.8 million at December 31, 2002, an increase of $31.1 million or 6.3%. This increase was primarily the result of the Company’s internally generated loan growth funded by an increase in deposits.

Federal funds sold and money market

     Federal funds sold and money market was $60.9 million at March 31, 2003 as compared to $61.3 million at December 31, 2002, a decrease of $0.4 million or 0.65%. The Company has been holding more of their available funds in federal funds sold and money market instead of securities, during both period ends shown, primarily due to the relatively low rate of yields offered on short term U.S. Treasury and government agency securities.

Investment securities

     Securities available-for-sale, consisting primarily of U.S. Treasury and government agency securities, were $58.1 million at March 31, 2003 compared to $51.8 million at December 31, 2002, an increase of $6.3 million or 12%. These securities have been recorded at market value. The Company

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classifies its securities as “available-for-sale” to provide for greater flexibility to respond to changes in interest rates. Management uses its available-for-sale securities portfolio, as well as its federal funds sold and money market accounts for liquidity management and for investment yields. These accounts, as a group, will fluctuate as a function of loans and deposits outstanding.

Loans

     Total gross loans were $356.5 million at March 31, 2003, compared to $334.2 million at December 31, 2002, an increase of $22.3 million or 6.7%. For the same period, real estate loans increased by $21.4 million or 8.4%, commercial loans increased by $0.6 million or 1.4%, and all other loans including consumer loans increased by $0.3 million or 0.8%. Total loans net of unearned fees and allowance for loan losses were $351.6 million at March 31, 2003, compared to $329.7 million at December 31, 2002, an increase of $21.9 million or 6.6%. The Company hired a senior lender in the third quarter of last year and three senior lenders in the fourth quarter, which was the primary reason for the increase in loans outstanding during the quarter ending March 31, 2003. During the three-year period ending December 31, 2002, the Company’s loan portfolio has grown at an average annual rate of approximately 16.9% per year. The largest annual growth rate was 18.2% and the smallest was 16.0%.

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

Credit quality and allowance for loan losses

     The Company’s allowance for loan losses represents management’s estimate of an amount adequate to provide for probable losses within the existing loan portfolio. Loans are charged against the allowance when management believes collection of the principal is unlikely. The allowance consists of amounts established for specific loans and is also based on historical loan loss experience. The specific reserve element is the result of a regular analysis of all loans and commitments based on credit rating classifications and other factors. Management also weighs general economic conditions based on knowledge of specific factors that may affect the collectibility of loans. At March 31, 2003, the allowance for loan losses was $4.3 million or 1.22% of total loans outstanding, compared to $4.1 million or 1.22%, at December 31, 2002.

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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).

Nonperforming assets

     Nonperforming assets include (1) non-accrual loans; (2) accruing loans that are 90 days or more delinquent that are deemed by management to be adequately secured and in the process of collection; (3) OREO (i.e. real estate acquired through foreclosure or deed in lieu of foreclosure); and (4) other repossessed assets (not real estate). All delinquent loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the possibility of collecting additional interest is deemed insufficient to warrant further accrual. As a matter of policy, interest is not accrued on loans past due 90 days or more unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Additional interest income on such loans is recognized only when received.

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

     Management is continually analyzing its loan portfolio in an effort to recognize and resolve its problem assets as quickly and efficiently as possible. As of March 31, 2003, management believes that its

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allowance for loan losses was adequate. However, management recognizes that many factors can adversely impact various segments of its market. Accordingly, there is no assurance that losses in excess of such reserves will not be incurred.

Bank premises and equipment

     Bank premises and equipment was $21.2 million at March 31, 2003 compared to $20.3 million at December 31, 2002, resulting in an increase of $0.9 million or 4.4%. The increase was the result of purchases aggregating $1,236,000, which includes the purchase of land (approximately $1 million) for a future branch site, less depreciation of $382,000.

