Dana Kilborne isn’t sure why more wealth management firms don’t charter banks. She thinks it’s a great idea.
“It’s a natural fit,” Kilborne, who serves as CEO at Cypress Trust in Palm Beach, Florida, said in an interview. “Perhaps it’s because there are more barriers to entry on the bank side in terms of capital and regulation.”
Cypress has moved a big step closer to finalizing its plan to convert to a community bank, announcing Thursday that state officials have approved the charter application it filed in August 2020. Cypress’ application for deposit insurance is still pending with the Federal Deposit Insurance Corp., but it expects to open as Cypress Bank and Trust in the fall with branches in Palm Beach, Vero Beach, Jacksonville and Melbourne.
“It’s certainly a very unique opportunity to open a de novo bank inside of a profitable existing trust operation with a 25-year history,” Kilborne said.
Cypress, which opened in 1996 and had $1.1 billion of assets under management at March 31, also maintains offices in Winter Haven and Naples. They won’t convert to branches, but the company will offer banking services in both markets, Kilborne said.
Cypress’ bid to charter a de novo community bank comes as existing banks continue to target wealth management firms for acquisition.
Earlier this month, the $6 billion-asset Peapack-Gladstone Financial in Bedminster, New Jersey, acquired a wealth management firm in Princeton. The $18.6 billion-asset United Community Banks in Greenville, South Carolina, also announced a deal, for a Greenville-based investment advisory firm, in May.
Instances of traditional wealth management firms proceeding the other way and obtaining bank charters are rare, said James Barresi, a partner and head of the financial services practice at Squire Patton Boggs in Cincinnati.
“Most wealth managers don’t have the origination platform to leverage deposits,” Barresi said. “It requires someone who can raise the capital, create a platform to originate assets and who can properly underwrite and administer loans.”
Kilborne, who has served as Cypress’ CEO since 2018, spent most of her 36-year financial services career in banking, including at Prime Bank in Melbourne, Florida, which she helped found in 2004 and ran for six years until its sale to Florida Bank of Commerce.
“If I had done another straight-up de novo, it would have been with trust powers,” Kilborne said. “We know from our prior experiences what our clients often needed when their businesses got to a certain stage — a trusted advisor to help them with a liquidity event.”
John Marino, Cypress’ president and chief financial officer, also has an extensive banking background.
“In this case, we had an opportunity for veteran bankers and a legacy trust company to talk about how interesting this could be,” Kilborne said. “It just sort of developed.”
Ken Thomas, president of Miami-based Community Development Fund Advisors, said Cypress’ move into banking makes sense given the ongoing influx of wealth — and wealth management firms — into Florida.
“It gives [Cypress] a lot of additional flexibility,” Thomas said of the company’s conversion plan.
Thomas called South Florida “one of the five best banking markets in the country,” but it is not without problems, he said. “Affordable housing is a huge issue. … Any new bank is going to have to play by the rules all the other banks follow, especially the Community Reinvestment Act.”
Having a solid wealth management unit in the fold on day one will give the planned Cypress Bank and Trust a huge leg up, Barresi said.
“In a low-for-long interest rate environment, most community banks are looking hard for capital-light sources of fee income like wealth management,” Barresi said. “It’s a struggle for banks to build that.”
While Cypress’ path to a community bank charter may be unusual, it’s business plan is conventional. It expects to target the owners of small and midsize businesses as well as professionals.
“Many of our existing clients will avail themselves of banking services,” Kilborne said. “When we focus on business owners and professionals, they often look for trust solutions as they approach liquidity events in their businesses.”
Cypress is one of five groups seeking to open banks in Florida. The planned Climate First Bank in St. Petersburg received conditional FDIC approval for its deposit insurance application in March.
That same month, a group led by Keith Costello, former president and CEO at First Green Bank in Orlando, filed to charter a de novo bank in Fort Lauderdale.
The influx of people and businesses moving to Florida make this an opportune time to start a bank, according to Kilborne.
“Florida is on fire,” Kilborne said. “The state is certainly a destination.”