ONE ON ONE
with Florida Bank of Commerce President and CEO
by Eric Wright
The best hope for economic recovery is universally recognized as coming from the small business sector. What most don’t realize is that 60 percent of small business loans come from community or locally-owned banks, yet they hold only 11 percent of the nation’s deposits. Also, most people don’t think of their local bank as a small business, as many are simply branches of much larger corporations; however the community bank is the exception to this rule. SCB discussed the nature of the banking industry and particularly the locally-owned bank with a recognized expert, Dana Kilborne, president and CEO of Florida Bank of Commerce.
SCB: Describe how you initially got into banking and what brought you to the Space Coast.
DK: I always enjoyed finance and so when I graduated from college banking was a natural application of that interest. Education has a way of not only showing what you don’t like but what you do like, and I was always intrigued by the quantitative part of finding right answers and wrong answers.
The community bank I was with in South Florida was acquired by Wachovia. After that, I traveled up here doing acquisition work for them. At the same time, my husband was involved in mergers and acquisitions with Harris Corp., so we both found ourselves commuting to this area quite a bit. We decided to move to Brevard in 2000 and surprisingly, Wachovia asked me to take over their operation in Brevard and begin to expand it out into Central Florida. That’s how I ended up here.
SCB: After a couple of moves you started Prime Bank; now you’re with Florida Bank of Commerce. Most of our readers understand how you start a typical business, but how does one start a bank?
DK: Well, I asked myself the same question after I agreed to do it. There is a technical side – you need to get a charter from the State of Florida or the OCC (Office of the Comptroller of the Currency) and then you have to get FDIC insurance, both of which you have to apply for.
SCB: What provided the impetus to move from managing the local branches of a larger bank to actually launching one that you would have a share in owning?
DK: It is the nature of the industry that banks are sold and bankers make moves – that was the case with me. I was having lunch with some clients (who had backgrounds in banking) with whom I had discussed the community banking concept before and they said, ‘If you’ll start a bank and run it, we’ll help you.’ So, the lesson is, ‘Be careful what you wish for.’ But the timing was good and we decided that instead of building the business for someone else we’d do it for ourselves and the community. Then, of course, you wake up the next day and ask, ‘How do you start a bank?’ In fact they asked me, ‘How does the money get in the vault?’
SCB: I’m glad they asked the question because that was the next one I was going to pose.
DK: I had to tell them, ‘I don’t know, but I know people who do know.’ And then, like others who start their own businesses, I surrounded myself with professionals who had experience in areas I didn’t. So the first thing I did was find the best lawyers in the area who worked with local banks to help with the new bank charter. Then we identified accounting firms that specialize in banking and we engaged them.
SCB: Were most of these professionals you looked to ones that you had or were already working with?
DK: No, I would have had interaction with them in the small bank I worked with in South Florida, but here I was working with a large corporate bank which handled all these questions at a corporate level, out of state. Frankly, a lawyer working for Wachovia wouldn’t know how to start a bank, but it was easy enough to find out who had this kind of expertise.
SCB: Do the larger banks have to go through this regulatory process to open a branch in a new area?
DK: Yes and no; banks have to get regulatory approval to open a new branch and to close a branch, but a larger bank is doing it within their own charter.
SCB: So when you started you sold shares like a typical corporation?
DK: Yes, it is a C-Corp; you raise money like you would for any other corporation. However, the additional layer is you have to go through a stringent regulatory approval process for the charter and you have to get deposit insurance. These are separate processes, which they can approve or deny or take no action on and let it sit in purgatory. Then they do extensive background checks on everyone as you would expect.
SCB: So initially you started Prime Bank. Was that a new experience or was it much like the experience you had at Wachovia?
DK: No, it was a totally different experience.
SCB: In what ways?
DK: When you’re an executive in a bank you get a taste for running a business, but running a business and being a banker are two very distinct things. Frankly they are very different skill sets. Like any other business, cranking out a product and running the business that cranks out the product are vastly different. It is as dissimilar as working for a tech corporation versus running a tech company with 20 or more employees.
SCB: Plus you have skin in the game.
DK: I don’t think anyone knows how much you grow until you are placed in that position.
SCB: I would also assume your ability to understand and empathize with the small business owner goes up exponentially.
DK: That’s my line (laughing). You don’t even realize it until you are sitting on the other side of the table; it is a differentiator. We run a very flat organization here; everyone has enough responsibility so they realize they are running the business here. Therefore, the bankers that work for us require unique skills. There needs to be a little entrepreneur in each of our bankers, which helps us deliver on our value proposition, which is, ‘We want to be someone’s banker, not their bank.” There is a difference we think.
SCB: Is this what makes the privately-owned bank unique?
DK: It’s not necessarily the ownership structure, though that is a factor, it is the culture. There is always accountability, but in the local bank there is accountability to the community; we live here, shop here, our kids go to school here and we are involved in organizations here. We hire bankers who feel that sense of accountability. We wanted people who are bankers in the office or shopping at Publix, which goes back to that entrepreneurial perspective.
SCB: I’m curious about how you identify that.
DK: I am too. It’s intuitive; it’s experience, both theirs and ours. Plus the hiring process is something we have worked on. We give our core values to every candidate after we reach a certain stage in the interview process. We want both the bank and the employee to be successful, so the better we can explain our culture, the better the mutual decision will be. If the core values speak to them we ask them to call us back and we set up another interview. If not, that is okay, it’s not right or wrong; everything we do is about expectations. There are standard skills, but then there are intangibles. Does it properly vet everyone? No, because people are in love with the process.
SCB: Where do you go fishing for these candidates?
DK: We’re always fishing, but most of our candidates come from our existing bankers, our directors and our clients, who understand who we are and appreciate the culture. Our bankers have to understand small business finances; they can’t be order takers.
SCB: Do you feel the smaller, local banks are at an advantage or a disadvantage in the environment created with the new and rather extensive regulations that have been initiated?
DK: In some ways it is too early to tell, because though the legislation has been passed, many of the regulations or mandates the legislation requires have, after two years, yet to be written. Plus, with all due respect, the legislation is written by politicians, not industry specific professionals.
We know that job growth comes from small business. Sixty percent of the small business loans come from community banks, yet they account for only 11 percent of the assets held by banks. Fortunately the FDIC understands and is very in tune to this.
SCB: So do you think there will be more banking decentralization or consolidation?
DK: Unfortunately it comes down to scale. The local bank has a competitive edge in that it is connected to the community and can make decisions locally. The disadvantage is that the same regulatory reporting that the large banks do, we have to do, but we don’t have hundreds if not thousands of employees devoted to that task. Increased regulation tips the competitive scale in favor of the large corporation, not the small business. The desire to protect the consumer can adversely affect the consumer because the cost of compliance has to be passed on. One consequence is decreasing competition or the creation of total uniformity.