Hey all, I’m Sara Khairi, your host for this episode and a reporter at Tearsheet. If you’ve been tuning into the Tearsheet Podcast, you’ve likely been enjoying the insights brought to you by Zack Miller, our editor-in-chief and the original voice of the show. While Zack remains the heartbeat of the Tearsheet Podcast, I’m excited to jump into the podcasting mix and bring you some episodes of my own. Expect to hear a bit more from me alongside Zack. I hope you find my chats here just as engaging as the stories I write including the weekly 10Q Newsletter for our pro-subscribers. Catch you on the other side!
For my very first episode, I decided to step outside the frenetic pace of the Big Apple and dive into the lesser-known banking scene in other states. Community banks have weathered a storm of challenges in recent years, including macroeconomic pressures and the uncertainty following three regional bank failures in 2023. In particular, young community banks launched during the peak of Covid-19 have had to contend with additional complexities due to their timing.
These community banks may operate on a smaller scale, but their ambitions rival those of Wall Street giants. As the digital wave sweeps across the globe, these banks are not just staying in the game — they’re hustling to keep pace and stay relevant by adopting emerging technologies.
One example is Atlanta’s Craft Bank, which opened its doors in 2020, right when the world was facing a pandemic. Primarily a commercial bank with a business-centric focus, Craft Bank currently operates with a team of 19 employees and manages total assets of $250 million.
Ross Mynatt, CEO of Craft Bank, joins us to discuss his journey as a first-time CEO, the choice of Jack Henry as their core tech partner, and the strategies behind Craft Bank’s $250 million asset growth at a time when most smaller institutions were struggling just to stay afloat.
Throughout our talk, it becomes evident that although 92% of banks aim to maintain or elevate their technology spending in 2024, community banks and large financial institutions take markedly different approaches when it comes to investing, forming partnerships, and selecting technology providers. Ross also discusses whether community banks could potentially leverage technology more effectively than their larger peers.
This first episode kicks off a three-part series exploring the tech and partnership strategies of three emerging community banks. First up: Craft Bank – its origin and its tech evolution. Let’s dive in!
The key takeaways
- Growth drivers for Craft Bank: Ross credits the bank’s growth to a mix of good fortune, a seasoned team with strong connections, and favorable market conditions in Atlanta, where no new bank had opened in 15 years, and the number of community banks had significantly declined. He notes that they raised capital at the pandemic’s peak, which seemed like a daunting endeavor back then but turned out to be well-timed as interest rates were at historic lows.
“We’re right at 250 million in total assets or as our Chief Lending Officer likes to call it, a quarter of a billion dollars, we are 90% a commercial bank,” shares Ross.
- What starting a de novo bank is like, and why not just acquire one? Ross discusses the decision to start a de novo bank rather than acquire an existing one, highlighting the importance of cultural fit and avoiding legacy issues. He also highlights the significance behind the name ‘Craft’ and how it led to the determination to start from the ground up.
“We knew that we could build it from scratch and it would be ours, as opposed to going out and buying an existing bank or an existing charter where there are some legacy issues, perhaps there may be some loans that you might not have booked otherwise, or maybe it’s not a cultural fit – and culture is very important to us,” according to Ross.
- Deciding on tech providers: Craft Bank has invested in technology, choosing Jack Henry as its core software provider. The bank intentionally selected tech solutions it knew would be used well, avoiding the pitfall of investing in tools that go underutilized.
Ross explains that his bank’s approach to investing in software involved everyone agreeing with confidence: “Yes, we will use this”. This consensus was driven by a caution sparked by a data point Ross came across while they were organizing. “On average, banks use about 35% of their available technology, and we didn’t want to be that bank,” notes Ross.
He underscores the value of cultural synergy in tech collaborations, too, sharing lessons learned from both successful and challenging encounters with partners.
- Key qualities of good tech partners: Ross advocates for building personal relationships and a test-run approach to ensure compatibility with tech partners.
