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Business Observer Friday, Jun. 16, 2017 1 year ago

Signs are Changing

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Mergers are coming fast and furious for Florida community banks. The strategy behind the moves comes down to the latest industry truism: Size matters.
by: Ted Carter Contributing Writer

The pace of consolidation in the community banking sector on Florida's west coast has accelerated in the past nine months. Three large banks in particular, also based in Florida, have targeted the region for expansion by acquisition. The following stories are an inside look at each bank's strategy.

CenterState Bank


By 2009, the severity of the U.S. financial sector collapse transformed many Florida community banks into either hunters or hunted.

Banks with access to liquidity went looking for acquisition bargains and opportunities to generate new business.

A 2017 entry to the Sarasota-Bradenton region with the pending takeover of Gateway Financial Holdings of Florida, parent company of Sarasota-based Gateway Bank of Southwest Florida, Winter Haven's publicly traded CenterState Bank of Florida fell among the hunters. This happened in spite of CenterState's young age of three years and a severely troubled time for banks, says CenterState President and CEO John Corbett. In addition to the soon-to-close Gateway deal, CenterState, with $5.3 billion in assets through March 31, recently acquired Brandon-based Platinum Bank.

CenterState's deal for Gateway ran $124 million and its October acquisition of Platinum $84 million. Platinum had assets of $606 million when the acquisition closed on 1. Gateway closed the first quarter with assets of $309 million.

In the downturn, recalls Corbett, “We benefitted from being larger and publicly traded. We had more access to capital. We were also fortunate we didn't have a concentration on speculative land development loans.”

Amid the financial sector collapse, Corbett went hunting armed with an $86 million stock raise. “We've done 14 acquisitions since 2009,” he says, and notes six of those were failing banks bought with the help of the Federal Deposit Insurance Corp.

The FDIC-assisted acquisitions “helped us to navigate the crisis,” Corbett adds. “They were profitable transactions. We decided to go on offense at the same time we were on defense.”

Today, CenterState operates 71 branches in 27 Florida counties. It also recently opened a loan production office in Macon, Ga. With the Platinum and Gateway deals, CenterState will have $4.3 billion in loans and $5.3 billion in deposits.

Corbett has set a high bar on its return from the Gateway deal. “Our goal is to grow everything good at the bank at a compounded rate of about 10%,” he says.

Companywide, Corbett says he seeks to continue share price growth that by early June had reached 50%, and surpassed 100% for the past three years.

Other metrics Corbett will focus on include keeping a return on capital at its current 14% to 15% range and annual profits above 1%. “We have been operating at about 2.5% to 1.25%,” he says.

Seacoast National Bank


Seacoast National Bank officials say the acquisition of Tampa Bay's GulfShore Bancshares and soon-to-close takeover of NorthStar Bank will be a success if it sets the stage for matching Seacoast's growth in Orlando. In that market, Stuart-based Seacoast is one of the 10 largest banks.

As a start, putting the Seacoast name on NorthStar's bank branch in Belleair provides the $4.76 billion-asset bank an immediate presence in north Pinellas County. “NorthStar gives us the ability to expand our footprint across Tampa Bay, especially the north Pinellas market,” says Seacoast Chairman and CEO Dennis Hudson III, a third-generation member of a family that founded Seacoast 90 years ago.

The NorthStar purchase, which includes two Tampa locations in addition to the Pinellas branch, follows Seacoast's April acquisition of GulfShore. The NorthStar deal, pending approval, will increase Seacoast's assets in Tampa Bay by 38% to approximately $554 million, Seacoast officials say.

Seacoast has 47 branches stretching from Fort Lauderdale north to Daytona Beach and west to Orlando and now Tampa Bay.

Last June, Seacoast made a big splash in the Orlando market with acquisition of the operations of BMO Harris Bank, including BMO's 14 Orlando branches. “We're now a top-10 bank in Orlando and the largest community bank in Orlando,” Hudson says.

