Community Banking According to Andy
I enjoy Twitter because of the relationship threads I have maintained, the good-natured jabbing among friends, and keeping abreast of news I would not otherwise read. One of my tweeps (Twitter friends), is Andy Schornack, CEO of Flagship Bank Minnesota, based in Wayzata. He exemplifies the best of next generation bank leadership, with eyes wide open to the next iteration of banking in our rapidly changing environment.
Twenty four tweets, and worth every one of them. I suggest following Andy on Twitter.
At the end of July 2013, we invested $1.8MM to buy 49% of Flagship Financial Group, Inc. This was the start of one fun journey that continues today.
The primary asset of the organization was Flagship Bank Minnesota, a Member FDIC and Equal Housing Lender with two locations in the Twin Cities Metro Area.
The bank was under a cease and desist order and struggling with a high level of troubled assets. However, it had a great group of employees and was in a market that I knew very well.
In June 2013, Flagship Bank Minnesota had $94 million in assets and $62.8 million in loans in the two locations. In June 2021, we were up to six locations, $327.6 million in assets and $233.7 million in loans. Here’s some lessons learned along the way.
Employees in a service business like ours are key. Many of those original employees are still with us. We have added many more along the way but we have found the line is true that people do business with people they like and know. Good people helping good people, always.
Good customers drive good businesses. Invest in improving your client base. You don’t have to be all things to all people. Focus efforts on building clients with high lifetime values. Know their tenure and their services/products needs. Invest in what is important to them.
In our bank, one of these client bases was 1-4 family rental properties. In 2013, we had around $11.5MM in total 1-4 family loans, most of which were not investment properties. In 2021, we are up to over $70 million, mostly investment properties.
It is a niche that has only grown over time and one that has shown very little net losses since we started making these loans around the U of M in 2005-2006.
Running a bank is not much different than running a small business. A lot of times this is confusing to many. Basic idea is that sales to a bank are loans. Inventory are deposits. The item is that profit is not made on day of sale but over time.
For perspective, the net interest income + non-interest income (Revenues for 2012) were a total of $4.2 million. This is not a high level of revenues to handle all the expenses involved with operating a troubled banking organization at the time.
A big focus then was to reduce our non-employee related expenses while growing strength in a good client base and reducing our interest expenses by improving our mix of suppliers (changing from non-core funding to core funding of our loans).
So this was my charge. Like any SMB owner doing a new acquisition, I broke down the expense book. We still catalog every expense to every vendor and I sign nearly all the checks. The result was that our non-staff expenses have gone from 2012 levels of $2.4MM to 2020 at $2.7MM.
Our net interest income + non-interest income in the meantime has grown from $4.2 million in 2012 to $12.2 million in 2020.
Strong expense management structures allow the SMB more flexibility then to further invest in strong staff and improved client experiences.
Good client experiences don’t necessarily mean high expense structures. It’s a matter in investing prudently and managing what using a sports term is called unforced errors, or what I consider are unnecessary expenses.
Picking good partners makes the world of a difference. I couldn’t be where I am today without the support of mentors, solid business partners, & great co-workers. Brian Wagner, Flagship Bank’s President and I have worked together for 16 years. Jackie Herman, our COO 2013.
They have both played a huge role in growing our bank, executing on two major acquisitions that launch padded our ability to scale across the metro area.
Acquisitions create uncertainty and most people don’t like uncertainty. The best way as a SMB to work with existing employees on an acquisition is to be transparent on your plans and your goals. Explain who you are, what your story is, and how it impacts them.
I am a banker so in any SMB acquisition I think it pays to know your numbers. I model everything, I still model nearly everything. The same spreadsheet I used when buying Flagship is the one I use monthly to update my rolling 12 month earnings. Yes each month, I do the math.
The value to me is more than the data entry. It is the process of getting close to the data so that I see where it is coming from and how it flows through our organization. I want to always know my numbers.
The other item that I fixate around is writing a monthly management report to my board. It covers all the CAMELS components the regulators grade banks on. I have found the process of writing the report to be an important way to organize my thoughts, provide conversation topic…
…and really guide what the items keeping me up at night are within our banking organization. It covers the high risk clients, the cash flow and capital needs of the organization, our employees, and many other items as the come forward to drive conversation.
Writing a report to our board even if you are a small SMB, I believe is a great exercise to organize and validate your management decisions. If we leave them as thoughts, sometimes they aren’t fully thought through or maybe something gets missed that is important.
In the end, I am extremely proud of what we have built at Flagship Bank and our company. I am proud of my coworkers, my employees, and all the stakeholders. It has been a blast and I look forward to the next 8 years! Exciting things to come!
Does this read like a banker that builds operating discipline within the bank’s culture so it has the resources to invest in the things that matter to benefit its stakeholders? I think so.
I would say Andy and Flagship Bank Minnesota are Squared Away!
And please consider reading the book: Squared Away-How Can Bankers Succeed as Economic First Responders.
Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans.