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2 bank deals and a big leap for CenterState

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2 bank deals and a big leap for CenterState

CenterState Banks Inc. asserted its acquisitiveness with a pair of deal plans that would collectively bolster its market share in Florida and give it about $3 billion in additional assets, substantial cost savings and a heaping of core deposits to fund future loan growth.

Winter Haven, Fla.-based CenterState, which has closed seven open-bank deals since 2011, said on Aug. 14 that it would buy both Fort Pierce, Fla.-based HCBF Holding Co. Inc. and Plant City, Fla.-based Sunshine Bancorp Inc. It agreed to pay $416.7 million for the former and $176.7 million for the latter.

The two acquisitions, which are both slated to close in the first quarter of 2018, would help CenterState leap from the third-largest community bank in Florida by deposit market share to the biggest. The deals will also help the buyer profitably cross the $10 billion-asset threshold, executives said, with relatively low risk given that both are in-market transactions.

"We think that doubling down in our own backyard is the most desirable approach" to growth via M&A, CenterState President and CEO John Corbett said during a call to discuss the acquisitions.

Corbett said that appealing bank targets are increasingly scarce in central and northern Florida — CenterState's chief areas of interest for M&A — following years of consolidation. "The pickings get slim," he said.

So when these two sellers came on the market at the same time, Corbett said CenterState decided it should pounce on both.

Investors embraced the moves. Shares of CenterState rose more than 3% in morning trading Aug. 14.

Analysts, too, welcomed CenterState's continued drive for growth.

Analyst John Rodis of FIG Partners noted in an interview that the deals, combined, give CenterState added earnings power that will allow it absorb costs tied to crossing the $10 billion asset level. At the point, banks face more regulatory requirements and give up debit interchange revenue linked to restrictions imposed by the Durbin amendment.

CenterState said it expects the deals together to generate mid-single-digit percentage accretion in earning per share after accounting for the expense impact of crossing $10 billion. That profitability will be produced in large part via efficiencies that the deals afford, including consolidation of overlapping branches. CenterState estimated that it will squeeze out cost savings of 40% of the two target's combined expense bases.

"A lot of this is driven by the cost saves," Rodis said. CenterState "does deals as a line of business. ... So I think they can get that 40% and these are good moves for them."

Southeast investment banker Thomas Rudkin, a principal at DD&F Consulting Group, also expressed confidence in CenterState's ability to handle two deals at once, citing its active M&A history.

"CenterState is very good at this. They know how to bring deals together quickly and smoothly, so for them this makes sense," Rudkin said in an interview. "The two deals combined makes for a huge impact on CenterState's market presence in Florida."

The pro forma company will have about $6.6 billion in loans and $8.1 billion in deposits. It will have a loan-to-deposit ratio of 82%, leaving it plenty of room for organic loan growth, executives said. And CenterState will have relatively inexpensive funding for such an expansion. HCBF's estimated cost of deposits is 0.34% and Sunshine's is 0.28%.

Asked about CenterState's appetite for future M&A, Corbett said the company would first make sure it integrates HCBF and Sunshine, but it then would likely look for additional opportunities. He said the bank would hunt first in Florida, with its focus on the Jacksonville, Orlando and Tampa markets. Once opportunities in Florida are "fully explored," CenterState might look to neighboring states, with Georgia's largest market, Atlanta, as the most likely area of interest.

That noted, executives emphasized that, following integration of its two latest targets, CenterState will be large enough to efficiently drive strong organic growth — including about 11% annual loan growth — and will not need to do acquisitions.

"We don't feel like we are going to live and die by M&A," Corbett said.

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