Hello, this is Kelly Coughlin, CEO of BankBosun. Today we're going to launch a series of podcasts on community banks and the role they have played in our history and the future. Community banks are critical to a community's social and economic ecosystem. I use the term ecosystem carefully and intentionally to describe a system of inter-connected elements formed by the interaction of a community with their environment, and in terms of a social and economic community, in my mind community banks are critical members of that ecosystem.
That brings me to this podcast series, in which we're going to focus on community banks. In this series we're talking to a number of executives who are leaders in community banking, and I'm asking them to make community banks more fun and interesting. I think I used the term “humanize” community banks. The community bank has been around a long time. From the Revolutionary War in Massachusetts to the Santa Fe Trail in Kansas; expansions and contractions, recessions and depressions, community banks have seen it all. With that in mind, I have one of those leaders, Sammie Dixon, CEO of Prime Meridian Bank in Tallahassee, Florida. He's not been around since the Revolutionary War, I don't think, but he has seen a lot. Sammie, are you on the line there?
Have you been around since the Revolutionary War, Sammie?
No, I barely made the '60s.
Barely made the '60s, excellent. Sammie, I wanted to talk to you because when I look at your bio and some of the community involvement…I looked at all the involvement that you guys have…and I counted nearly 50 organizations, whether it be the Treehouse of Florida, Toys for Tots, Young Actors Theatre, Good News Outreach, Holy Comforter School, Lee's Place, Opening Nights. I'm not sure what Opening Nights is but..., you've got Florida Tax Watch. You've got over 50 organizations that you guys support one way or another. Talk to me about that.
Well, Kelly, there was a famous banker here in town by the name of Godfrey Smith, that always stated that a healthy community makes a healthy bank. And if you take care of the community, then the bank will be taken care of, if you're providing good service and charging good, honest rates, paying people good rates, and just making sure that the well-being of each individual client and the community as a whole is taken care of.
Kind of jumping forward here, what happens in a community when a community bank ends up getting acquired by a national bank or a large regional bank? Does that go away do you think?
It does to some extent. You've got someone outside of the individual community that really doesn't understand what's important, making decisions or providing budgets to the local leadership of that regional or money center bank. And they cannot react as quickly to the needs of the community. Whereas your community banks are able to really provide a nimble outlook. And by that I mean that if there's something happening that needs to be taken care of. The decision can be made within 5 minutes and let's get the problem squared away, from supporting one of the individual not-for-profits that are providing services to our community to the hospitals, the school system. It's having that ability to make a decision on the ground floor.
That's a segue into maybe the bigger picture here. That dynamic doesn't just relate to non-profit involvement, but it gets at the for-profit activities that a bank is involved in. When you're not part of that community, you can't respond as quickly, whether it be granting a commercial loan or that sort of thing. Talk about that a little bit. How is that impacted?
Every business is nothing more than a story with substance behind it. Having people and having the executive leadership having the opportunity to not only listen and hear the story, but live it. You get to see what they do each and every day and you're able to make decisions and make judgments in extending credit; what type of depository services they need; and there's nothing about a story that fits in a box. Every one of them is different. Every individual character, if you want to say, within the story is different. Having that ability to take the time, sit down, understand what the story is and where it's going, gives us an opportunity to make very quick and rational decisions that helps each individual business that then helps the community.
You mentioned story. What's your story? What's Prime Meridian's story?
Well, Prime Meridian Bank is a newer bank, one of the last in the state of Florida to get chartered. We opened our doors February 4th, 2008. We initially capitalized with about $12.9 million dollars. We have now since grown in excess of $275 million, over the last 8 years. We decided to start the bank, myself and Chris Jensen, and we thought we could provide service to our clientele, and decisions that would help them move more prudently and faster.
You saw a need specifically in the Tallahassee market?
We did. We thought that we could provide service and compete with everybody in town. We didn't have a group of people come together and say, "Let's start a bank." We put our story together and put our model together, and went to individual business leaders within town, here in Tallahassee and said, "We're going to start a bank we'd like you to be a part of," and that was the genesis of Prime Meridian Bank.
Was there a lot of consolidation and acquisitions that had gone on prior to that, and so that kind of created this market opportunity for you guys?
No. You had several community banks here in town already, most of your southeastern regional banks and your money center bank. We just thought there was an opportunity for us to come in and provide a little different level of service that would make us a profitable entity and serve Tallahassee very well.
Let's talk about the name Prime Meridian. You do know that you're not on the Prime Meridian? You do know that you're 84 degrees west, right?
I do, but the Prime Meridian for all metes and bounds in the state of Florida is here in Tallahassee.
Oh, got it.
If you look at the Prime Meridian, what is it? It's a starting point of the metes and bounds here for the state of Florida, and starting point of time, or the starting point of a new financial institution. The Meridian line is an unwavering line going over the Earth. We're unwavering in our outlook and care of our shareholder's money, but more importantly, our clients.