It would be “fantastic” to match in Tampa Bay what it has achieved in Orlando, he adds.

“Tampa is a terrific market,” Hudson says. “It's actually larger and deeper than the Orlando market.”

While Seacoast focuses strongly on retail and commercial banking, both GulfShore and NorthStar have tilted toward commercial lending. Detailed knowledge of the strengths and weaknesses of Tampa Bay business sectors will be a strong asset for Seacoast, says Joe Caballero, who served as GulfShore president/CEO and is now Seacoast's chief market executive for Tampa Bay. “Local knowledge is critical,” Caballero says.

Hudson says the Tampa Bay acquisitions are expected to help Seacoast improve its return to shareholders from 2016's $1 a share to the $1.20 earnings estimate for 2017 from analysts. “Part of that improvement,” he adds, “is supported by our work in Tampa and with the home team here.”

Stonegate Bank


With a handful of acquisitions behind him, including the 2016 takeover of Sarasota's Insignia Bank, Stonegate Bank CEO Dave Seleski knows all about being a buyer.

Now he's learning to be a seller.

The $3.2 billon-asset Stonegate completed conversion of Insignia's two banking locations in Sarasota and loan production offices in Manatee and Pinellas counties in early June.

But by the end of 2017, the former Insignia locations are expected to change signage once again. This time to Centennial, a subsidiary of Arkansas's Home BancShares, which is buying Stonegate for $778 million, or about 2.35 times tangible book value — a common measure of a bank's value. The sale price is the largest paid for any bank in Florida since the recession of the last decade, says Seleski, who founded Pompano Beach-based Stonegate in 2005.

He realizes the contemplated quick change for the former Insignia locations from Stonegate to Centennial may be a little more “complicated” than other changeovers. “We've got some very competent bankers in Sarasota. They are working through this,” he says

Adds Seleski: “We want to get the merger behind us and start going after customers.”

That includes organically and through buying even more banks. Expect a progression of new acquisitions under the Centennial name. “Once we're done here, we're going to be very acquisitive,” Seleski says, mentioning Tampa, Orlando and Miami as future market targets. “We're not done.”

Centennial bought Tampa Bay's Bay Cities Bank in 2015 and has “done a nice job expanding into Pinellas County,” he says. “Even if we don't make new acquisitions in Tampa and Pinellas, we're going to be big players there.”

More immediately in Sarasota-Bradenton, Stonegate/Centennial will increase its commercial offerings, according to Seleski, though he described Insignia as having strong business products all along.

“We're going to be introducing more treasury management type products,” he says, citing an emphasis on cash management, payroll and lending. “I think that is where Stonegate and Centennial are strongest.”

A major Insignia strength, he says, was its skill in lending decisions. “Insignia has always had good returns,” he says. “They are by far the 'cleanest' bank we've bought. Their credit quality was better than ours.”

Along with a wide menu of business services, a specific strength Stonegate brings to its new retail market is its credit card issuance, Seleski adds.

A willingness of key former Insignia managers to stay on board will also strengthen the new bank. Says Seleski: “You've got to understand the local markets.”

TRIPLE PLAY
Seacoast National Bank
Assets: $4.7 billion
Deposits: $3.7 billion
Net income, 2016: $29.2 million
Stock ticker: SBCF, traded on Nasdaq
52-week low and high share price: $15.21-$25.88

CenterState Bank
Assets: $5.3 billion
Deposits: $4.3 billion
Net income, 2016: $42.3 million
Stock ticker: CSFL, traded on Nasdaq
52-week low and high share price: $14.66-$26.93

Stonegate Bank
Assets: $3.2 billion
Deposits: $2.7 billion
Net income, 2016: $28.9 million
Stock ticker: SGBK, traded on Nasdaq
52-week low and high share price: $30.61-$48.53

Note: Income comes from holding companies
Source: Federal Deposit Insurance Corp., Google Finance.

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