Transcript
Coming up, yet another wonderful conversation with one of our industry’s great bank CEOs. We’re very fortunate to welcome David Findlay from a great bank in the Midwest, Lake City Bank, joining us on the podcast today. I’m Al Dominick, one of your hosts, with Steve Williams. Hello, Al. Hello, David. Good to have you today.
Good afternoon, guys.
We’ve had some really interesting conversations of late with Nitin Mhatre from Berkshire, Jeff Jackson from WesBanco, and before that Mike Daniels from Nicolet. Each brings a different perspective on what’s happening in the banking space, and we just thought what David has built and the team that he leads is so compelling and interesting that we wanted to take a few minutes to get his take on a few things that are happening in the industry right now.
I fortunately had a chance to fly to Scottsdale last night from Nashville, Tennessee. On the flight, I listened to some music that inspired some of our conversation. David, if you’ve listened to Plugged In, you know we really have a fondness for bringing certain musicians and tracks into the conversation just to keep things light and simple.
Being that you’re out in Indiana, and me being from Boston and being a Larry Bird fan, it would have been natural to say Indiana’s got a new state bird as one of our songs for Larry Legend. But I couldn’t find that oldie but goodie, so I had to find some others that are a little bit more contemporary on the Spotify playlist.
We’re going to use the Eagles’ “Life in the Fast Lane,” The Killers and “Mr. Brightside,” Billy Joel’s “Only the Good Die Young,” John Mellencamp’s “Small Town,” and then, to take us home, we’re not taking any diss tracks out, but we are going to use Kendrick Lamar and “All the Stars” to get this special issue of Plugged In going in the right direction.
Indiana, you’ve got to get Mellencamp in, so good job.
Thank you, Steve. All right, Dave, I hope you’re ready because, again, we’re going to do some fun stuff. We wanted to start this whole thing off by sharing some really interesting statistics about you and the organization, and I think Steve jotted a few down to keep us honest.
I love rattling off these things, David. You know, a $5 billion bank, and everybody’s out there pounding that it’s all about scale. Dave’s been there about 24 years. When David joined the bank 24 years ago, book value per share was about $4. Today, about $32. This is a bank, Al, that consistently grows book value per share about 10% a year.
Yep.
Through everything we’ve seen, through COVID, the Great Resignation, a historic Fed tightening cycle that took some banks out. During all this time, in the last five years the KBW Regional Bank Index is up about 2%. Now get this, Lake City Bank shares are up 43%. So, you know, people that put a smile on Dave’s face.
Absolutely.
So, Al, it begs a question, doesn’t it? We have our secret sauce, and we even brought our secret sauce with us.
Secret sauce.
What we want to know is: What is your secret sauce? Ten percent a year in a really tough industry through good times and bad. David, there’s got to be a secret sauce you can share with other bankers.
Actually, the only secret sauce I have is Don’s rib sauce at Elcona Country Club in Elkhart, Indiana, which he gives me on the side when he makes ribs on Thursday nights.
Mike Kubacki, my predecessor, and I, 24 years ago, looked and said we wanted to be a high-performing bank. We tried to break down banks that we had a lot of respect for and banks that we believed did things the right way. And doing things the right way wasn’t only in the context of taking care of employees, customers and communities, but ultimately taking care of shareholders.
That shareholder component, you can argue, is driven by book value per share. As we broke that down and developed a plan to try to go from what, quite honestly, was not a high-performing bank in 2000 into one that we’re pleased to say has been one, it was simple blocking and tackling.
There is no secret sauce to making the right decisions day in and day out and running the bank. We are a shareholder-centric organization, but if you walk around the 54 offices of Lake City Bank or through any of our facilities in Warsaw, Indiana, and say, “What matters to this bank?” people probably won’t say book value per share or stock price or shareholder value creation. But they’ll have a component of what they do that contributes to that ultimate valuation of both the bank stock and book value per share.
There is no secret sauce. It’s just a disciplined approach to executing day in and day out on what we do here and understanding that we’re a blocking-and-tackling organization.
