Patience, Patience

Out of hundreds of decisions Shaun Merriman made in the early days of Gateway Bank of Southwest Florida in spring 2008, one particular counterintuitive call stands out.

It was the decision to hire longtime local banker Joy Turner for the chief credit officer position. Not only because Turner came to Gateway with nearly three decades of experience in protecting banks from sour and risky loans. But also because the title itself, chief credit officer, was a declaration: Gateway would enter the market, at the cusp of the recession, with a bedrock strategy built to grow slow and steady.

Gulf Coast community banks are historically more aggressive in startup phase. At one time, especially in the glory days of the late 1990s and early 2000s, banks would stock up on senior loan officers and sales and marketing officials right from the start.

Even more recently, Venice-based Florida Shores Bank-Southwest, which opened six months before Gateway, has taken a more aggressive approach. Indeed, Florida Shores had $346 million in assets through Sept. 30, compared with Gateway, which had $213 million, according to Federal Deposit Insurance Corp. data. Florida Shores opened Nov. 26, 2007, while Gateway's first day was May 19, 2008.

Merriman admits Sarasota-based Gateway, through the model he and Turner set up, passed up $100 million in potential loans the first year alone. The bank had its share of loans, to be sure, but it stuck to its plan to avoid undue risk. Despite the growth not seen, Merriman has no regrets.
“We could be significantly larger if we wanted to be,” says Merriman. “I took a more defensive position, but it paid off handsomely.”

That payoff is Gateway's enviable position in the local community-banking marketplace: The bank, which will turn 5 years old next spring, is a local leader in several metrics. For one, Gateway's year-to-date net income through Sept. 30 was up 473.45%, FDIC data shows, from $467,000 in 2011 to $2.67 million in 2012. That increase dwarfs a host of other community banks in the region, according to a Business Review analysis of FDIC data.

Gateway, moreover, is one of only a few locally based banks that reported a significant increase in both return on assets and return on equity. For return on assets, the bank was up 1.46 percentage points, from 0.37% in the third quarter of 2011 to 1.83% this past third quarter. On return on equity, the jump was even bigger: From 3.96% in the 2011 third quarter to 18.71% in 2012, an increase of 14.75 percentage points.

The success, further, defies the overall market for community banks, which is certainly shaky, at the least. Gateway's entry into the market itself is notable: It's the only community bank in eight Gulf Coast counties to have a starting date of Jan. 1, 2008 or later, according to the FDIC.

That factoid might hold for a while. After all, the regional community banking market is in retreat, with 23 regulatory-induced failures from Tampa to Naples since summer 2008 — three months after Gateway opened. The most recent local community bank that failed was Lutz-based Heritage Bank of Florida, which shut down Nov. 2.

Florida Shores President and CEO Jim Kuhlman says the marketplace will likely be this way for the foreseeable future. “The cost of compliance is so astronomical,” says Kuhlman. “It used to be if you were a $100 million bank or a $150 million bank, you could earn a nice return for you and your shareholders.”

Intelligence report
But those days are gone. That's one of several reasons Merriman thinks and acts conservatively first. “In our businesses,” says Merriman, “our margins are so thin you can't afford to make a bunch of mistakes.”

The Gateway Bank Merriman runs is one of three Gateways in Florida, all of which are run under a charter holding company, Gateway Financial Holdings of Florida. The other units are Gateway Bank of Florida, based in Daytona Beach, and Ocala-based Gateway Bank of Central Florida. All three Gateways have local boards and separate charters.

It's a consolidated model Merriman hopes will work to the bank's advantage, especially if and when the marketplace continues to contract. Of course, in the meantime, even being conservative, Merriman still seeks to put Gateway in a position to grow.

One side of that strategy is to follow the advice its bankers might give to clients: Build diversified income streams. At Gateway, for instance, about 80% of its total customer base, or 2,840 out of 3,600 businesses and individuals, have multiple accounts or products. Merriman emphasizes the bank builds its relationships with these customers over time, not in a mandatory cross-selling way.

Another key diversification move took place in August, when Gateway entered a partnership with FBC Mortgage in Orlando. It allows Gateway to maintain a presence in home lending, but it in a way that increases volume, through FBC, and decreases the bank's regulatory and compliance costs.