“I guess what I would encourage folks to think about is that before you sign up with a dance partner, I may try to do a test run. Let’s do a project together on a very limited, finite basis. Let’s see how it feels, what works, and what doesn’t work.”
- Comparing tech partnerships – community banks and larger FIs: Ross contrasts Craft Bank’s approach with that of larger financial institutions, emphasizing the advantage of personal relationships in smaller banks. He acknowledges that while a community bank may not have the same resources as larger institutions, it can leverage personal relationships more effectively.
“Now I’m not going to tell you I’ve got an advantage over Jamie Dimon, but I will say that we can leverage [personal] relationships probably a lot more effectively than JPMorgan,” says Ross.
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Peruse the transcript
The following excerpts were edited for clarity.
Craft Bank’s growth and market position
We’re right at $250 million in total assets or as our Chief Lending Officer likes to call it, a quarter of a billion dollars, we are 90% a commercial bank. Not to say that we don’t offer retail products. We certainly do, but our primary focus is on businesses. So, if you’re a distributor, operating company, or professional firm like an attorney or a medical practice, if you’re a developer or a builder, and your revenues are, say, between $1 million and $30 million, we’re a great fit for you. We also are active in the SBA space.
The strategies at play to attract customers and scale the business
I would say it’s a combination of luck. I would say it’s a combination of we’ve got a great team, and I would say it’s our market.
Let’s talk about luck first. We did our capital raise when the pandemic was at its height, we literally started our capital raise in March of 2020 which everybody will remember was when Covid-19 exploded on the scene, and nobody knew which end was up. We paused for about 45 days from trying to raise capital, and then the board and management got together and said, alright, we don’t know how this is going to work out, but let’s move forward. So we opened in October of 2020. At that time, a lot of banks, understandably, were kind of in a lockdown mode with respect to growth-seeking deposits and weren’t really looking to expand. Well, obviously, as a new bank, we wanted to and needed to grow as quickly and as prudently as possible. So I would say, while Covid-19 was not luck, our timing was pretty darn good. Also, interest rates were at a historic low. We realized that and knew that interest rates could really only go in one direction, so we booked most of our loans. I’d say about 75% of our loans that we booked, we booked them at a variable rate, which meant, as the Fed increased its rates, we got the benefit of that increase as well. So there was that. That’s kind of the timing/luck factor.
In terms of our team, all of us have been doing this for a while, so we’ve each got fairly well-developed networks and contacts. We knew who to reach out to once we opened and so we were the beneficiaries of that as well.
I think the third thing I’ll mention is the market. Atlanta is a fantastic market. And when we were doing our feasibility study as to whether or not we should open, we realized a couple of things. One, a new bank had not opened inside the Atlanta city limits in like 15 years. So that was an opportunity. Also, if you go back 12 years, 27 community banks were headquartered inside the perimeter, inside the circle that rings Atlanta. When we opened, there were five. Today, there are three. So that kind of timing, I don’t want to call it luck, because I don’t want to minimize the impact of Covid-19, so I’ll call it timing. An experienced management team, a very supportive board of directors, and then a fabulous market all contributed to where we are today.
Why build a de novo bank instead of acquiring one?
We actually looked at that. We spent a lot of time looking at that. And frankly, the determining factor of starting a bank from scratch versus buying an existing charter or buying an existing bank came down to this – and I’ll do a quick diversion on the name “Craft”. It’s a great name. I love the name. One of my colleagues and co-founders, Beth Martin, actually came up with that name, and it’s intentional. As I said, we want Craft solutions because we’re looking to build around what our customers need and what we can deliver. That’s important, because that led to the determination to start from the ground up, which was harder, and took longer to get to cumulative profitability. However, we knew that we could build it from scratch and it would be ours, as opposed to going out and buying an existing bank or an existing charter where there are some legacy issues, perhaps there may be some loans that you might not have booked otherwise, or maybe it’s not a cultural fit, and culture is very important to us.