Every investor and every analyst I’ve ever talked to about your bank, David, talks about the consistency. There are going to be no crazy surprises. The fundamentals are very much stressed by everybody who views this as an investment.
Again, I love Steve bringing some context to the conversation with those data points, because telling a story and telling a consistent growth story is really hard. But when you’re able to say, “Hey, it’s about being prudent, disciplined and repeatable,” as investors and as folks in the community, they start to prize that when they see it year after year. It’s not just words. I think that’s really cool, and I appreciate you sharing that.
Now, our secret sauce looks like a little agave, maybe it’s maple syrup, I don’t know, but it works. Everyone has different ways of approaching last-minute props. We stuck some paper that said “secret sauce” on a bottle of honey from the fridge. We’re super entrepreneurial at Cornerstone.
We go with the flow. But again, we’re telling stories. If we’re telling a story about how our secret sauce came out, I was looking at some of your recent investor presentations and, again, to build on what Steve shared, you’re able to show some real significant organic deposit growth over the past decade.
I know there are other banks that talk about this, but really you’ve got the Chases and the PNCs of the world knocking at your door and competing against you. How do you plan to maintain Lake City Bank’s competitive advantage while facing that type of competition, and also that from the various tech companies that are not so friendly to the banking sector?
Quite honestly, I’m not sure we’ve done an exceptional job at deposit gathering. We tend to have a higher cost of deposits than peers and competition. But it’s not because we’re overpaying for deposits. It’s because the historical composition of our deposit base essentially has a distribution among retail, commercial and public fund entities.
We all know public fund entities tend to be more expensive deposits, but for us, we’ve worked very aggressively to convert those hot deposits from public fund entities and make them clients, clients who are operating relationships where we are the city’s, the county’s or the school system’s bank. That makes it much stickier money to us.
That’s part of the reason we’ve been able to have healthy deposit growth, because we’ve taken what historically has been expensive hot money and made it more stable deposits, albeit at a slightly higher rate, that help us fund the higher-than-average loan growth we tend to have.
Another thing we’ve done over the last two decades is look at our non-borrowing commercial client base. If you go back 20 years, nobody owned the idea of finding that commercial company down the block that wasn’t a borrower but was a net depositor. Our retail banking team didn’t pursue those, and our commercial banking team certainly didn’t either because they weren’t borrowers.
What we’ve been able to do, primarily through retail but in conjunction with commercial, is say we’ve got to find those non-borrowing customers and get their deposits and make them customers. We do that through a competitive treasury management platform that allows us to walk in and say, whatever big bank you’re doing business with today, we have a technology platform through Lake City Bank Digital or Lake City Bank Online that will replace what you’ve got with a big bank, and it will be more local and more relationship-driven and therefore be a better bank for you.
But back to your secret sauce analogy, there is no secret sauce to this. It is beating the pavement to find those customers who are net deposit contributors and bringing them into the bank and keeping them in the bank.
I’ve seen statistics, David, that half of small businesses don’t borrow, or if they do it’s from a family member, so they’re not using bank credit. In that group, the vast majority are still with the big banks. I think you’re onto something about how we just haven’t been aligned organizationally to go after the non-borrowing small business. What an opportunity when funding is a systemic issue for the rest of the decade.
Again, bringing it back to the fun music that I referenced, this is “Life in the Fast Lane,” isn’t it? This is where the Eagles would have been getting people excited back in the day. But it’s getting out on the street, seeing the people that you care about, and making sure that the relationship is, again, not just a transaction. It’s something that’s durable and consistent year over year.
One of the other songs I mentioned was Billy Joel’s “Only the Good Die Young,” and having seen the Piano Man in person, I was impressed with how he gets people excited and participating. I think you and the bank have done a really exceptional job of holding on to your commercial deposits in a pretty tough environment.
