Bank development company A case study of community bank president leadership

BANK DEVELOPMENT COMPANY:
A CASE STUDY OF COMMUNITY BANK PRESIDENT LEADERSHIP
by
Leonard Zazula

TONI BUCHSBAUM GREIF, Ph.D., Faculty Mentor and Chair
JOHN HERR, Ph.D., Committee Member
KAREN BAMMEL, Ph.D., Committee Member

Bill Reed, Ph.D., Acting Dean, School of Business & Technology


A Dissertation Presented in Partial Fulfillment
Of the Requirements for the Degree
Doctor of Philosophy


Capella University
June 2009





UMI Number: 3359046

Copyright 2009 by
Zazula, Leonard


All rights reserved




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© Leonard Zazula, 2009

Abstract
This study was designed to explore the traits, skills, and characteristics of
community bank presidents essential to achieving superior performance in their
profession. Qualitative research was conducted through a phenomenological case study
and examined the lived experiences of 20 community bank presidents; data included
corporate documents and researcher observations. The individual thoughts, perspectives,
feelings, and beliefs of the community bank presidents elicited candid insight into
development, training, interaction, and practices that were utilized for career
advancement and attaining superior performance for the community bank. Emergent
themes were revealed during the data coding and analysis. Decisiveness, community
involvement, team building, family, values, listening, relationship management, and work
ethic surfaced throughout the analysis. When the themes were synthesized and weighed
against extant theory, the case study confirmed the effectiveness of defined leadership
qualities. Utilizing relationships established through effective interaction with customers,
employees, board members, and regulators, combined with core values, provided the

foundation for success. The study exposed the need to remain cognizant of changes in
market and economical environments that affect community banks, to remain competitive
and excel.

Dedication
This dissertation is dedicated to my family. My parents, first and foremost, helped
instill the ethics and values that I would carry with me throughout my life. The love and
support they provided allowed me to face challenges and not be afraid to tackle tasks that
seemed out of reach. I thank them for setting the foundation that served as a springboard
for curiosity, tenacity, and an overactive desire to take the path less traveled, regardless
of the sacrifices necessary to succeed. My grandparents, aunts, and uncles worked hard
throughout their lives but knew how to enjoy life. As a result, I too can find pleasure in
those facets often overlooked in the hectic struggles we all face.
To my beautiful bride, Sandy, thank you for your understanding and tolerance.
While this task has been all consuming at times, I recognize this will not be the last time I
will place high demands on myself and you. I look forward to the future and the time we
will share as one.
To my children, thank you for allowing me to get a hint of fatherhood. Please use
this dissertation as a reminder that all things are possible with the proper attitude and
dedication.
To Aubrey, thank you for creating the time to initiate this project and keeping me
young by allowing me to see through your eyes and feed off your insatiable energy. I
love you all.

iii
Acknowledgments
Until the process of completing a dissertation is attempted, the course of action
cannot possibly be anticipated. Much like my hobby of climbing mountains, the vision of
the event and the execution are not always in synch, and the needs to prepare, investigate,
adapt, trust your equipment, and persevere become paramount. Physical and mental

abilities are challenged beyond expectations and completing the task as an individual is
highly improbable. Depending on a team of experts to extract your full potential is
essential to completing a successful expedition. To that end, I wish to recognize my
dissertation mentor and committee chair, Dr. Toni Buchsbaum Greif, to whom I have
been roped throughout this journey. Her unending support, encouragement, advice,
alternative recommendations, and confidence provided a source of strength necessary to
continue my advancement over torturous terrain. While attempting a difficult alpine
ascent in the Northwest Cascades, a seasoned climber commented that he had been
watching me, and even on the most complex glacial conditions, I had not taken a wrong
step. I aspired to perform as admirably in this venture and I recognize Dr. Greif for
allowing me to perform at this scholarly level in a sure-footed manner.
Special thanks to Dr. Bammel and Dr. Herr for their assistance in my transition to
scholar-practitioner and this next phase of my development.
I would also like to recognize the Bank Development Company and its CEO and
affiliate presidents for providing the resources to assist in completing this project, but
more importantly, accepting me into an organization that has allowed me to develop
alongside it. I am proud of our accomplishments and look forward to overcoming future
challenges.
iv
My expert team has been comprised of Linda M., and her tireless editing prowess,
Donna Green, churning out transcripts as fast as I could provide files, William Douwes,
for keeping me focused, and Cheryl Clark and Jennifer Adams for assisting with
technical support and software applications. All of these individuals contributed to this
endeavor, and I needed all of them as part of my team.
Finally, I need to recognize those individuals that paved the way for me through
the monthly mentee conference calls. Those glimpses into their progress generated
inspiration and convinced me that completing this goal was not beyond my realm of
possibilities.