So, great question and that was something we looked at in-depth, and at the end of the day, we decided, let’s start and build it from the ground up.
Choosing tech platforms: Opportunities and hurdles
We invested a lot of capital in our platform and our core operating provider is Jack Henry. So it was interesting when we were deciding which products we wanted and which we needed, we also asked what I think is the very salient and important question, “Which products are we really going to use?” There was a data point that I came across when we were organizing and on average, banks use about 35% of their available technology. We didn’t want to be that bank. So if we’re going to pay for a product or if we’re going to pay for software, we wanted to all look each other in the eyes and say, yes, we will use it.
Originally, we signed on to utilize and purchase several products, and then we canceled those when we realized those aren’t really going to fit with how we do business, and there’s only so much technology you can use – there are only 19 of us. So it’s not like we’ve got thousands of employees who can devote themselves to learning, developing, and utilizing a platform, an app, or a piece of software. With only 19 folks, you’ve got to be committed to what you’re using.
Core traits for effective tech partnerships
We’ve kind of been on both ends of that spectrum. We’ve had some great, what I’ll call dance partners, and then we’ve had some dance partners that did not work out.
Let’s start with the not-good dance partners. We’ve come to the realization, and we’ve all looked at each other, and we’ve agreed bankers are not great technologists, not to say that we can’t use the technology, but we’re not great at it. Hence, my data point about 35% of technology gets used by banks. When looking for as I call them, a dance partner in the software or the technology space, you can do all the research you want, you can get backgrounds, you can get who are the last five customers you worked with, give us your references – let’s look at your SOC report and all kinds of documentation that you can look at – you really don’t know who your partner is until you’re actually working on a project. It’s just very, very difficult. It kind of goes back to my earlier comment about cultural fit.
I guess what I would encourage folks to think about is that before you sign up with a dance partner, you may try to do a test run. Let’s do a project together on a very limited, finite basis. Let’s see how it feels, what works, and what doesn’t work. Let’s have constant communication and then from there, go and see if we want to build something a little more complicated or involved. That’s a simplistic answer, but honestly, you don’t know who you’ve got until you’ve got it, right? So, there’s that on the good side, I think the benefit is, once you have that dance partner or those dance partners, it becomes more of a great relationship where you can be completely honest with each other: here’s what’s working, here’s what’s not working, here’s what I’d like to see change. Let’s brainstorm together.
We’ve got a couple of tech partners that I’ll meet regularly. We’ll go have a beer. Take your tie off, and take your coat off. Let’s talk. Let’s have a conversation. Let’s get to know each other. Let’s find out about our respective families. I’d say to try to get beyond the sterile you’re doing this and we’re paying you money for it. Let’s try to get into a more personal relationship, not that you’re going to be taking vacations together, but I think the more comfortable you can feel with somebody, the better you feel about picking up the phone and saying, ‘Hey, great job on this’. Or ‘This part isn’t working out so well – can we change course?’
Tech partnership approach: Community banks versus bigger FIs
I think it goes to what I was saying. I think most of the larger financial institutions with thousands of employees, multiple lines of business, and subsidiaries scattered throughout the country, if not the world, I think will have more of a sterile “hey, we’re going to sign you up, here’s the deliverable you need to have it on this date at this amount. We look forward to seeing it, and we’re going to provide X number of people to help you get the information you need on our side,” and that’s fine. That’s great.
Where we stand – we’re working on a project right now, and because of the personal relationship that we’ve developed, we’ve actually been able to enhance that project beyond the original scope of work. What has facilitated that are those free-flowing conversations where we’ve gotten to know each other. We can give each other a hard time. We can laugh together. We can get frustrated with each other, but at the end of the day, we know we’re working on a common goal and that feels good. So, I would say, to that extent, we’ve got the advantage. Now I’m not going to tell you I’ve got an advantage over Jamie Dimon, but I will say that we can leverage those relationships probably a lot more effectively than JPMorgan.
