CenterState Bank of Florida (CSFL-NASDAQ)
September 17, 2012 Issue
The Most Powerful Name In Corporate News and Information
With a Strategy of Growing the Bank Through the FDIC Resolution Process CenterState Bank of Florida has Doubled the Size of the Company and Become one of Florida’s Leading Banking Franchises
CenterState Bank operates through 59 locations in eighteen counties throughout Central and Northern Florida, providing traditional deposit and lending products and services to its commercial and retail customers. The Bank, through its Correspondent Banking Department, also provides bond sales services; correspondent bank checking and fed funds purchased products; and safekeeping, bond accounting, and asset/liability consulting services to small to medium size financial institutions primarily located in Florida, Alabama, and Georgia.
Winter Haven, FL 33880
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – September 17, 2012
Mr. Corbett: The culture of the bank is entrepreneurial and decentralized. Most of the leadership of our bank came up through the ranks working for a small community bank that sold to a larger regional bank. Ultimately, it got to the point in a larger company that things became so centralized that it took the fun and entrepreneurial spirit out of coming to work. The bankers in the field simply did not feel empowered to take care of their customers. When Ernie Pinner and I started the bank in 1999, our vision was that we were going to have the bank led by local community presidents that are legitimately empowered. This entrepreneurial culture allowed us to attract the very best bankers and leaders as we expanded over the last decade.
The bank started out in Winter Haven, FL and originally focused in the
central part of the state between Orlando and Tampa. During the crisis, we
expanded geographically and now extend as far north as Jacksonville, Florida
and down to Lake Okeechobee to the south. As for the economy, the Florida
housing and construction industries were hammered through the recession.
From the peak in 2006, house values are down by about half and land values
are down by about 80% in most of the state. When the banking crisis started
in 2008, Florida was home to 315 banks. Now there are only about 200, so one
of three banks no longer exists because of the collapse of the real estate
CEOCFO: How did CenterState Bank survive and how did you reassure your customers through that time?
Mr. Corbett: The housing collapse affected different areas of the state at different times. I describe it to investors as if a black cloud drifted through Florida over three years. It started in the Panhandle and southwest Florida and kind of drifted over into the Miami area, and then it came up through the center part of the state where we are located and then finally over Jacksonville. Fortunately, we did not experience asset quality problems as early as many other banks. We were also fortunate to be a publicly traded bank and had the ability to raise offensive capital at a crucial time. In our executive committee meeting in January of 2010, during the depths of the crisis, I posed the question to our leadership team – “Should we just hunker down or should we make a run at becoming one of Florida’s leading banking franchises?” The team unanimously decided that they wanted to go on offense, so we developed a strategy to grow the bank through the FDIC resolution process. Through that strategy, we have acquired eight banks, six of them through the FDIC and two that were similar distressed situations. We ultimately doubled the size of the company through the crisis. As for reassuring customers, I think many folks started to be much more in tune about the financial health of their bank as they watched Lehman Brothers fail and other Wall Street banks fail. Fortunately, we have bankers that have earned the trust of their clients and we were very transparent about our financial condition. I think that our clients took great comfort in the condition of the bank because we were able to be opportunistic in moving forward through the crisis.
Mr. Corbett: We were a multi-bank holding company going into the crisis in 2008. Our company owned four separately chartered banks and then purchased eight additional banks. Since 2009, we have consolidated all twelve of those banks together under one bank charter and put them all on the same core processing system. It has been a huge challenge from an integration standpoint, part of it a mechanical challenge of combining the computer systems, and the other part a cultural challenge. Early on, our director of technology, Rod Anthony, formed a special dedicated integration team, almost like a separate business line for the bank. We made a number of integration mistakes early on but learned from them and the team has now become very proficient at systems conversions. On the people side of the integration, we typically hired an experienced CEO that we knew and trusted in a new market before we purchased a failed bank, so we had feet on the ground that already blended with our culture. One example is John Williams in Okeechobee. John was a lifetime banker in Okeechobee so when we purchased Olde Cypress Community Bank, John understood the culture of the bank and its clients that are rooted in the cattle and agriculture industries. It was the same thing in Jacksonville; Gil Pomar joined us as the community president about six months before we purchased First Guarantee Bank from the FDIC. We had a banker that we knew and trusted and he led the effort to integrate the people issues there, and he did a great job.
