Net income for the state’s community banks skyrocketed from $255 million in 1992 to $1.6 billion 10 years later. In 1992, community bank equity capital totaled slightly more than $2 billion; by the end of 2002, it had climbed to $12.5 billion.
Banking R O Eye Community banks are generating sizable profits by seeing big potential in small places Learn more: Small banks invest in big marketing schemes NCCBI, NCBA plan economic forecast event

By Jerry Blackwelder

In 1932, as the Great Depression ravaged the American economy, a young Lebanese immigrant walked into Granite Quarry’s Farmers and Merchants Bank. Having already been rejected by several other area banks, he wasn’t optimistic F&M would loan him the $600 he needed to buy a truckload of lemons to start a produce business. But bank president J.E. Fisher saw potential in the idea and agreed to a 90-day loan.

Elias Saleeby didn’t need that long. Two months later, he returned to the bank and paid off the loan in full — with interest. Saleeby went on to become one of Rowan County’s leading businessmen and philanthropists, but he never forgot Fisher, who died in 1968. Saleeby became the bank’s longest-running customer, and even served on its board of directors. In 1998, two years before his death, Saleeby donated nearly $2 million in stock to help build a new YMCA for eastern Rowan County. With that contribution, he said, “I feel that I finally paid off that debt.”

Similar stories are told throughout North Carolina in cities and towns large and small. Investing in start-up businesses has become a hallmark of the state’s community banks.

“Community banks breed entrepreneurialism,” says Bill Long, president of Yadkin Valley Bank in Elkin. “I can take you to businesses in every market we serve that wouldn’t be open today without a community bank.”

Paul Fisher followed in his father’s footsteps and now serves as chairman and CEO of the renamed F&M Bank that provided the original capital for Elias Saleeby. The bank’s philosophy, he says, is simple. “If you don’t fertilize the soil, you won’t harvest the crops.”

The appeal of local decision-making authority has served the community banks well as business incubators, along with the fact that in most instances they know their customers personally. “We’ve helped a lot of people and we spend a lot of time counseling them, especially in weak economic times like the present,” says John Forlines of the Bank of Granite, the dean of community bankers in the state with more than 60 years of experience. “There’s no question but that big banks are more interested in big companies, but we still consider our bread and butter business to be small commercial and personal accounts.”

In addition to their willingness to partner with entrepreneurs in start-up companies, community banks have developed a strong reputation for exemplary personal service. Fisher’s employees are trained to “provide service quality exceeding expectations,” he says. “Give it a tad more and it makes a huge difference.”


A Continuing Cycle

The North Carolina banking landscape today is significantly different from the one that existed two decades ago. Tar Heel-born banks are now major players on the national scene, having absorbed many community banks along the way to spur their growth. Once they had acquired the necessary resources to move beyond the state borders, Bank of America, First Union, Wachovia, BB&T and others looked to expand into new opportunities in other states.

That left existing community banks in the fortunate position of being able to buy branch offices closed after the mergers of their larger competitors. The merger of First Union and Wachovia, among others,  also paved the way for new start-up community banks, which often took up residence in former branch offices.

“I’ve seen it over and over again,” says Paul Stock, longtime executive vice president of the North Carolina Banker’s Association. “When banks are acquired, a new bank springs up. Some people want to deal with local control, and acquisitions mean freed-up able and willing investors, board members and employees to launch a new bank.”

As proof, Stock notes that a significant number of the state’s community banks did not even exist as recently as five years ago. “I see no reason to believe there won’t always be a place for well-run community banks in North Carolina,” he says. “Some people want highly personal service. They want to be able to sit down with the president of the bank and know decisions are made right there. Community banks fill that need.”

Although the overall number of community banks hasn’t increased dramatically over the past decade, they have seen impressive growth in the key measurement categories of assets, net income and equity capital. According to David Hanson, North Carolina’s deputy banking commissioner, there were 63 state-chartered community banks operating in 1992. Five years later that number had shrunk to 51, and at the end of 2002 stood at 86, a figure bolstered by 22 savings banks recently placed under Banking Commission regulation. During those same 10 years, assets more than quadrupled, from $25.5 billion in 1992 to $117.7 billion at the end of last year.

Further, net income for the state’s community banks skyrocketed from $255 million in 1992 to $1.6 billion 10 years later. Equity capital also saw the greatest jump in the last decade. In 1992, community bank equity capital totaled slightly more than $2 billion; by the end of 2002, it had climbed to $12.5 billion.

Greensboro-based Carolina Bank was formed seven years ago this November. Its president, Bob Braswell, feels the competition between large national banks and community banks in the same marketplace “makes us operate smarter and more efficiently.” He adds that most community bankers, including himself, were trained by larger institutions, plus “with the technology available today, community banks can offer every banking service the typical customer might need.”

One need the banks continue to fulfill comes in the form of loans to commercial and individual customers. And while many maintain that the Federal Reserve Board’s insistence on keeping interest rates low has made their jobs more difficult, the banking industry overall is extremely healthy.

