Coast Bank of Florida stumbled in 2003 after going public, a familiar situation for founder Gerald L. Anthony.
By Francis X. Gilpin
It must seem like old times for Gerald L. Anthony, albeit not necessarily good times.
The veteran Manatee County banker has seen the fantastic deposit inflow before. He has endorsed the aggressive lending policies and branch expansion. But he also has watched the non-performing loans and subsequent write-offs intrude. Finally, Anthony has felt the sting of a premature parting from a bank that he helped bring into the world.
That's what happened at the former Bradenton-based American Bank, which Anthony founded in 1989. American was quickly sold to Gold Bank after his unceremonious 1999 departure.
Is it happening all over again at Coast Bank of Florida, where Anthony has been mounting a comeback for the past three years?
As occurred at American Bank, Anthony has relinquished the Coast Bank presidency. His successor is Brian P. Peters, who has worked for him at both Coast and American. Within weeks of the shakeup, parent Coast Financial Holdings Inc. revealed that a used car dealer and another bank borrower had defaulted on $780,000 in commercial loans. The provision for loan losses was increased to $2.3 million for the fourth quarter and contributed to an overall 2003 loss of $1.7 million at Coast Financial.
The timing could not have been much worse. With $264 million in assets, Coast went public in November. A month later, new investors found out about the problem loans. The price of Coast's lightly traded stock dropped 11% between Thanksgiving and New Year's Day.
In separate interviews, Anthony and Peters say this bad news is just a temporary setback.
Still, as Coast resumes a manic drive for more deposits, it has stopped financing floor plans for car dealerships and making other risky loans. With Anthony retaining the jobs of president and chief executive of the holding company, Peters was also named chief operating officer of the bank; he has cut payroll to try to achieve profitability.
Anthony's employment contract runs out at the end of March. He and the Coast board of directors are said to be negotiating. But if Anthony were to leave Coast, it would be a denouement eerily reminiscent of his American experience. Asked if he expects to be at work on April Fool's Day, Anthony replies: "I hope so."
The Ohio native, who turns 61 this month, served in the U.S. Navy before coming to Bradenton 30 years ago to work for the old Ellis First Security Bank. With a banking degree from Louisiana State University, he later worked for Westside National, Community and Barnett banks. Anthony joined the Bradenton Kiwanis Club and served as a Blake Hospital trustee.
"He has a strong following in the community," says Peters, who is 20 years Anthony's junior. "A lot of people know him. A lot of people like him."
Anthony put those contacts to work assembling a board and raising capital to open his own shop at American Bank of Bradenton in the late 1980s. The original board included growers J. Gary Russ and R. Jay Taylor, engineer Ronald L. Larson and health care administrator Walter L. "Mickey" Presha.
By 1997, American Bank had attracted nearly $200 million in deposits, opened six branches and brought in public investors to fund more razzle-dazzle expansion.
"He's very much a visionary," Peters says of Anthony, "very growth-oriented."
American Bancshares Inc., the holding company, increased profits by 85% in 1997. The company bought Bradenton mortgage lender Des Champs & Gregory Inc. and Murdock Florida Bank in Charlotte County. American opened a branch in the south Hillsborough County farming community of Ruskin.
"Growth is really starting to pay for itself," Anthony told the Bradenton Herald in early 1998.
The next year, though, American announced the resignation of Anthony as the bank's president and chief executive officer, ostensibly to concentrate on the holding company, where he still held the same titles. Three months later, Anthony left the holding company as well.
"Mr. Anthony wasn't happy with some of the decisions we were looking at and didn't share our philosophy," American Chairman Gary Russ told the Herald at the time.
For the final five years of Anthony's tenure at American, return on equity never made it into double digits. ROE gyrated unimpressively, from 3.63% in 1996, up to 9.03% in 1997, then back down to 6.02% in 1998. Over those years, loan charge-offs shot up threefold, from $412,000 in 1996 to $1.3 million in 1998. Investment losses ate into shareholder equity.
Anthony was sent on his way with a $190,000 severance. In return, he agreed not to compete with American for six months and not to disparage the bank.
By the fall of 1999, Gold Banc Corp. Inc. announced the American acquisition in a $91.4 million stock swap. Around the same time, Anthony received state approval to begin trying to raise $7 million for Coast, a new bank not to be confused with Sarasota's Coast Federal Savings & Loan, which had been swallowed up by SunTrust in 1993.
Anthony hoped to be open by the end of 1999. But the ribbon wasn't cut at the 2412 Cortez Road W. office until the following April. Anthony managed an initial capitalization of $5.8 million, only $300,000 above the minimum requirement.
Coast made an early splash by putting a $62,000 armored truck on the road to make pickups for business customers. (Coast also financed the purchase of the Tampa Bay Review, now the Tampa Bay edition of GCBR, by The Longboat Observer Inc., which is the parent company of GCBR. Although that loan has been repaid, the bank still maintains the operating account of two sister publications of GCBR.)
Like most new banks, Coast has lost money. But it has done that longer than Anthony expected.
The losses have piled up: $1.2 million in 2000, $513,000 in 2001, and $691,000 in 2002. Anthony had predicted Coast would turn a profit by 2002.
Bank officials reacted angrily when Weiss Ratings Inc., a Jupiter research firm, labeled Coast one of the weakest banks in Florida two years ago. "We're a high-flyer," Bradenton attorney David W. Wilcox, the bank's chairman at the time, protested to the Sarasota Herald-Tribune. "We're not a weak performer at all."