Mr. Corbett: I do see more consolidation. We continue to muddle along with slow growth in Florida. If you look at all the Florida headquartered banks, the loan portfolios in aggregate have shrunk over the last couple of years. We are starting to see a little bit of lift in loan production, but it is going to be slow over the next two or three years. With limited revenue growth, low interest rates, and expense pressure because of the new regulations, there is a great deal of pent up demand for bank consolidation in the Florida. For the last four years, we focused exclusively on FDIC acquisitions. There will continue to be some banks that go through the FDIC resolution process although it will be a slower pace than the last three years. Our focus is beginning to shift and we are starting to have discussions with the healthiest banks in Florida. They survived the crisis but continue to struggle with the environment. Many of them are privately owned and they see the advantages of partnering up with a bank that has scale and has a publically traded, liquid stock.
How do you break down between consumer and commercial and would you like to
see the mix change?
Mr. Corbett: We have expanded some of our fee-based business lines and I think that is necessary when interest rates are this low. It is hard to make money entirely on the interest margin in this environment. We entered the correspondent banking business in 2008 where we act as kind of a “mini federal reserve” for other small banks. We have about five hundred and seventy community banks throughout the southeast that use us as their correspondent bank. We are also expanding our wealth management business. In January, we acquired a trust department in Jacksonville and that trust department is currently just in Jacksonville. We would like to expand that capability throughout our eighteen counties in Florida.
Mr. Corbett: Every successful organization has their own culture and that culture is built on a set of values. We subscribe to a set of core values that are important to us as a company and they guide our thought process. We tend to attract people with those values from the leadership down. It is a decentralized philosophy. In each of our markets, a local community president is building that bank around the needs and personality of the community. We do business differently in Okeechobee, which is a cattle town, than we do in downtown Jacksonville or Lakeland, which have more of a professional clientele. When you walk into CenterState Bank, it will not be the exact same experience at every location as you get at a McDonald’s or Bank of America.
CEOCFO: How do you ensure that your web services are easy to navigate for your customers?
Mr. Corbett: The amount of branch traffic has declined over the last decade and will continue as more and more people use the web as their primary access point to the bank. If you look at companies like Apple, their products are so intuitive and simple so we try to emulate what Apple has done with the iPhone and iPad. Obviously, customers have gravitated to that style of interaction. We stress to the folks who lead our web effort to keep it intuitive and simple, not what is good for the bank, but what is user-friendly for our customers.
Mr. Corbett: The bank has survived and thrived through the crisis from 2008 to 2011 and it is evident to us that we are starting to see a turn in the real estate market in Florida. We are also seeing a significant reduction in the inflow of new problem loans. Each quarter last year, we were seeing inflows of problems of about $12 million a quarter. This past quarter, the inflow of problems was only $1.5 million. We were fortunate last year to do two acquisitions, one with TD Bank where we bought four branches they had in Putnam County, and the other was a bank we purchased from the Hartford Insurance Company called Federal Trust in Orlando. Those two transactions allowed us to earn a front-end profit of $53 million in 2011 and we used some of those profits to dispose of problem assets. We have dropped the problem assets of the bank down by more than half in about a year. We have many of the problems behind us and now we are now focused on improving the core earnings of the bank. We reported $0.12 a share earnings in the second quarter and that was up from $0.04 a share in the first quarter. We are in a transition where we are seeing some of the fruits of our labors in the last two or three years pay off through these acquisitions and getting some of the problem loans behind us.
Mr. Corbett: First, we did not have the level of problems that some of the banks had in the Panhandle and southwest Florida. Second, being publicly traded gave us access to the capital markets and we could not have accomplished what we did without our loyal shareholder base that invested an additional $114 million in capital in the bank. Last, we had a team of bankers that had worked together for most of their lives. There was a trust and a confidence in each other and our ability to execute. We just had the feeling that this was our team’s time to build something special in Florida.
CenterState has proven its ability to navigate through the crisis. We have
integrated twelve different banks into one. Now we are starting to see the
core earnings of the bank pick up. Florida has been a boom/bust state
throughout its history and we have just been through one of the worst
periods of decline. However, it is evident that things are starting to turn
for the better. There is also a sense that there will be additional bank
consolidation in the state. Florida is home to only six publicly traded
banks over a billion dollars in assets and CenterState has been the most
opportunistic consolidator. We think the bank is in a great position to be
one of the leading franchises in the state of Florida.
In our executive committee meeting in January of 2010, during the depths of the crisis, I posed the question to our leadership team – “Should we just hunker down or should we make a run at becoming one of Florida’s leading banking franchises?” The team unanimously decided that they wanted to go on offense, so we developed a strategy to grow the bank through the FDIC resolution process. - John C. Corbett
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