James “Chip” Mahan did not set out to be a pioneer in the world of banking. It just sort of happened along his way. When he entered the industry after graduating with a degree in finance from Washington and Lee University, Mahan says he asked his boss one day, ‘How do you run a bank?’. The boss had no response.
“So I bought a book to learn about the assets, liabilities and income statement of a bank,” Mahan says.
After starting his career with Wachovia, Mahan rose to leadership positions in two other banks. He became Chairman and CEO of Citizens United National Bank and Trust Company in 1984, which eventually sold to BankOne Corporation. Eight years later, he took Cardinal Bancshares public as its’ CEO and Chairman. He broke new ground in the industry, though, by launching the first internet-only bank in the world, Security First Network Bank in 1995. An idea borne over a dinner conversation with his brother-in-law.
“We were at dinner one night and he said ‘this internet is going to be a big thing’,” Mahan remembers. “A couple glasses of wine later he described to me what it was. I had no idea what the internet was. I said ‘why don’t we put a bank on the internet?’ He said, ‘that’s stupid! You don’t want to do that. What we want to do is put Quicken on the web’.”
That evolved into a discussion about browsers and led to a visit with the founders of a new (at the time) company called Netscape. “We went to see (CEO) Jim Barksdale and (Founder) Mark Andreesen when they had eight employees,” Mahan said. “That’s about as early as you can get in the internet days.”
The bank sold in 1998, and by that time Mahan had become CEO and Chairman of S1 Corporation, a tech offshoot of Security First that provided software and services to banks. The venture proved wildly successful, landing in hundreds of financial institutions around the world. Mahan talks about the theory behind his newest success-story, Live Oak Bank, starting at 11:15 of the podcast. Live Oak rewrote the script of banking, eliminating branches and concentrating on loans to small business owners in specific sectors, like veterinarians.
“Think about reverse engineering the thesis of banks,” Mahan says about the concept. “So, if you’re the chief credit officer for XYZ bank in Wilmington, North Carolina, you need to know everything about those industries in your town. We basically said ‘let’s expand this to the United States of America. Let’s hire someone who has actually operated these businesses, have them own stock in our bank, advise our credit people. Then send out folks out there, because we recognize there are 28 million small businesses in this country that create 66 percent of the new jobs. So, you go on the plane, you go sit down with John.”
Mahan says Live Oak’s unique business model presented challenges during the process of opening the doors. Mahan says he met face-to-face twice with the head of the Federal Deposit Insurance Corporation trying to obtain the charter and deposit insurance. In May of 2008, the charter was granted. Months later, when the recession began to take hold on America’s economy, Live Oak began to struggle. Mahan recalls during the podcast that federal regulators ordered him to close the bank.
“We couldn’t sell a loan, and we were losing a lot of money,” he recalls. “The FDIC Chief called me and said, ‘I want you in my office tomorrow!’. She said ‘Mr. Mahan, I want you to sell or liquidate this bank’. I said ‘No ma’am. We have $140 million of commitments to female veterinarians, primarily, and we’re going to stay the course. You’ve got to do what you’ve got to do, but we’ve got to take care of our customers’. So, they backed down, and we’re still standing.”
In its’ first five years, Live Oak Bank jumped to #3 on the Small Business Administration’s list of the largest lenders of 7a loans. More importantly for Mahan, American Banker magazine has ranked Live Oak as the #1 “Best Bank to Work For” four straight years. He says Live Oak Bank, and it’s 2012 tech spinoff nCino, reflect the biggest lesson he’s learned over his career.
“It’s your folks,” he says. “You start with your folks, and you really, really spoil them. You talk about our place (Live Oak’s headquarters in Wilmington). We do pay at the top of the scale. We do have a six percent 401k match. Free, complete healthcare. We started off paying a fitness trainer for all our folks. We’re in the process of building a 25,000 square foot fitness center. We do have three airplanes that can make it to San Francisco in any conditions, so you can get home at night. What does that mean? That means you are important to me. If you hire like-minded folks, the last thing in the world they will do is let a teammate down. Then if you continue to treat every customer like the only customer in the bank, the shareholder is going to be just fine. Then success begets success.”
Mahan re-located to Wilmington when his wife Peggy, they have been together since age 11, was diagnosed with breast cancer. She underwent treatments at Duke Cancer Institute and is currently cancer-free. Mahan cites her when describing the challenges that he sees for the banking industry, presented by tech giants like Apple and Amazon.
“You’re going to see a sea change in the next five to ten years of banks fundamentally trying to offer fully digital products and services, and not be beholden to this incredible fixed-costs business they have today, which are branches, and tellers, and customer service reps,” he says. “How many times have you spoken to someone at the call center at Apple, at Uber, at Amazon? It’s all self-service, and it’s fully digital. My wife gets a package every day from Amazon for our granddaughters. She’s never spoken to a human being. So, if we in the banking business, the largest industry in the world of financial institutions don’t fix this, somebody else will.”
I asked Chip Mahan about his thoughts on Wilmington’s growth, and ability to grow its’ economy and tech sector. It’s part of a fascinating interview with one of the area’s true business leaders and entrepreneurs.
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