“The profitability for banks in general is at an all-time high,” says Dr. Harry Davis, professor of finance at Appalachian State University and an economist for the North Carolina Bankers Association (NCBA). The first quarter of 2003 was the most profitable on record nationally, Davis says, following a record-breaking year for profits last year.

And like the rest of the country, North Carolina’s community banks “did very well,” notes Hanson. “Bankers are very resourceful people. They compensated by boosting their non-interest income in areas like insurance. More smaller banks are getting into insurance, and more are starting out offering insurance products. They’re being flexible and resourceful.”

An example of a resourceful bank is Elizabeth City’s Gateway Bank. President Ben Berry says that “with declining interest rates, maintaining and increasing net interest margins has been a challenge. Banks have to diversify their revenue stream.” Gateway did that, Berry notes, by purchasing several local insurance agencies and thus becoming a dominant player in the regional insurance business.


Laws Allow Growth

One reason for the continuing success of North Carolina’s community banks, Hanson says, is the latitude allowed by the state’s banking laws. Even though most of the regulations governing banks date from the 1930s, he points out that North Carolina community banks always have been allowed to establish branches anywhere in the state, which some states still don’t have in place. Banks also have had the authority to offer insurance and other financial products among their services.

The result, Hanson says, is that “North Carolina banks have been allowed to grow while other states’ banks have been hindered,” earning the state’s banking community recognition as one of the strongest in the nation.

North Carolina community banks also have latitude to cross state lines in establishing branch offices, thanks to reciprocal agreements with neighboring states. An example is Gateway Bank. Since opening its first office less than five years ago, Gateway has expanded throughout the rapidly growing Outer Banks region and into the population-rich areas of Norfolk, Chesapeake and Tidewater Virginia.

Because of the flexibility accorded community banks in North Carolina, institutions have found creative ways to grow their business and market share. Yadkin Valley Bank opened its doors in Elkin in 1968, and expanded its territory through acquisitions into neighboring markets in Surry, Wilkes, Yadkin, Ashe, Iredell and northern Mecklenburg counties. Along the way the bank has carved a niche as a small business lender, earning repeated kudos from Entrepreneur Magazine for its business-friendly attitude.

Carolina Bank has expanded its operation to three offices in Greensboro and has a branch office in neighboring Asheboro currently under construction. A half-hour down the road, Lexington State Bank has grown to 23 offices spread across Davidson, Forsyth, Guilford and Stokes counties. The bank, which opened in 1949, also controls two non-bank subsidiaries, People’s Finance Co. of Lexington and LSB Investment Services Inc.

But not all community banks have had to branch out in order to grow. By focusing on service to Rowan County, F&M Bank has achieved dominance in a very competitive market. Paul Fisher credits much of the bank’s success to reinvestment in the community the bank serves, with sponsorships and high visibility at public events and major contributions to the area’s colleges and non-profit organizations.

The Bank of Granite has succeeded on both fronts. It attracted worldwide attention after legendary financier Warren Buffett proclaimed it “the best bank in America.” John Forlines relates that Buffett was impressed “because of consistent, steady earnings and increased cash dividends to shareholders.” Buffett’s comments resulted in a rush to buy shares of the company by investors across the country.

Until recently the Bank of Granite concentrated its focus in three western North Carolina counties — Caldwell, Catawba and Burke. But after watching the decline of the region’s traditional furniture, textile and fiber optics industries and resulting record unemployment (Greater Hickory’s is more than 10 percent), the bank looked to new areas for growth. The recent acquisition of a Charlotte-based bank serving Mecklenburg County and the establishment of offices in Wilkes and Watauga counties opened new territories for the bank in areas less hard-hit by unemployment.

The pattern of community banks acquiring other banks is not new to North Carolina. In fact, it was the formula for success for Wachovia, BB&T, CCB and other nationally known institutions. But ASU’s Davis does not foresee another group of superregional banks emerging anytime soon. Acquisitions by the state’s largest banks resulted in “not as many assets to be acquired,” he says. Additionally, Davis expects competition to increase from out-of-state banks. “The North Carolina economy, despite its problems, is still strong, and a number of banks would like to come into the state because of that.”

Davis also predicts the state will enjoy another round of start-up banking institutions, a forecast based on a combination of factors. “The stock market has found traction, there are many displaced bank employees, and still some good markets available,” he says.

A spurt of growth in the establishment of new community banks would reverse a trend the state has experienced since 2000. Through the 1990s, according to Hanson, the deputy banking commissioner, the number of de noveau banks averaged seven to nine a year. In 2000 the state chartered three new banks and has not eclipsed that number since. Given the mergers and consolidations that have taken place thus far in the 21st Century, “we’re starting to lose banks to merger faster than we are chartering new ones,” Hanson says.


Remaining Focused

Community banks continue to face a number of challenges in their efforts to gain market share and increased earnings for shareholders.