The Brits claimed Greenwich was the Prime Meridian. They don't own that, so you'd redefine Tallahassee to be the Prime Meridian.
At least for a new financial institution.
Very good. Continue with the evolution of the bank and the challenges you've faced in the past, as you went from de novo Bank? You didn't acquire another bank, right?
Right. Several things that we're proud of through the evolution of our company. Number one, which goes back to the quality of our team. When we started our bank, the average startup cost was about $800,000. The day that we opened the doors and took the write-off to capital for the expenses, we wrote off $395,000. That goes to the knowledge and expertise of our team of not having to hire a lot of consultants, and understanding each and every thing that we did. Going on to 2012, four years after we opened, we looked around with the team that we had, and realized that we could do our own data items processing. Instead of having a service bureau that was processing our checks, we decided we would do it ourselves. That added an immediate $8,500 a month to the bottom line.
That same year, we also became cumulatively profitable. That was pretty exciting for us. And then in December 11th of 2013, we became an effective SEC registered company and then started listing our stock in 2015 on the OTCQX. So those are some of the things that we have done and we're very, very proud of. Dealing with the SEC, we went through a full review, when we filed our S1, our initial going public document. Our comment letter back from the SEC was simply 2 1/2 pages, which goes to say just how good our team is, and how detailed we are in each and every thing that we do.
Yeah. I know access to capital has been good once you go public, but it's quite a task to a) go public, and b) maintain that. The requirements are immense as you know. Was it worth it, do you think?
Absolutely. We went public for 3 reasons. Number one is we could raise our capital the way that we wanted to. We didn't have to worry about an accredited offering or anything of that nature. Number two is we're looking to grow the company and grow outside of the Tallahassee MSA, and if we do that we want to have a currency that we can use.
In order to have your stock act as a currency, you've got to have a market for it, and the only way to do that was to be an SEC registered trading company. Then number three, when we decided to do it, our bank is still very clean. We do not have many non-performings or any crazy things on the books. It would never be easier to go through and do it. And we look at it like these days, with capital, you can't say, "Okay, we're going to go buy someone or do something. Now let's go get approval and say, 'Okay, if you give us approval we'll get the capital.'" You've got to have capital already on hand. There's no more just in time capital. And the same way we look at it is there's no just in time human capital.
Let's talk about human capital for a minute. How challenging is it for you to compete for new talent and retain existing talent with the compensation structure that community banks have to deal with?
Well, Kelly, that's been one of our strong points. When we started the bank in 2008, we were the new kids on the block. Nobody knew us. All we had was a story. It was nothing but air. So going out and getting the top absolute talent was difficult. People had their banks, things were going well. So we decided that we would start building our own bankers. And being here in Tallahassee and having Florida State and FAMU and TCC here, gave us the opportunity to go get a lot of talented younger folks to bring in, that had the capacity, train them, educate them.
And one thing that we've done is we've been very transparent with our team. Up until we went public, we went through our financials with our entire team once a month.
Now that we're a publicly traded company, we do it once a quarter. But giving them the exposure, I cannot give them experience, but giving them the exposure to what we're doing, why we're doing it, and how we're doing it, is as important as finding experienced people. And our entire culture is surrounded by a one-word question and that's “why”. Any teller, relationship manager, operations person, whoever, can ask me or anybody in the bank why are we doing something. And that causes two things. Number one, the hardest thing to get people to do is think. If they're asking you questions, then they're thinking. And if you answer their questions: Why did we go public? Why did we raise capital? Why are we looking to acquire banks? What does that mean to the bottom line?
Now, all of the sudden you've created an inclusive ecosystem, as you say, that people can buy-in. The biggest thing people want is to be a part of something, and what we've afforded a lot of folks to do is come in and be a part of building something from the foundation up. And constantly giving them that transparency of what we're doing and why we're doing it, is very, very inclusive. And we listen. I can't tell a teller how to make a teller line more efficient. So if I can't listen to what they're doing like I ask them to listen to me and do what I say. If we don't have a partnership there, we're not going to get any better. That's the number one. Number two, if someone asks me a question. Why are we doing this? and I can't answer it, then I might need to rethink what I'm doing. Does that make sense?
It certainly does. Have you used non-qualified benefit plans as part of that overall compensation structure? This is not a pitch for that. I was just curious if you'd ever talked about that.
Yes. We're in the process of looking at our entire compensation structure now, and figuring out how to better enhance it to a) retain, b) attract, and c) incentivize.
So say another side of say the balance sheet, since we're talking about that, municipal bonds. Anything that you've seen change here since the 2008 Dodd-Frank and all this other stuff of municipal bond rating agencies? Have you guys had to modify any of your practices on that?
We're using a third party right now to monitor our municipal portfolio. So in the old days of just buying bonds and putting them on the books, we actually have a quarterly review of all of our municipalities.
