Coaster Ride

Coaster Ride

Banking by Mark Gordon | Managing Editor

With a dozen new branch openings in the last two years - but three CEOs over six years - Coast Bank executives hope their story becomes one of successful growth, not management turmoil.

With a dozen new branch openings in the last two years - but three CEOs over six years - Coast Bank executives hope their story becomes one of successful growth, not management turmoil.

Coast Bank of Florida board members thought they hit the jackpot when they promoted Brian Peters to CEO in early 2004. This was the guy, with a resume that included leadership positions at a trio of other Florida community banks, that was going to save the company from financial oblivion brought on by a series of bad loan decisions.

By 2005, the board was even more convinced they had their man: Less than a year after taking over, Coast Bank reported a 39% increase in loans, a 57% increase in deposits and a 54% increase in net interest income. For the first time in its brief history, Coast reported a profit in 2004, with net income of $831,000.

But as Peters grew into his executive tenure and he moved from a crisis fixer to a growth leader, the power went to his head, people on the board and others with the bank say; he became autocratic and had a my-way-or-the-highway attitude. Peters' new style ruffled both clients and rank-and-file employees, the board says.

So on July 17, just as Coast's growth plan was getting out of its infancy stage, Peters was fired. In an interview with the Review, Peters denies both the accusations that he changed into a power hungry boss and that he became ineffective in leading the bank's growth. (See related story).

Whatever the reason for the firing, though, for the second time since it formed in 2000, Bradenton-based Coast was in the midst of a top management shake-up. The new man is Brian Grimes, promoted from CFO to president and CEO when Peters was fired. Anne Lee, a senior vice president for retail banking at Coast since 2003, was promoted to COO and was elected to fill Peters' position on the board. Justin Locke, formerly the bank's controller, was appointed as CFO.

The publicly traded bank, under the holding company Coast Financial Holdings Inc., has refocused its growth efforts under Grimes. The board - again - is convinced the right leader running the right growth strategy is in place. The low-key, affable Grimes, 43, has been getting positive reviews from employees and the board in the honeymoon phase of his tenure, which has been about two months.

"Brian Grimes is really doing an excellent job," says board vice-chairman Mike Ruffino, referring partially to the new executive's penchant for going to community events and his hands-on personal touch with clients.

Tangible results have been more mixed: Assets at Coast have grown annually about 40%, reaching $625 million as of June 30, a 13.6% jump from the end of 2005. The growth is driven partially by seven new Coast branches that have opened so far in 2006. Still, the growth has dragged down earnings to a loss of 16 cents per share the first half of 2006, following a 14 cents per share loss in 2005.

Acquiring some 'oomph'

Grimes says he's excited about the growth plans he's been shepherding because it allows Coast to grow without forgetting its roots. He says no matter how big the bank gets in terms of branches or assets, he doesn't want any of the employees to lose the down-home friendly community banking approach. "It will break us if we ever lose the personal touch," he says.

Still, it's nice to have the power of shareholders driving the growth. The bank went public with an IPO in 2003 and had a second offering for $42.5 million last year. "With some oomph behind us, we an act like a big player on the street," Grimes says, "but we can still be a community bank."

The majority of Coast's growth has come in the last two years. In 2005, it opened five new branches, to bring the total to 12. So far this year, the bank has opened seven new branches, with two more scheduled and a third one likely delayed to next year, which would bring the total to 22 branches. The bank's five-year plan from 2005 calls for 30 to 35 branches by 2010, all in the Tampa Bay area; there are no plans to expand to Lee or Collier counties, Grimes says.

The bank is now primarily in four counties: Manatee, Hillsborough, Pinellas and Pasco. New areas the bank will serve include Clearwater, Pinellas Park and some neighborhoods on the Sarasota-Manatee county line, near University Parkway and Tuttle Avenue.

A majority of he new branches, roughly 65% to 70%, Ruffino says, are opening in existing buildings formerly run by competitors. That's the most economical way, especially in a pricey commercial real estate market. "When you buy a piece of property, it could take two or three years to make it profitable," Ruffino says, whereas "a lease can be profitable in six months."

With the new branches, the bank has also tried to increase its visibility. It moved into its new headquarters, a 55,000-square-foot high-rise in downtown Bradenton, in April 2005. The Coast name is on top of that building, as well as another building in downtown St. Petersburg.

Prudent expansion

Growing a community bank in size, stature and branch locations to the point where it looks like a regional bank, all while keeping the community bank feel is not without difficulty or risks.

