Center State Bank of Florida in Winter Haven seems to have entered the correspondent banking business at the perfect time.

The business has been earning the $2.3 billion-asset bank $1.5 million per quarter — largely because of soaring demand from community banks for bonds, said John Corbett, its president and chief executive.

"The great thing about the bond business is that it's countercyclical," Corbett said. "When banks are feeling the most credit stress, which they are now, bond sales are typically better."

Center State lately has been selling more than $1 billion worth of bonds per month to its 508 community-bank clients throughout the Southeast, Corbett said.

Bond sales account for half of the correspondent banking business, Corbett said. That helped correspondent banking contribute nearly a quarter of Center State's $6 million of income in the second quarter.

And there is no end in sight to the demand for bonds, said Steve Young, Center State's chief financial officer.

In the lending heyday that preceded the financial crisis, loan-to-deposit ratios of 100% were common.

"Because of the 'great deleveraging," it's now 90%, and I predict it will fall into the 80% or 75% range," Young said. "So there's tons of liquidity on banks balance sheets."

Center State entered the correspondent banking business in November of 2008. Early that year, Alabama National BanCorp., along with its 11 subsidiary banks and affiliated businesses, was acquired by Royal Bank of Canada's RBC Centura Banks Inc., for $1.6 billion. In the fallout from that deal, Center State was able to hire 17 bankers who had helped run the correspondent banking business for Alabama National.

Center State moved decisively again after the April 2009 failure of Silverton Bank of Atlanta, a wholesaler bank with roots as a banker's bank.

At the time of its failure, Silverton had approximately 1,400 bank customers and $4.1 billion of assets.

Silverton's collapse opened the door for more correspondent banking growth at Center State. It snapped up Silverton's capital markets team and some of its operations employees, increasing its correspondent banking staff to 70.

With its team in place, it was able to help fill the huge vacuum left by the demise of Silverton and Alabama National, Corbett said.

"There was a big void in the Southeast with the loss of those two banks," he said.

Key Silverton employees who joined Center State included three senior vice presidents — Brad Jones, who was senior vice president and led the bankers' bank's capital markets operation; Kellie Endres, who oversaw the payment solutions group; and Brett Rawls, head of business development and marketing.

That trio was tapped to manage the correspondent banking business out of Atlanta.

Center State now has a fixed-income desk in Atlanta and another in Birmingham.

When Center State hired the management team, the bank had about 200 bank clients throughout the Southeast.

Largely by courting former Silverton clients, it has more than doubled that number.

Other banks that provide bonds to community banks are thriving as well.

At United Bankers Bank in Bloomington, Minn., bond sale volume and revenue are running at double 2007's rate, according to the bank's chief investment officer, Ben Eskierka.

Through the first half of 2010, United Bankers Bank sold $1.1 billion of fixed-income securities to 533 community banks, Eskierka said.

Those bank clients, located throughout the upper Midwest and Pacific Northwest, are buying agency bonds, agency mortgage-backed securities and municipal bonds, along with a sliver of low-yielding Treasuries, Eskierka said.

Community banks are buying more bonds because of the combination of higher deposits and fewer loans, regulatory pressure for more on-balance-sheet liquid assets and the low rates of Treasury bonds, Eskierka said.

When the economy improves and Fed funds rate rises, he said, demand for fixed-income instruments should fall.

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