A Florida bank — not based in any of the state's population hubs — led by a folksy, down-home CEO has climbed to the top of the industry. What's next for CenterState?
Earlier this summer, Corbett used a chart-topping single from 1981 to explain his company's approach to growth on an earnings call.
“When I was growing up, Barbara Mandrell and George Jones recorded a hit song, 'I Was Country When Country Wasn't Cool,' do you remember that?” Corbett asked investors in July. “Over the last decade, I think CenterState has been a core deposit-focused franchise when core deposits wasn't cool.”
Sure, banking outsiders may need a little help to get from “my hat down to my boots” to a focus on core deposits. But Corbett's choice of words reveal a lot about who he is as a banker. This entirely relatable president and CEO has used an old school strategy to rise to the top in his industry.
Corbett leads CenterState Banks Inc. (NASDAQ: CSFL), the publicly traded holding company based in Polk County's Davenport that operates CenterState Bank. In mid-August, CenterState announced it would acquire two other banks, making it one of Florida's largest community banking companies by a number of measures, including assets, which will exceed $10 billion with the completion of the deals.
Those acquisitions, of Fort Pierce-based Harbor Community Bank and Plant City-based Sunshine Bank, generated headlines. So, too, did the fall 2016 announcement of the acquisition of Gateway Financial Holdings of Florida, which included Sarasota-based Gateway Bank of Southwest Florida. The $142 million Gateway acquisition closed in March. CenterState also acquired Brandon-based Platinum Bank, in October 2016, in a $84 million deal. CenterState has made 16 acquisitions since 2009.
But while acquisitions help a bank grow — and CenterState has done quite a few deals over the lifetime of the company — Corbett argues you have to have organic growth to succeed long term.
Corbett's explanation for how a bank grows is so simple, it could almost provide the lyrics to a song — perhaps one for “Schoolhouse Rock,” if not a country album.
“It's not as complicated as some people make it out to be,” Corbett says. “The savers take their deposits to the bank, and then we turn around and make investments in the community.”
The truth is a bit more complicated. CenterState has a specific organic growth target of 10% compounded annually, for example. The business also has a thriving correspondent banking service (representing about 15% of annual revenue), and has seen growth in its residential mortgage business.
'Out of nothing'
The banking company known today as CenterState is the descendant of four smaller banks, each originally headquartered along or near Florida's Gulf Coast. The youngest of those four was created around 2000, and its creation is what brought Corbett into the community banking industry.
Corbett received formal training as a banker from what was then First Union, after he started his career there as a teller. That First Union job came through a church connection. As a young man, Corbett attended Landmark Baptist Church in Haines City. That's the same church frequented by Ernest Peller, former market president in Winter Haven for First Union, and now the chairman of CenterState Banks Inc.
Ten years after they began working together, Corbett and Pinner took a risk and left First Union to run their own bank. “The big decision was to leave and start a little tiny bank out of nothing,” Corbett recalls. As for what it felt like to take such a big risk, Corbett speaks metaphorically: “We held hands and jumped off a bridge together.”
Pinner and Corbett also created a holding company, which could be used to operate the four individual community banks in concert. They raised capital from friends, family and clients, ultimately amassing roughly $10 million from 263 investors.
Once the acquisitions of Harbor and Sunshine are completed, CenterState will become a bank that manages $10 billion in assets, $8 billion in deposits and $7 billion in loans, and the broader holding company will claim a market capitalization of $2 billion.
Regarding the most recent acquisitions, Corbett is particularly excited about adding to the company's deposit base.
“As interest rates start to rise, deposits become just as valuable, if not more valuable, than loan generation,” Corbett says. “Both of these banks had very high-quality, low-cost deposits.”
Another advantage: branch network consolidation. Since many of Harbor and Sunshine's branches are located in geographies where CenterState already does business, the company expects to be able to shed roughly 100 existing branches — boosting deposits per branch by 189%, to roughly $78 million per location.
Banking wasn't always the plan for the man who now leads CenterState's day-to-day operations. Because his father and his grandfather managed to build successful careers in real estate, the younger Corbett initially considered a similar path as a college graduate.
While banking turned out quite well, Corbett believes his real estate genes help him in his current role, giving him an ability to look ahead. “When you're in the real estate business and you make an investment, it's a long-term investment,” Corbett says. “You've got to have a view of the next five to 10 years.”
Corbett's colleagues admire that knack for thinking ahead. Shaun Merriman, who founded Gateway Bank of Southwest Florida in 2006, says Corbett is in the just-right spot to lead CenterState. The $142 million Gateway deal translated to 1.85 times Gateway's core tangible book value and provided shareholders from when the bank was formed a return that roughly doubles the original investment.
“I think Gateway is the perfect example of his forward visioning in terms of where he wanted CenterState to be,” says Merriman, now Sarasota-Manatee market president for CenterState. “He started the courtship three years before even announcing the deal. I can assure you that right now John knows exactly which deals he will be looking to go after over the next 24 months.”
Today, Corbett and other CenterState executives describe their view of Florida's future in two dimensions — geography and industry. For example, while South Florida may be nearer to the end of its recovery phase in the business cycle, Corbett says North Florida markets are closer to the “earlier innings” of the recovery. And while multifamily residential construction may soon cool off, there may be opportunity ahead for single-family construction.
Each of those subsets of the economy is driven by different forces, from foreign investment in Miami to financial services in Jacksonville. Now that it is one of the largest community banks in the Southeast, CenterState has a diverse portfolio, both of deposit customers and small business borrowers.
That's a solid advantage, says Florida Bankers Association President Alex Sanchez.
“They don't have all their eggs in one basket,” Sanchez says. “Now that CenterState is getting to have a statewide platform, their eggs are not all in one county or two counties. They're scattered throughout the state, and our state is pretty diverse economically.”
While surpassing $10 billion in assets brings CenterState heft and scale, it also brings the bank added scrutiny, including an increased regulatory burden. For example, complying with the Durbin Amendment, which controls the way banks service debit card customers, will cost an additional $7 million once CenterState tops
$10 billion, Corbett says.
That's why finding the right partners for the most recent acquisitions was so essential. “With Harbor and Sunshine, we found partners that get us over $10 billion and allow us to absorb that cost,” Corbett says. “The deals help us pay for that extra expense.”
Will CenterState continue buying up other Florida-based banks? Corbett hints at the possibility when asked directly. While the volume of such opportunities is getting “slimmer and slimmer,” Corbett says, there are “probably opportunities for a few more for us over the next few years.”
And what about the other direction? Could CenterState, a frequent buyer of nearby competitors, eventually become an acquisition target itself? Going back to at least 2014, CenterState has been named in several investment-banking reports as a good buying opportunity for a bigger fish. That possibility came up as recently as early August, when a Raymond James report on the state of banking in Florida contended that because of all the recent mergers, there are few big fish left for an out-of-state giant to buy.
Corbett mostly demurs on that question. “Ultimately, we are the stewards of the capital that has been entrusted to us by our investors,” he says. “At the end of the day, we try to keep all opportunities on the table, but we're building the bank for the long run.”
In the short run, Corbett and his team are focusing on internal matters. Mergers don't just happen, and integrating with Harbor and Sunshine will be among the top priorities over the balance of 2017. And of course, the bank needs to maintain its core business of collecting deposits from savers and distributing loans to borrowers.
As he so often does with seemingly complex banking issues, the CenterState president summarizes the issues the bank faces in simple terms. Says Corbett: “Focus on the fundamentals.”
At a glance
Year founded: 1989
President and CEO: John Corbett
2016 revenue: $253 million