2 min read December 2021 — During the last year, Keith Costello, president and CEO of Locality Bank IO, realized local, small businesses were an ignored segment. It was the start of the pandemic and many businesses were having a hard time getting their PPP loans. That is how the idea of his bank was born, as a digital-first entity focused on the local community. “It became clear to us that there was an overwhelming need for banks that were focused on our local businesses and the community,” he told Invest:.
How is Locality Bank different from other community banks?
One of the things that made it clear that what we were doing was needed in the market was the lack of attention that was given to the local businesses and companies in our market by the existing banks. This segment was ignored.
During the pandemic, I was getting calls from people about the PPP program and from former clients who couldn’t get money from their bank. I talked to other people who worked with me before and they were saying the same thing. Some of them were working in other banks and they said they were getting calls but that they couldn’t keep up with the volume.
It became clear to us that there was an overwhelming need for banks that were focused on our local businesses and the community. In 2015, the number of banks headquartered in Broward County was 11. In 2020, the number was just three. We’re headquartered here. To me, that makes a difference and I think it also makes a difference to a lot of local businesses because there is a difference between a bank that is just doing business here and a bank that’s headquartered here. The people who own the bank, the top decision-makers at the bank, the CEO, the chairman of the board — all those people are part of the community and that defines a community bank. I started talking to the business leaders in our community about the idea of doing another community bank and received overwhelming support. This was a year ago. By January, 2021, we collected $19 million in early subscriptions for stock and we raised $2 million for our pre-opening expenses. That gave us the validation to move forward with this project. We received our FDIC approval on Nov. 1, 2021. Our board has approved extending and increasing the stock offering after our maximum of $28 million was exceeded prior to our original November 15th deadline.
I knew that because of advances in technology and all the things that had changed in banking and fintech, what we needed were new solutions and new ways of doing business. So we embrace a digital model.
Are you considering physical locations as well or will everything be done online?
We will have a physical location but it will be a small footprint, a 2,300-square-foot office in Fort Lauderdale. It will look nothing like a bank. It will look more like a shared workspace. We don’t plan on having offices, a teller line or anything like that. It’ll be focused on customer interaction, giving people the ability to come in if they want to. We want to be able to provide the small-business market and local companies the resources they need to be successful.
What is driving banking consolidation?
In 2009, banks were failing because it was a very difficult financial time. Banks were disappearing. In the last five years, banks are still disappearing through acquisition. Here in South Florida, because it’s a very good market, several banks have been acquired. In the United States, you probably have 5,000 banks and there are four or five players that control the vast majority. These are trillion-dollar banks. There are a lot of banks in between the trillion-dollar banks and the smaller ones. The majority of banks are under $10 billion in assets. There are a lot of banks that are struggling because they don’t understand technology. The future is uncertain because they don’t have the capital or they cannot attract the required talent that is needed for growth.
How important is cybersecurity in the banking industry now?
It is probably one of the biggest risks for not just banks but every business, given the number of ransomware attacks and other cybersecurity threats that have occurred in the past year. One of our advantages is that we’re cloud-native, because a server is much more easily hacked if you’re using on premise servers for storage. Also, our Chief Technology Officer worked in cybersecurity for the Armed Forces before joining our bank.
One of the reasons the banking industry hasn’t seen any real large disruption in terms of cyber-attacks is because the banking industry is heavily regulated. Banks are under strict guidelines in terms of cyber-testing and making sure the systems are working. Penetration testing is being done continuously in the bank to make sure it’s safe.
The biggest threat for most banks and most businesses comes from human interaction and people who don’t understand how they’re creating risks for their businesses. Providing that education is always something that we’ve done in our banks. We want to educate our customers about cybersecurity. What should you be doing to protect yourself because usually, that’s where the threats are. It is more with our clients than with the bank itself.
What makes Broward County a great location to set up a business?
For me, it’s natural because I’ve been in Broward since 1985 so my roots are in Fort Lauderdale. It’s also where we’ve had two successful banks. In the future, we plan to spread out into other markets and we’d like to do that because we think the situation in Broward County is not isolated. All over the United States, there are communities where the same thing is happening, where you want to introduce local banking, to take care of that local market, the local customers and local businesses that have a hard time working with the largest financial institutions.
What’s your general outlook for the digital banking sector in the Broward market for the next couple of years?
I am positive about the future and what we’re doing with technology, especially in financial services. Broward County has such a positive future, with so many good things happening right now. We have some great leadership in Broward, we have just a tremendous business network and a great community of leaders. I feel confident about our ability to handle the challenges and continue to make South Florida a great place to work and continue to attract people.
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