v

Table of Contents
Acknowledgments iv
List of Tables ix
List of Figures x
CHAPTER 1. INTRODUCTION
Introduction to the Problem 1
Problem Statement 2
Purpose of the Study 3
Research Questions 3
Nature of the Study 5
Significance of the Study 6
Definition of Terms 7
Assumptions and Limitations 9
CHAPTER 2. REVIEW OF LITERATURE 11
Introduction 11
History of Community Banks 12
Community Bank President: Persona 16
Defining the Elements 21
Leadership Theory 22
Trait Theory 27
Contingency Theory 30
Situational Leadership Theory 31
Path/Goal Leadership Theory 34
vi
Transactional Leadership Theory 35
Transformational Leadership Theory 37
Conclusion 39
CHAPTER 3. METHODOLOGY
Purpose 41
Research Questions 41

Conceptual Framework 43
Qualitative Research Methodology 44
Support Systems 45
Case Study 46
Phenomenological Approach 47
Setting 50
Data Collection 51
Data Descriptions 55
Pilot Study 58
Ethical Issues 59
CHAPTER 4. DATA COLLECTION
Introduction 61
Research Process 61
President Profiles 62
Organizational Vision and Core Values 63
Background of Bank Development Company 64
Leadership Styles and Self-Assessment 64
vii
Research Questions 65
Interview Questions 66
Background and Preparedness 67
Sustaining and Improving the Model 74
Leadership Skills 77
The Learning Process 83
Changes in Community Banks 86
Regulatory Interaction 88
Overcoming Challenges 89
Influences on Leadership Style 90
Qualitative Analysis 92
Clusters and Patterns 94

Mapping Themes 114
Summary of Data 132
CHAPTER 5. ANALYSIS
Introduction 134
Emerging Themes 137
Leadership Theory Discussions 154
Summary 158
Conclusions 162
Limitations of the Research 163
Recommendations for Further Research 163
REFERENCES 167
viii
APPENDIX A. FDIC STATISTICS ON DEPOSITORY INSTITUTIONS 182
APPENDIX B. INTERVIEW PROTOCOL 185
APPENDIX C. DEVELOPMENTAL CHARACTERISTICS AND RESULTING
APPLICATIONS 187
APPENDIX D. INTERVIEW CODE FREQUENCIES 189
APPENDIX E. UNDOCUMENTED CHARACTERISTICS 191

ix
List of Tables

Table 1. Bank Performance Report Elements 20
Table 2. Bank Development Company Performance Elements 20
Table 3. Primary Banking Management Responsibilities 65
x
List of Figures
Figure 1. Situational leadership II model 33
Figure 2. Successive clusters and themes 91
Figure 3. Decisiveness input codes 115

Figure 4. Community involvement input codes 117
Figure 5. Team building input codes 120
Figure 6. Family input codes 122
Figure 7. Values input codes 125
Figure 8. Listening input codes 126
Figure 9. Relationship management input codes 128
Figure 10. Work ethic input codes 130



xi


CHAPTER 1. INTRODUCTION

Introduction to the Problem
The value of financial institutions within the United States is determined by
quarterly performance as compared to expectations of analysts. During eras of economic
uncertainty, the importance of results is magnified and subject to industry scrutiny. The
current credit crisis, fueled by the practices of sub-prime lending, abandoning traditional
underwriting, and credit scoring in favor of stated information has eroded billions of
dollars from the capital of financial institutions (Enrich, Smith, & Paletta, 2008). The
resulting foreclosures, asset maintenance of real estate acquired as collateral, and the
inability to lend new dollars, as funds are unavailable, has created an unhealthy
environment for many banks. Treasury Secretary Henry Paulson proposed sweeping
changes that would remodel the system of U.S. financial regulation, built piecemeal since
the Civil War (Paletta, Ip, & Phillips, 2008).
While large regional banks cut thousands of jobs to improve their bottom lines,
smaller commercial banks had fewer options available to them. Selecting the appropriate
bank president to avoid difficult situations provided the strongest line of defense. An