Deposits

     Total deposits were $470.6 million at March 31, 2003, compared to $441.5 million at December 31, 2002, an increase of $29.1 million or 6.6%. During the three month period ended March 31, 2003, demand deposits increased by $13.5 million (16.9%), NOW deposits increased by $1.9 million (3.0%), savings and money market accounts increased by $4.2 million (3.7%), and time deposits increased by $9.5 million (5.1%). The Company hired a senior lender in the third quarter of last year and three senior lenders in the fourth quarter, which was the primary reason for the increase in loans outstanding during the quarter ending March 31, 2003. The senior lenders are customer relationship managers, and as such, they will attract the deposit relationship along with the lending relationship. This was a significant factor contributing to the increase in deposits. In addition, two new full service branches opened during October 2002 and two “mini” branches opened in January 2003. The two “mini” branches are small branches that are opened for two to three days a week in two gated residential “active adult” communities in Florida. The branches are located in small offices inside the communities’ club-houses or other community facility and cater to the residents.

Repurchase agreements

     The Company enters into agreements to repurchase securities under which the Company pledges investment securities owned and under its control as collateral against borrowed funds. These short-term borrowings totaled $13.4 million at March 31, 2003 compared to $10.0 million at December 31, 2002, resulting in an increase of $3.4 million, or 34%.

Stockholders’ equity

     Shareholders’ equity at March 31, 2003, was $40.2 million, or 7.6% of total assets, compared to $39.9 million, or 8.1% of total assets at December 31, 2002. The increase in stockholders’ equity was due to year-to-date net income ($527 thousand) and stock options exercised ($25 thousand) less dividends paid ($168 thousand), and a net decrease in the market value of securities available for sale, net of deferred taxes ($123 thousand). The Company paid a dividend of $0.05 per share on March 31, 2003 to shareholders of record as of the close of business on March 14, 2003.

     The bank regulatory agencies have established risk-based capital requirements for banks. These guidelines are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against such “off- balance sheet” activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity such as preferred stock that may be included in capital. As of March 31, 2003, each of the Company’s

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four subsidiary banks exceeded the minimum capital levels to be considered “Well Capitalized” under the terms of the guidelines.

     Selected consolidated capital ratios at March 31, 2003 and December 31, 2002 are presented in the table below.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002

Overview

     Net income for the three months ended March 31, 2003 was $527 thousand or $0.16 per share basic and $0.15 per share diluted, compared to $577 thousand or $0.20 per share basic and diluted for the same period in 2002.

     The return on average equity (“ROE”), calculated on an annualized basis, for the three month period ended March 31, 2003 was 5.25%, as compared to 8.21% for the same period in 2002.

Net interest income/margin

     As discussed in other sections, the Company acquired a commercial bank, CSB, on December 31, 2002. As such, CSB’s average interest earning assets and interest bearing liabilities are included in the Company’s results for the three month period ended March 31, 2003, but are not included in the results for the period ended March 31, 2002. Therefore, the reader should consider this when comparing average balances and resulting interest income and expense between the two periods.

     Net interest income increased $721 thousand or 20.4% to $4.248 million during the three month period ended March 31, 2003 compared to $3.527 million for the same period in 2002. The $721 thousand increase was the result of a $809 thousand increase in interest income less a $88 thousand increase in interest expense.

     Interest earning assets averaged $461.3 million during the three month period ended March 31, 2003 as compared to $327.0 million for the same period in 2002, an increase of $134.3 million, or 41.1%. The yield on average interest earning assets decreased 1.19% to 5.31% during the three month period ended March 31, 2003, compared to 6.50% for the same period in 2002. The combined net effects of the $134.3 million increase in average interest earning assets and the 1.19% decrease in yield on average interest earning assets resulted in the $809 thousand increase in interest income between the two periods.

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     Interest bearing liabilities averaged $381.2 million during the three month period ended March 31, 2003 as compared to $272.9 million for the same period in 2002, an increase of $108.3 million, or 39.7%. The cost of average interest bearing liabilities decreased 0.65% to 1.97% during the three month period ended March 31, 2003, compared to 2.62% for the same period in 2002. The combined net effects of the $108.3 million increase in average interest bearing liabilities and the 0.65% decrease in cost on average interest bearing liabilities resulted in the $88 thousand increase in interest expense between the two periods.

     The table below summarizes, the analysis of changes in interest income and interest expense for the three month periods ended March 31, 2003 and 2002 (in thousands of dollars).