But on the flip side, it seems from the outside that your retail deposit retention has been tougher. Again, this is an outsider looking in, so correct me if I’m wrong, but with your business model our rough math was looking at maybe 100 retail checking accounts per month being added.
Steve and I have long talked about what makes for a strong retail franchise within a commercial organization, and I think it’s an interesting opportunity to ask you if, A, our math and observations are correct, and B, how do you see protecting and really growing that retail funding inside of your commercial business?
That’s a great question. The song I would pick up and say is appropriate to this is Bruce Springsteen’s “Born to Run,” because we have created an organization that just knows how to chase the business we need to smartly grow the balance sheet.
Again, a shift over the last 24 years that’s happened here is we’ve taken our retail banking team, who historically, 2000 and before, were just expected to deliver deposit growth to fund loan growth. We’ve always said we make loans in million-dollar increments and deposits in thousand-dollar increments, and you’ve got to have a lot of thousand-dollar deposits to fund a million-dollar loan.
We’ve been very conscientious about the role of retail banking and communicating that role internally. They were second-class citizens to some degree at the bank because they were just expected to find that next deposit to fund their portion of that next loan. We’ve really raised and elevated the role of retail banker here versus what it had been historically.
And as we all know, and Steve does this for a living, as you look at what the role of a branch is and what the role of technology is in banking, clearly branches have to be more than just transaction centers. They have to evolve into problem-solution centers and business-growth centers.
We tell our retail managers, be in the office when you need to be, but more importantly get out of your office and go call on customers and go be active and find the next deposit portfolio that’s going to help us fund the loan that we’re going to make. It’s a very driven effort to give retail bankers a prioritization inside the bank for their efforts and deposit gathering.
I think one of the lessons I see out there is there aren’t the barriers to entry that people would think. We can’t give a digital experience, we can’t do digital and social marketing, we can’t be active in the community. I think, to Nitin Mhatre’s point, there are no barriers to entry with some of this marketing technology and digital technology. It just hasn’t had that emphasis within most commercial banks like you talk about, David.
Let me put David on the spot because right before we pushed record, you were telling us a really wonderful story about one of your colleagues who’s doing something unexpected in the community. I think this ties into there being very small barriers to entry, and really it’s your creativity. You’ve just got to be comfortable with it and say, “I’m going to do something, and what if it works?” David, do you mind us putting you on the spot with this “what if this works” concept?
No. The story I was sharing is about one of our community outreach officers in Fort Wayne, Indiana, and his role in helping serve the Black community of Fort Wayne. We were on a calling blitz, as we call it, and we were out knocking on doors and introducing the bank to people who likely were not clients of the bank or may not even have ever heard of the bank in the neighborhoods we were calling in.
We walked into a retail shop, and the owner immediately started talking to my two colleagues about his relationships with them and his knowledge of them. I thought, how in the world does this guy, who I’ve never met, know anything about Lake City Bank or JJ or Rita?
The answer was, JJ, as part of his community outreach, does a podcast in this gentleman’s business once a week, directed at financial intelligence, financial planning and smart financial activities for the Black community in Fort Wayne.
I didn’t know about it. And I didn’t know about it because JJ said, “It’s just what I do. It’s what you guys want me to do.” Here he was creating value for the community that I didn’t know about, but this person, who was not a client of the bank but was an important man in that community, recognized Lake City Bank’s contributions.
That’s the boots-on-the-ground mindset. Nobody here told JJ to go do that. He went and did it. He created that relationship, he does this weekly podcast, and he’s committed to it and embraces it. It was just very cool and very authentic.
If it came from the top, it might have come across like a bad dad joke, but it was very authentic and boots on the ground. With that kind of organic creativity, we see that out there, but it’s kind of bright spots. If you multiplied that, that’s where I think the regional midsize banks can really shine with their mission of being community-focused.
We like bad dad jokes like everyone, so let’s not get sideways on that. But what I think is nice about David’s example is, here’s somebody who’s putting somebody else’s success ahead of his own. I also appreciate how David was sharing the story with us because it was one of pride and admiration that somebody you work with did this. It wasn’t, “What’s it going to confer to the business?” It was more, “We’re doing something for our community that’s going to strengthen the long-term success of individuals who are part of the state.”