Weiss warned that Coast was getting too big, too fast. Indeed, among the seven state-chartered Gulf Coast banks that went into business in 2000, only First Kensington Bank has grown faster. But there is a significant difference between the Spring Hill bank and Coast. First Kensington is making money, reporting $1.5 million in net income for the first nine months of 2003.
Anthony and Wilcox, who has since left the Coast board, pointed to the bank's loan data as proof that its growth endangered only the competition. "Our loan losses are very low," Wilcox said in 2002.
Certainly, they started out that way. Non-current loans and leases were a mere $12,000 at the end of 2001. A year later, however, they had risen to $263,000. Net charge-offs went from $79,000 in 2001 to $228,000 through the first nine months of 2003.
The 2003 full-year results have forced Coast to reassess Anthony's go-go approach. "That's just his mentality," says Peters. "I share that, but I also focus on profitability and growth tempered with that profitability."
In December, Peters replaced senior lender Kemper M. Hetzler with Tyrone L. Shinn, who came over from Northern Trust Bank of Florida with more than 20 years of commercial lending experience.
"We had a couple of sizable loans come undone during the fourth quarter," says Peters. "My experience tells me that when that happens, you need to go in and evaluate all of your loan credits and make sure it's not a problem throughout the portfolio."
Shinn and other Coast executives reviewed every commercial loan of more than $100,000 that was not collateralized by real estate. "That's your biggest exposure," Peters says. "When you secure things with business assets, business assets can evaporate."
Shinn's review followed closely the November default by the unnamed used car dealer, who had been advanced $660,000. As a result of the review, Coast has discontinued all floor plan and indirect lending through auto dealers.
The risk of such lending was illustrated by a lawsuit that Coast filed last summer. In 2002, according to the lawsuit, Coast loaned $35,269 to a Sarasota man for the $37,314 purchase of a 2000 BMW from a local car dealer. This indirect consumer loan, wherein the bank financed a credit application taken by the dealer, had two problems. First, the dealer never furnished the bank with a vehicle title to secure the loan. So when the buyer later returned the BMW, apparently in lieu of repossession, Coast couldn't resell the car without court permission.
Plus, the dealer "absconded with $35,000 of the bank's funds issued as a loan on this vehicle and he is nowhere to be found," Coast lawyer W. Nelon Kirkland informed a judge. The attorney with Bradenton's Harrison, Hendrickson & Kirkland PA added: "We were last informed that he had gone to Costa Rica."
While Peters says the Coast review found there wasn't "a systemic problem in the portfolio," Shinn will tighten loan procedures. "His lending philosophy and practice is document everything, make sure you've got everything in place," says Peters. "Not that that wasn't happening in the past. I just don't think it was the culture, so to speak. I think when you implement a culture and you stick to it, you're better off. And your loan quality will certainly be better for it."
Shaky loans aren't the only difficulty that Peters has inherited. Another concern was the loss that Coast took on a big investment made in its infancy.
In September 2000, the bank purchased a $1.2 million piece of a $220 million debt offering secured by the assets of fast-food proprietors. At the time, the bond was AA-rated. But the rating later sank, and the bond broker allegedly misled Coast about the downgrade.
Coast recovered $400,000 from the broker last year but has written off the other $800,000. "Quite frankly, it's not a bond that a startup bank should have bought," Peters says now.
Shrugging off the past, Peters sounds confident that he can right the bank. With a master's degree in business administration, Peters came to Coast in 2002 from St. Petersburg's Republic Bank, where he was controller.
"West Central Florida is a fantastic market," Peters says. "Manatee County is growing phenomenally." Coast must grow with the county, he says. After trimming $500,000 in labor costs at the end of 2003, Peters plans to open two new offices in each of the next three years to augment Coast's current five-branch network.
"The growth is there. The opportunity is there," he says. "We're looking at our loan volume and our loan projections. We need the deposit base to fund the loans. You hate to turn away good loans."
Peters will be careful that Coast's future loans are, in fact, good ones. "I think we owe it to our shareholders to generate profit and provide a decent return," he says. "And that's the direction we're going."
Anthony says he has adapted to the new direction. "Brian, with his financial background, is suited to run the day-to-day operations," says Anthony. "I'm more of the visionary, and that's what I'll be looking at."
If the Coast board has other ideas, Chairman James K. Toomey isn't saying. One of Coast's biggest shareholders, Toomey is a grandson of James L. Knight, who helped found the Knight-Ridder newspaper chain. Toomey, 37, came to Bradenton in 1990 to work at Knight-Ridder's Herald. He has since gone into real estate development.
Toomey told GCBR he couldn't comment on the status of his board's talks with Anthony.
BRIAN P. PETERS
Title: President and chief operating officer, Coast Bank of Florida; chief financial officer and corporate secretary, Coast Financial Holdings Inc.
Education: B.A. from Eckerd College, St. Petersburg; MBA from Regis University, Denver.
Previous banking experience: Before arriving at Coast in June 2002, Peters was senior vice president and controller for Republic Bank, St. Petersburg, 1997 to 2002; CFO and senior vice president at American Bank of Bradenton, 1995 to 1997; also worked at Key Florida Bank, Bradenton, and Florida Federal Savings & Loan, St. Petersburg.
Family: Married 20 years to Eileen Peters; father of two teenage daughters.
Hobby: Muscle cars from the 1960s and 1970s; has worked on and off for five years restoring a 1971 Plymouth GTX 440+6 four-speed, one of only 62 made by the old Chrysler Corp.