objective of the current research was to explore the management and leadership of
community bank presidents in an effort to characterize performance and the ability to
deal proactively with changing markets and demands. More specifically, the study was
1
designed to examine the success factors of community bank presidents from a particular
Bank Development Company (BDC), a pseudonym, utilizing a framework to garner
insight and opinion of front line individuals.
Bank Development Company has over 60 banks affiliated through common
ownership and has plans to double that number in the next several years (Annual Report,
2007). Developing additional start-up banks, referred to as de novo banks because they
are fully organized from the bottom up, requires securing regulatory approval, facilities,
capital, and staffing, as well as necessary support functions. Bank Development
Company prefers such organizations because their corporate culture and methods of
operations can be grown and implemented from inception. After providing the resources
to acquire the necessary elements, a newly formed de novo bank becomes a fully
functional institution, left in the hands of the community bank president.

Problem Statement
Bank Development Company, a community bank holding company, has
experienced significant growth, while expanding the existing geographic footprint by
creating banks affiliated through common ownership, management, and policies. Bank
Development Company finds itself dependent on affiliate performance results to generate
the income necessary to accomplish its goals and satisfy its investors. Criteria for
selecting the appropriate individual to lead the community banks are based on speculation
and perceived experience, with no guidelines or assurances. Literature addressing trait
theory (Bernard, 1926; Horner, 1997), situational leadership theory (Hersey & Blanchard,
1969), and path/goal theory (House & Dessler, 1974) is plentiful; whether such theories
2
apply to evaluating community bank presidential leaders' success was the focus of this
case study research. Valuable insights regarding the selection, training, and development

of community bank presidents were also realized.

Purpose of the Study
The purpose of the study was to explore the management and leadership traits,
characteristics, skills, and personalities of high-performing community bank presidents
by researching their lived experiences (Van Maanen, 1988). Identifying commonalities
that translated into high performance was sought, as determined by various peer group
analyses. Standards were based on as the Financial Accounting Standards Board (FASB
Financial Accounting Standards Board [FASB], 2007) ratio known as return on equity
(ROE); Federal Deposit Insurance Corporation (FDIC Federal Deposit Insurance
Corporation [FDIC], 2007) regulatory grading, commonly referred to as CAMELS
ratings of safety, soundness, and compliance; and various performance measurements
identified by the BDC.

Research Questions
The inherent nature of the social sciences involves identifying information
through data collection. In particular, the current study was intended to examine potential
leadership traits, characteristics, skills and personalities in community bank presidents.
The use of a qualitative means to collect the input from lived experiences (Van Maanen,
1988) of those serving in the capacity of community bank president allowed this analysis.
The following research questions guided the research:
3
1. Why do some community bank presidents consistently outperform the
competition? What can be learned from these individuals?

2. Can mechanisms be established to improve the selection process for
community bank presidents who possess the desirable traits,
characteristics, skills, and personalities for success?

3. Can such findings be generalized to allow for applicability across diverse

disciplines?

The research questions were selected with the intent of encouraging the sharing of
community bank presidents’ lived experiences in order to acquire information for a clear
understanding of the phenomenon that cannot be identified in the literature. The literature
and its proposed theories do not adequately provide sources to establish a determination
of assessing or identifying the management and leadership traits, characteristics, skills,
and personalities of community bank presidents. For example:
1. What are the factors that allow community bank presidents to transition
from manager to community bank leader?

2. Are there specific traits and characteristics that can lead to success as an
affiliate community bank president? Can these be identified?

3. Based on the experiences of successful community bank presidents, can
these traits and characteristics be utilized by other organizations?