Again, I think this is where regional and community banks do such an incredible job. I’d love to be able to tell more of their stories because they sometimes get lost in the shuffle. The whole idea that there are big banks that are doing all this quote-unquote great stuff ignores the fact that there are banks of $6 or $6.5 billion that are doing some really wonderful things as well.
Al, let me interrupt you and add one more thing to that. About seven years ago, I was in Indianapolis calling with one of our retail branch managers on the near west side of Indianapolis, which is primarily a Black community. We had this wonderful meeting with a community service organization on the near west side of Indianapolis.
We walked out of that meeting and were standing in the parking lot, and I said to the retail bank manager, “What would you think about being our community outreach officer in Indianapolis?” And she said, “Is that a job?” I said, “No, but we can make it one.”
The next day, we agreed to create that role and put her in it. She celebrates her 10th anniversary at Lake City Bank this week, and she constantly tells me this is the ideal job for her. We created it for her because of her.
That’s cool. In today’s world they call those brand ambassadors on the social media side, but it is a position that we would see multiplying in the industry. Very cool story, David.
All right, so you liked John Mellencamp when I brought him up. You said you’ve got to have John Mellencamp if we’re having this type of conversation. So if we’re saying “Small Town,” how does that tie into a bank of this size with 53 branches across the state? Can you give me an idea of why I think that song is appropriate?
I was born... Yeah, I love the drum because we won’t get censored for that. “Gonna die in a small town. I was born and raised in a small town.”
Okay, but $6.4 billion, 53 branches. Our question is, what’s the next move on the footprint? There’s been a lot of consolidation. People like to see regional consolidation, but you’ve kind of stuck to the state. What should we expect from Lake City, David?
We opened our 54th office a few weeks ago, so we’re at 54 now. This year we’ve grown to about $6.7 billion. Bringing up Mellencamp’s “Small Town,” we love our small towns.
We have a branch in a very small Indiana community that has not grown, nor has it shrunk, to any great degree for the last decade. We are that community’s bank. It’s a very small community, but we’re the community’s bank and the neighboring rural towns’ bank.
It’s another difference, Al, between us and big banks. Most big banks would have looked at that and said, “Why in the world do we have that branch there? It’s not producing the revenue growth or the EPS contribution it needs to, so let’s shut it down and tell them to drive 15 miles to the next-nearest branch.”
We don’t want to do that. We want to keep those rural branches open and keep them active deposit gatherers, even if it’s deposit maintainers.
Then you say, where are we going to go for the next growth? We opened that 54th office in the Indianapolis market, in Carmel, Indiana, several weeks ago. It has hit the ground running, and it’s hit the ground running because of our reputation in Indianapolis that’s been created over the last 13 years we’ve been in that market.
We didn’t open five branches in one day or 10 branches in five years. We’ve opened eight branches in 13 years, and those branches have, one by one, built the reputation of the bank in the community so that we get to the point that we open in Carmel and it hits the ground running. It has quick growth in home equity applications, deposit gathering and commercial opportunities. It’s just the building blocks of getting there.
We’ve been in Elkhart, Indiana, since 1990. We have a 23% deposit market share in that market, number two in the market behind one of the big banks. In Warsaw, Indiana, where we’re headquartered, in Kosciusko County, we have a very significant market share.
All we do is look at where we are, what the growth potential is, and keep trying, day by day, week by week, month by month, quarter by quarter, to grow the deposit base, or in some of those more mature towns, retain it.
But we never lose the idea that we’ve got to deliver these products and services like a real community bank, but with the technology and sophistication we need. We don’t have the next market. We don’t think we need the next market, because the bad news is, in Indianapolis we’re 1% of deposit market share. The good news is, we’re 1% of deposit market share. There’s a lot to go.
Yeah, and so it goes back to that execution and planning and just pounding the pavement.
