Against the Odds: A Bank Start-up
“Here we go again,” Kate Kelly, chief of three-year-old Minnesota Bank & Trust, thought as she saw the market plummeting in early August. An early riser who gets into her Edina, Minnesota, office by 6:30 a.m., Kelly immediately called her customer relationship manager and told him to do a round of client and prospect calls. Next she called her mortgage head, and told her to remind clients that no matter what the stock market was doing, rates were low for long-term mortgages, and they should take advantage of the opportunity. “I’m not going to get all flustered,” says Kelly. “I am going to keep clients focused on what they can control versus what they can’t.”
Kelly’s hands-on approach to client management differentiates Minnesota Bank & Trust from other banks focused on mid-size companies. Kelly knows most of the bank’s clients, and co-manages their relationships. As a result, with her staff of 17—most with whom she has worked for twenty years—Kelly has built a stable of 118 business clients and 202 private banking clients in three years. And though the bank’s loan and deposit growth is slower than originally planned—currently at $73 million in assets, less than half where she thought she’d be now—Kelly is committed to deepening relationships with clients and prospects and says she expects strong customer connections will keep the bank going in yet another market downturn.
Let’s put this in context. Since the financial crisis in 2008, hundreds of small banks and thrifts have closed across the United States, and other struggling firms have been taken over by larger players. In 2010, when the bank sector was technically in recovery, 157 banks failed, according to the Federal Deposit Insurance Corporation. The total number of commercial banks is expected to come in at 6,500 this year, a 4.4 percent decrease since last year. (By comparison, before the Great Depression, there were 30,000 banks across the U.S.)
Kelly’s Minnesota Bank & Trust is the only new bank to begin operations in the state of Minnesota since the last financial crisis. It’s also one of only a few new federally insured banks that have been given the green light, partly because regulators are hesitant; Over the last three years banks failures have cost the FDIC over $70 billion. In 2010, the number of new bank charters was 11—the smallest annual total in the FDIC’s 77-year history. And so far this year, there have been only three.
When Kelly was approached to build a new bank in 2007, she was looking at a completely different banking market. That year, the FDIC approved 181 new banks, and the economy was on a roll. Dubuque, Iowa-based Heartland Financial wanted to enter the Twin Cities market, and Kelly was the best person to take the helm.
At the time, Kelly was in the midst of building Bremer Bank’s wealth management business. She’d been with Bremer for five years, at U.S. Bancorp eighteen years before that, and wasn’t looking to switch. But Heartland’s pitch was intriguing. “Plus, I have wanted to run my own back since junior high,” she told Inc. “I thought maybe here’s my chance.”
Kelly took an equity stake in Minnesota Bank & Trust; She and 15 other investors own 20 percent, while Heartland owns the majority 80 percent. The bank started with $16.5 million in capital, and a hand from Heartland’s back office. From the outset, Kelly focused on personal service. At the grand opening, Kelly and her team organized a group of 250 people from the local business community to network. Then she set up an open house week that featured a caricature artist, guitar lessons, and Nintendo games. Her goal: Get the bank to $115 million in assets in three years, and eight locations in five years.
The bank’s federal charter was approved in April 2008, and a few short months later, markets collapsed. “I went to the board and told them we had to scale back. Let’s be nimble,” recalls Kelly. Even though Minnesota Bank & Trust had no bad real estate loans on its books to weigh it down, Kelly still needed to readjust expectations of how quickly business would grow.
The market downturn did offer opportunities, though. As other banks shed staff, Kelly picked up seasoned personnel who came with deep rolodexes. “Ninety percent of success is the people. If you get the right person and channel them the right way, that’s 90 percent of it.”
The focus on talent helped Minnesota Bank & Trust build a solid client prospect list, particularly with manufacturing and distribution companies, as well as the practices of accountants and lawyers. Her ‘sweet spot’ is companies from $5 million to $100 million in revenue.
Using technology, Kelly offers access to services from loans and trusts to 401(k)s around the clock. Currently, the bank has only one location. “It’s a high service model,” says Kelly, who spends nearly 80 percent of her time on the road visiting clients and prospects. But it keeps overhead costs down. “And it keeps the team together,” she adds.
Kelly makes sure to dedicate one day a week to getting updates from the team. She recently hired Kelly Elkin, another Bremer Bank alumna, to help grow a nonprofit banking business. She’ll need the help. Minnesota Bank & Trust currently has $73 million in assets, a bit less than half where Kelly thought she’d be in three years; and though the bank is now profitable on a monthly basis, Kelly continues to pour money into building the business. “We will continue, however, to re-invest in people and infrastructure and build for the long haul even if this has a periodic dilutive impact,” Kelly says.