4. Are there personality traits that translate to high-performing community
bank presidents?

5. Are there traits, characteristics, and skills that translate to high-performing
community bank presidents?

6. How can community bank presidents differentiate themselves from their
competition?



4
Nature of the Study

The current case study utilized a phenomenological approach to develop a method
of identifying community bank president candidates with the necessary managerial and
leadership traits, characteristics, skills, and personality, who can purposely (Scharmer,
2002) impact their communities while increasing the bottom line of the corporation. The
use of phenomenology and the attempt to capture information directly from individuals
serving as community bank presidents offers the opportunity to address those areas that
could provide the greatest influence in determining commonalities among them. Isolating
traits, characteristics, skills, and personalities found in current community bank
presidents was important to the study.
Traits distinguish qualities of a person, and character is the sum total of the traits
possessed. Skills are the abilities, information, and knowledge gained throughout life and
utilized to hone personality, which displays the outcome of mixing the elements.
Combining such factors with the ability to translate them into bottom line results while
positively impacting the community further define the nature of the study.
Bernard (1926) opined that great leaders must possess attributes that differentiate
them from followers and that it was possible to isolate the internal qualities they held at
birth. By identifying the traits, individuals may be assessed and subsequently placed into
the appropriate position. More recently, the idea of trait theory has reemerged and traits
have been thought to play a significant role in determining leadership efficacy.
Kirkpatrick and Locke (1991) identified six specific traits that distinguished leaders from
non-leaders. Krulak (1998) identified 14 traits of effective leadership, applicable not only
from a military standpoint, but across the successful business spectrum. Vardallas (2006)
5
observed trait similarities among effective CEOs, and Warren (2006) narrowed the traits
down to four: (a) muster courage to create change; (b) share the vision to know where
you are going, why you are going there, and how you are going to get there; (c) possess a
sense of reality to limit possibilities and weigh alternatives; and (d) lead through
personal, corporate, and employee values. The current research obtained additional
knowledge regarding trait theory by addressing proven leaders in a very specific and
measurable environment.

The perspective of focusing on traits suggests that leadership might be explained
by those internal qualities that a person is born with (Bernard, 1926), prompting
investigators to attempt to isolate those qualities: Are traits in the genes or drawn from
the environment? In most fields of endeavor, the innate abilities of an individual cannot
totally explain leadership aptitude; motivation, training, and coaching also may have an
impact on the outcome (Horner, 1997). By working with a homogeneous group of high-
performing bank presidents, the ability to draw commonalities through conversation
offers an opportunity to clarify and enhance the importance of trait theory.

Significance of the Study
Bank Development Company depends upon the performance of affiliate banks to
support expansion, capital growth, and ongoing investor interest. The ability to apply
leadership theories to evaluate current and select future community bank presidents
provided the challenge of the current study. The survival of the BDC rested in the hands
of these individuals. The ability to perform, particularly in times of significant
economical challenges, becomes a critical element of sustaining the path to further
6
development. The outcome of the current study provided insight to the selection or
replacement of community bank presidents regarding recognition of their abilities of
managerial and leadership traits, characteristics, skills, and personalities while attaining
high performance for their organization. The accompanying challenges to existing
leadership may foster new practices for performing at a higher level.

Definition of Terms
Community bank. The FDIC identifies such banks as typically having less than $1
billion in assets.
De novo bank. The regulatory agencies identify this chartered institution as one
that has been approved by the appropriate regulators and has been operating for less than
5 years. De novo banks include only new banks built from the ground up, rather than
banks created from existing branches or institutions.

Federal Deposit Insurance Corporation. The Federal Deposit Insurance
Corporation (FDIC) preserves and promotes public confidence in the U.S. financial
system by insuring deposits in banks and thrift institutions to at least $100,000; by
identifying, monitoring, and addressing risks to the deposit insurance funds; and by
limiting the effect on the economy and the financial system when a bank or thrift
institution fails. An independent agency of the federal government, the FDIC was created
in 1933 in response to the thousands of bank failures that occurred in the 1920s and early
1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a
single cent of insured funds as a result of a failure. The FDIC receives no Congressional
appropriations; it is funded by premiums that banks and thrift institutions pay for deposit
7
insurance coverage and from earnings on investments in U.S. Treasury securities. With
an insurance fund totaling more than $49 billion, the FDIC insures more than $3 trillion
of deposits in U.S. banks and thrifts–deposits in virtually every bank and thrift in the
country (FDIC, 2007).
Financial Accounting Standards Board. Since 1973, the Financial Accounting
Standards Board (FASB) has been the designated organization in the private sector for
establishing standards of financial accounting and reporting. Those standards govern the
preparation of bank financial reports and they are officially recognized as authoritative by
the Securities and Exchange Commission (Financial Reporting Release No. 1, Section
101 and reaffirmed in its April 2003 Policy Statement) and the American Institute of
Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May
1973 and May 1979). Such standards are essential to the efficient functioning of the
bank's economy because investors, creditors, auditors, and others rely on credible,
transparent, and comparable financial information (FASB, 2007).
Peer group analysis. An industry accepted comparison of the performance of
banks based on a commonality such as asset size, age, or full-time equivalents (FTE).
The Uniform Bank Performance Report (UBPR) is an analytical tool created for bank
supervisory, examination, and management purposes. The UBPR is designed to display
the impact of management decisions and economic conditions on a bank's performance