It’s also a wonderful reminder that quality never goes out of style. But there’s also a dichotomy here. There’s “I was born in a small town,” but I think our last question ties to the fact, Al, that Lake City Bank just opened a new building, an Innovation and Technology Center. This is not Microsoft. This is not Nvidia. It’s Lake City Bank. Let’s hear it.
Part of the reason I wanted to bring Kendrick Lamar into the conversation is not because he’s going to be the Super Bowl halftime act, and not to have the diss track that he was putting out against Drake. For Black Panther he had the song “All the Stars,” and it was just one of those reminders that there’s that moment where the light goes on and everyone gets excited.
It strikes me that this recent acquisition of the building that Steve just mentioned, which is specific to technological advancements for the bank, but really it’s for the community that you serve. That’s a really incredible story. I just want to better understand your thoughts for making that investment, because that’s playing the long game, again, in a state where growth is not as explosive as in other parts of the country.
We’re really proud of the roots we have in Warsaw, Indiana. It’s a community of around 13,000 or 14,000 people in Kosciusko County. You don’t find many $6.7 billion banks headquartered in places like this.
The Innovation and Technology Center you’re talking about brings to six the buildings we have in our downtown Warsaw campus. With nearly 300 employees in downtown Warsaw, we’re by far the largest employer downtown in a town that is the orthopedic capital of the world. Zimmer Biomet is outside my window, DePuy Synthes is down the road. We’ve got major orthopedic companies, but nobody in downtown Warsaw has more people than we do here.
We take that commitment to this community very seriously. We want to be a part of Warsaw’s future. The Innovation and Technology Center is, honestly, more of a reflection of the fact that we once again have run out of space in Warsaw, and we need to have additional growth capacity here as we continue down the path.
Its naming as the Innovation and Technology Center is really driven by the mission we’ve been on for a long time, and that’s to be a technology-leading community bank service provider. We know that we cannot compete with our large-bank brethren without a technology platform that is competitive with, or even better than, theirs.
As much as I like the name of the building, I think more importantly it’s part of the mission of what we do inside the company. I want people to walk into that building every day and say, “Innovation. Technology.” I’m staring at the building as I look out the window there. I look up and I see it, and I see where the sign is going to say Innovation and Technology Center. As a matter of fact, here’s the sign right there. That’s the mindset we want people at the bank to have.
It’s where our technology people will be, our product and project management, our application management. But what it really is is part of the mindset of never getting comfortable with what we’ve got from a technology and innovation perspective, and always looking for that next thing, because the last time a community bank was flat-footed, they probably didn’t last. We have to have that innovation mindset as we go forward.
Very cool. It’s a really wonderful story that you’ve been able to share with us. Again, I mentioned some of the other CEOs we’ve talked to. One of the things that’s been really impressive is to hear the commitment to technology as an accelerator for the business that you’ve already built, and for really helping your teams to perform at an even higher level.
It’s not to replace. It’s not to substitute something because you’re not doing a job well. It’s to say there are tools available that can maybe boost productivity but also improve efficiency at the same time.
What a signal, when we talk about attracting younger generations, that they see a building called the Innovation and Technology Center. Not your grandpa’s bank, necessarily. So you’ve got the traditions.
When I think about this great story, we missed a song. We’re going so fast. The Killers, “Mr. Brightside.” That’s a good wedding song. Everyone get out on the dance floor for that one. Maybe the quote to wrap it up is, “Coming out of my cage and I’ve been doing just fine.” There’s been a lot going on in banking, but I think Lake City Bank is another one of those bright lights of entrepreneurs in the community, boots on the ground.
But it’s about as easy as a golf swing, David, to turn out 10% book value per share growth for 24 years, so we just want to say bravo. Well done.
Well done, and we appreciate it. I want to thank everyone who’s been listening in. He’s Steve Williams, I’m Al Dominick, and we appreciate David Findlay for getting Plugged In with Cornerstone Advisors today.
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