First, there are the expenses: A common refrain from Coast executives when speaking to shareholders or in public statements over the last year or so has been of the 'spend money to make money' variety. For example, in an April statement on first quarter earnings, for which Coast reported a $314,000 loss, then-CEO Peters said there will be net losses until the new branches break even. "We believe our branch expansion is prudent," Peters said, "and will yield significant improvement in shareholder value over the longer term."

Another challenge to growth is whether the demand will be there. In a recent interview, Lee acknowledges the Gulf Coast market is loaded with community banks and sometimes the public's first reaction, she says, is "Oh, another bank."

Coast executives have attempted to separate Coast from the community bank clutter in several ways. Lee says the bank has eliminated monthly minimums and just about every other service fee, so there is no "nickel and diming." Also, customers have access to 32,000 ATMs nationwide where they don't have to pay withdrawal fees. Says Lee: "We feel like our customers should get everything,"

To that end, two creative Coast innovations are of the mobile variety - armored trucks that pick up deposits at business clients' front doors and traveling vans that serve as ATMs at community events.

The bank has a fleet of six armored trucks that serve about 130 customers in Manatee and Pinellas counties, making about 2,000 stops a month to various restaurants and other small businesses. The minimum balance to request a truck is $2,500, Lee says.

The trucks, bought in good used condition, cost about $62,000 each, and that doesn't include staffing and gas costs. They are worth it though, Lee says, as it gives the bank a competitive edge - no other area banks do it regularly on that scale - and provides an opportunity to serve customers in a unique way.

The vans, known as Coast Cash Cruisers, are another visible commodity. The bank has two of the vans, which are equipped with four ATMs. The vans have been parked at various events over the last year, such as the Grand Prix of St. Petersburg. Like the armored trucks, Lee says the vans provide a unique service to customers. But in this case, it's a strong marketing factor too, as people can get information about the bank when they walk up to the vans.

As the bank creates new programs and adds to the current ones, all in an effort to grow the right way, Grimes says he remains cautious about being "too huge." He says he'll know the bank will be on the wrong side of big if there comes a time when there are too many layers of bureaucracy and customers can't reach him or any other top executive with one phone call.

Irreconcilable differences

In 18 months, Brian Peters went from a community banking legend to an out-of-work banking executive.

The collapse of the relationship between Peters and the board of directors overseeing Bradenton-based Coast Bank of Florida was as quick as it was stunning. Both the board and Peters agree on one thing: Peters was doing a great job as CEO for the first two years of his two-and-a half-year tenure.

But that's about the end of what the sides agree on. Board members say Peters changed his style along the way, becoming a bossy chief. Peters says he was confused and blindsided by those criticisms.

"They said we didn't mesh," says Peters, 43, in his first public comments about his July 17 firing. "After being with them for four years, and two-plus years as CEO, I'm not sure what that means."

Coast board chairman Jim Toomey says when Peters took over the head bank post from founder Gerald Anthony in February 2004, the bank was in shambles due to a series of bad loan decisions. Current CEO Brian Grimes says some of the loans, involving floor plan lending with used cars, were "horrible."

The bank lost $1.7 million in 2003, the last calendar year before Peters took over. It had net income of $831,000 in 2004, its first profit. Peters, who lives in Seminole with his wife and two teenage daughters, was named to the Review's top ten people to watch list in 2005, and was widely complemented by both the board and Wall Street analysts who track Coast for his work in rescuing the bank.

Looking back, Toomey says the board might have given Peters too much authority after the turnaround and in a post-Enron regulatory heavy environment, he and the other board members wanted to make sure the bank was run properly. And when it came to following the growth plan, Peters wasn't up to the task, the board says.

Again, Peters disagrees. Once he solved the loan debacle, he says there was less need to involve the board in day-to-day decisions, such as selling loan portfolios or spinning off businesses. There was an already agreed upon business plan to open new branches, and he was sticking to it. Peters says he should have been left alone to carry out the strategy, but some board members wanted "to keep their fingers in there" and have a say in just about every decision.

"In the end, what the board wanted was a yes man," says Peters, " and I'm anything but a yes man."

Toomey says the relationship between the board and Peters became adversarial despite several "opportunities for him to correct" the situation. The eight-person board voted unanimously to fire Peters; it paid him a severance package of $742,900 according to an SEC filing.

-Mark Gordon