and balance sheet composition in a concise report format. The performance and
composition data contained in the report can be used as an aid in evaluating the adequacy
of earnings, liquidity, capital, asset and liability management, and growth management.
Individuals can use the report to further their understanding of a bank's financial
8
condition. A UBPR is produced for each commercial bank in the United States that is
supervised by the Board of Governors of the Federal Reserve System, the FDIC, or the
Office of the Comptroller of the Currency. The UBPRs are produced for FDIC insured
savings banks, as well. The report is computer-generated from a database derived from
public sources and contains several years of data, which are updated quarterly. Those
data are presented in the form of ratios, percentages, and dollar amounts computed
mainly from Reports of Condition and Income submitted by the bank. Each UBPR also
contains corresponding average data for the bank's peer group and percentile rankings for
most ratios. The UBPR therefore permits evaluation of a bank's current condition, trends
in its financial performance, and comparisons with the performance of its peer group
(FDIC, 2007).

Assumptions and Limitations
The primary limitation of the research was the use of a single case (Yin, 2003)
because all the presidents were affiliates with the same BDC. The unique nature of the
BDC and restricted size of the interview pool may have limited the applicability of the
observations, since identical circumstances may not be found within the banking industry
or within other industries, which may have limited the study's generalizability (Miles &
Huberman, 1994). The narrow range of de novo banks established, coupled with even
fewer bank holding companies, may limit the applicability of the current case study. The
insider perspective of the researcher, as a BDC executive officer, may also be perceived
as a limitation. Finally, it was assumed that data collected and analyzed through affiliate
9
bank presidents lacked personal agendas and contained honest responses, and that the
questions utilized provided significant value to analogous organizations and researchers.

10


CHAPTER 2. REVIEW OF LITERATURE

Introduction
Leadership literature covers a wide expanse of diverse theories, processes, and
sources. From earliest recorded literature, man has questioned what traits separate
individuals from each other. Since the writings of the ancient Greeks, theorists and
philosophers have questioned why great leaders are great. Such are the themes of Homer
and Aeschylus. Consensus in modern theory began with a criticism of Carlyle’s
postulates of the “great man” theory. As both an academic study and as a professional
career endeavor, the search and classification of the components that comprise superior
leadership have filled libraries and fueled a consultant industry. Since the end of World
War II, the corporate world’s strong demand for superior leadership has spawned
numerous disciplines and expansive research endeavors in the search to understand the
phenomena, its components, its personality, and its values.
Effectiveness of leadership cannot be represented or applied by a single broad
swath painted by one brush alone. Effectiveness of leadership requires specificity in its
application. Effectiveness can manifest in several ways, dealing with employee moral and
commitment to financial performance. Today's leaders are expected to convert such
effectiveness into performance by establishing purpose within the organization and
defining the purpose in terms of creating value for stakeholders while implementing
11
emerging strategies (Dhar & Mishra, 2001). Leaders are expected to develop people by
creating contexts in which each individual within the company strives to be the best
(Ghoshal, Piramal, & Bartlett, 2000). Leadership effectiveness should also be cognizant
of the dynamics embedded within the social system (Dachler, 1988) and the maturity to
develop and maintain cooperative relationships with subordinates (Yukl, 1998).

Leadership is an applied attribute. Its application is customized by specific
industry criteria with industry specific outcomes. The qualities desired and cultivated by
distinct institutions that train military combat officers, United States Military Academy,
Reserve Officers Training Corps, and Officers Candidate School, do not necessarily
instill the same leadership qualities that multinational bank training programs stress.
Some leadership characteristics are universal; others remain applicable only to specific
areas of endeavor.

History of Community Banks
The review of literature attempted to understand the expansive literature of
leadership from historical, academic, and corporate efforts as applied to a specific narrow
industry: that of the community bank and its leadership profiles. The community bank is
an institution in the United States of America that has flourished. Community bank is no
misnomer, as the institutions supply and support most of the financial products and needs
of the American communities served by the banks, whether that community is a
neighborhood in an inner city, a small town in suburbia, or a community on the Great
Plains. In 2007, The FDIC emphasized the community banks’ criticality to American
12