The diversification side is complemented with Merriman's constant need for more detailed data, to both validate decisions and project new ones. Merriman says he studies reams of data daily, everything from what customers have what services to what other banks are doing to area demographics. It's been that way since the bank opened.

“Information is hands down the most critical resource,” Merriman says. “We pay a lot for intelligence.”

'Black and white'
Merriman also gets intel from other, non-number-generated sources.

He hired a team of expert consultants, for instance, a list that includes bond market advisers, lawyers and accountants. He constantly hits up the team for advice. “I ask 100 questions,” says Merriman. “I always want to know what worked, what didn't work, and why. I want to know everything.”

The information-driven, conservative approach Merriman exudes stems largely from his days with SouthTrust Bank. He held several leadership posts there over two decades, and he ultimately ran a department with 30 branches and more than $1 billion in assets.

Merriman made the decision to start his own bank in 2006, and, true to his nature, he heavily researched the pros and cons. He initiated a capital raise in early 2008 and the approach clearly resonated because Gateway raised $19 million in four months.

Gateway has since opened three offices: A main branch on U.S. 41, just south of downtown Sarasota; an office on Manatee Avenue West in Bradenton and a branch on University Parkway in Sarasota. While Merriman says the locations are good, he regrets that he bought the buildings, rather than leased.

Merriman has few others misgivings about the Gateway approach. He says the bank has no specific exit strategy, and any sale or merger would be part of something bigger within the entire Gateway holding company. He says it's possible Gateway, eventually, could be involved in a merger of equally sized institutions.

In the short-term, Merriman says the plan is to both stay with the conservative focus and navigate outside forces, mainly government. “The greatest concern I have is the enhanced regulatory scrutiny that has been put on community banks,” says Merriman. “We will no longer be able to use intuitive judgment and intuition. It's all very black and white.”

Hands-On
Business gurus regularly praise the hands-off manager, the leader who stays above the action and allows the team to execute the strategy.

While bank executive Shaun Merriman gets that message, and he's certainly proud of his team, he takes the opposite approach. Merriman, president and CEO of Sarasota-based Gateway Bank of Southwest Florida, a $213 million asset bank, is all about being hands-on.
“I'm not ashamed to say that,” says Merriman. “I was like this at a $4 billion bank and I am like that at this $200 million bank. I just want to know what's going on.”

Merriman says he learned the approach from his mentor: Longtime Florida banker Jimmy Ford, who was also president and CEO of SouthTrust Bank, where Merriman worked. One takeaway Merriman picked up from Ford is a great bank leader should be on the floor, in the place where decisions are made and customer problems are solved.

That's why Merriman's office is on the ground floor of Gateway's headquarters, just south of downtown Sarasota. “Unless you have an office at branch level,” says Merriman, “you will not have a clue what's going with the bank.”

Another Way
Florida Shores Bank-Southwest President and CEO Jim Kuhlman says the biggest challenge the bank faces, outside of regulatory and compliance concerns, is finding good employees.

That sounds like a 2005 problem, when banks were in boom-mode, not 2012. Yet Venice-based Florida Shores, with $345 million in assets through Sept. 30, is on a boomlet of its own. “For us, it's a golden time,” says Kuhlman, the Business Review's Entrepreneur of the Year in 2011 for the Sarasota-Bradenton region. “A lot of my competitors are still on the sidelines.”

One competitor in particular, Sarasota-based Gateway Bank of Southwest Florida, isn't on the sidelines. Gateway, like Florida Shores, is growing and lending. Gateway was founded in May 2008, six months after Florida Shores.

Kuhlman's strategy is to capitalize on the opportunities with an aggressive approach to grab market share. For example, the bank recently opened a downtown Sarasota branch and is considering a Bradenton location. The long-term goal, says Kuhlman, is to reach $1 billion in assets in conjunction with a Florida Shores sister bank on Florida's east coast, then go public.

Kuhlman says one thing he doesn't intend to do with Florida Shores is sell it to a bigger bank. He previously did that with another community bank, and the move remains one of his biggest regrets. “The day you do that, you lose the touch and feel,” says Kuhlman. “The heartbeat stops.”