So you've had to upgrade that since the regulatory changes?
We have. And I don't think it's all that bad from the standpoint that you look at a lot of municipalities out there that are having weakness due to the down-turn, and the one thing that we have made the decision from day one, is we take risk, and there's risk in everything you do, but we take the real risk in our loan portfolio. We do not want any risk in our investment portfolio. We're looking at it as simply a hedge against interest rates, and also as just a liquidity source.
Well then you better load up with bank-owned life insurance. You've got about 50% of your financial assets in muni’s and I like the lower balance sheet risk that BOLI offers. That’s another discuss with you and Glenn. What's the future look like for community banking in general, threats that you see, opportunities? For example, 80% of millennials haven't even walked into a bank before.
Let's stop right there for a second and talk about the millennials for a minute. Number one, I talked about how we hire and what we do. The average age of our bank is 38. The average age of our management team is 41. As far as dealing with millennials and all, one thing most people have forgotten is most millennials have yet to start a company. A lot of them, due to the recession, still live with their parents. So therefore, they really haven't needed to walk into a bank. Now a lot of the millennials that we have found, and we talk with, and we do this a lot. They want to be a part of something. And they're much more community driven and doing something for the greater good. Once you are able to show them from a teammate standpoint what we're doing, they buy in.
Once they actually need something other than just a regular checking account, i.e. buy their first house; buy a business or trying to finance the start of a business, they need to sit down and talk with someone who understands the market. And we have found, we've been very successful with millennials. Now we're not out there with everything online, rocket mortgage and things of that nature. We're finding a lot of success dealing with the millennials. What that comes back to is we generally don't get them until they need something. And every individual, every household is nothing different than a story too. Where's your income coming from? Is it going to be sustainable? Can you afford whatever asset you're trying to purchase?
That has been very, very beneficial to us. As far as whether or not banks are going to be here, I've talked with bankers that go back to the '60s that said the community bank's not going to be around much longer. Well, as long as you have people, there's a certain segment of the population that wants to talk with people, when it comes to their financial situation. Coming up from a small town in south Georgia, and growing up the 3 most important people in the town was your doctor, your preacher, and your banker; your health care, your faith care, and your financial care. And you generally didn't do that via an email. I truly believe that there will always be a place for the community bank. Now with the regulations and thought process out there, there's going to be fewer and fewer community banks due to the fact that what we're required to do.
We're operating in most cases from an asset-liability standpoint, overall balance sheet management standpoint, like a larger bank. However, we don't have the economies of scale to do it. So we have to be more innovative and more nimble. And that goes right down to talking with your regulators on a consistent basis to understanding what the rules are. If you're going to form a hospital, or if you're going to start a power company, there's regulations you have to abide by. As a community banker, you had better understand the rules and abide by them or find something else to do. That's just the approach that we've taken. And it creates a lot less heartache and stress, when you come at it from that standpoint, versus saying, "The regulators are going to kill me." Regardless what they're going to do, they're going to do it. So you better find out or figure a way to cope with it.
Great. What's the biggest threat, other than let's say cyber-security risk, which probably keeps you up at night…other than that, what's the biggest risk or fear that you have, say for the next 10 years?
As we expand, finding the human capital, finding the talent, the teammates.
The human capital.
So in Tallahassee or in some of your outlying branches? You have access to plenty of talent there, right?
There is a good supply, and it's just finding the right people that believe in what we believe in. Our culture is the most important aspect of what we do each and every day, and I go back to the question “why”. If you're questioning why we're doing something, some people look at that as somewhat of a negative. We look at it as a positive, because if you cannot explain what's going on, and you cannot understand it, then the “how” really doesn't matter.
What's the biggest opportunity that you see? What gets you up every morning after you've had a sleepless night worrying about cyber-security risks? What gets you going?
The opportunity to grow, to build our franchise here within Tallahassee; the opportunities outside of Tallahassee. Within our investor presentation, we show that we don't want to go any further north than Macon, south of Ocala, east of the Atlantic and west of the eastern border of the state of Mississippi. That is south Alabama, south Georgia, and north Florida. The opportunities to be there are endless. And that is something to get excited about and get out of bed every day, and figuring out a new challenge to go build upon.
That's great. All right. In closing, I always like to ask either your favorite quote and/or the stupidest thing you've done in your business career.
I will give you my favorite quote, and it's on our boardroom wall, and it is by a retired General, Eric Shinseki, who has been re-retired. The quote is, "If you do not like change, you are going to like irrelevance even less." Shinseki is the most recent former head of the VA. He's pretty irrelevant right now.
I would say so. Alright. Very good. Anything else you want to add Sammie, or should we sign it off?
You tell me. Thank you.
I think we're good. Thank you very much for your time. It was a pleasure talking to you. I wish you well, Sammie. Stay safe! And that’s it for my interview with Sammie Dixon from Prime Meridian Bank in Tallahassee, Florida. Thank you.