Foremost, Yadkin Valley Bank’s Long believes, is to remain true to the bank’s original mission. “We cannot lose sight of the community we serve, and make decisions according to what’s in its best interest,” he says. “We don’t want to develop a big bank mentality, and the way to do that is by keeping our focus on our markets and their needs.”

Braswell of Greensboro’s Carolina Bank agrees, citing “our one-on-one service approach” as one of the bank’s best selling tools. “With big banks,” he says, “service is an economic issue. They want to assess a fee to personalized service, and it’s an extremely big revenue source.” Braswell adds that his bank is always open to expansion to additional sites, such as the recent move to Asheboro, but “we’re proud to be in Greensboro and feel we have plenty of room to grow.”

Likewise, Fisher of F&M Bank strives to maintain the community spirit that brought the bank to the position of market dominance in Rowan County. One facet that keeps the bank on its toes is that “our data processing system has to be as good or better than anyone elses” in order to maintain customer satisfaction.

Successful companies don’t stand still. The establishment of bank holding companies for the purpose of acquiring other community banks and launching new ones is a recent development that’s testament to long-range vision. Hanson cites as an example the Uwharrie Holding Co., which owns the Bank of Stanly. It recently acquired Anson Bank and Trust Co. and is launching a new bank in Concord to be known as Cabarrus Bank and Trust, scheduled to open later this year.

“Successful community banks have always been able to find their way,” says Stock of the NCBA. “They continue to provide a tremendous service to their customers and their communities.”



Small Banks Invest in Big Marketing Schemes
Community banks in North Carolina have long been known for their free and discounted checking programs and other innovative banking products to attract and retain customers.

When Lexington’s LSB expanded its market territory through consolidation, it unveiled an advertising campaign to introduce itself to new prospects centered around the theme of Beeline Banking. With famed North Carolina artist and LSB Director Bob Timberlake as the spokesman, the TV ads promoted personalized and responsive service available to the bank’s customers.

“We felt the branding strategy was an opportunity to focus on the institution in terms of the most direct service,” says LSB’s Bob Lowe. “It drives home the message of personal service complemented by technology.”

Personalized banking services made easy has been the standard for community banks, and an area they feel they have a clear advantage over larger banking institutions.

“Community banks can level the playing field by pricing and service delivery,” says Bob Braswell of Greensboro’s Carolina Bank. Among the creative products offered by his bank are free access for customers to ATM machines around the world, free platinum personal checking accounts for those ages 49 and up, commercial checking accounts tied to low-average balances and reduced fees and same-day posting of bank deposits.

In addition, community banks have resisted the urge to impose charges for in-person banking transactions, a move some larger banks have made.

But at the same time they have touted personalized service, the state’s smaller banks have not ignored the reality of 21st Century technology. Most now offer Internet banking, allowing customers to bank online by finding current account balances and transfer funds between accounts.

Some, such as Carolina Bank and Rowan County’s F&M Bank, have been reluctant to jump aboard the online bill-paying bandwagon, feeling that segment of the industry is still undergoing growing pains.

“Some of the bill-paying service providers do not send out the payments the same day they are received, resulting in past due notices,” says Carolina Bank’s Braswell. Moreover, he adds, “some companies are not geared to accept authorizing payment online.” Until those kinks are worked out, “we’ll wait for dependability,” Braswell says. “It’s hard to replace bad service and we’re hesitant to jump into the fray.”

The advertising media used to carry the bank’s marketing message is as varied as the banks themselves.

Because of its presence in two states, Elizabeth City’s Gateway Bank has sponsored Big East college football and UNC-Chapel Hill football and basketball games on coastal area radio stations, along with local cable TV ads, direct mail, and print advertising in newspapers and business magazines. Gateway also keeps its customers informed through e-mails with the bank’s latest products and offerings.

Paul Fisher of F&M Bank stresses the importance of community visibility through ads in programs for local sporting events and other community activities.

Carolina Bank has used banner ads on the Internet and included the latest print advertisements on its web site. The bank also conducts a customer satisfaction survey annually, going directly to the source for new ideas on improving service. Braswell credits the survey process with the bank’s decision to offer Internet banking.

There is no clear one-size-fits-all marketing strategy for the state’s community banks. Instead, advertising decisions, like the banks themselves, are driven by the local communities the institutions serve. — Jerry Blackwelder



NCCBI, NCBA Plan Economic Forecast Event
Experts will assess economic trends that likely will dominate business developments in the year ahead during a special event that NCCBI and the N.C. Bankers Association will sponsor in January. The 2004 Economic Forecast luncheon is planned for Jan. 5 at the Embassy Suites in Cary.

The keynote speaker will be Graham Denton, Bank of America’s North Carolina president. Other speakers include NCCBI Chair Sue W. Cole of Greensboro, the U.S. Trust of North Carolina executive; Kel Landis, the RBC Centura Bank executive who is this year’s chairman of the Bankers Association; economist Dr. Harry N. Davis, the economic professor at Appalachian State University; and state Treasurer Richard Moore.

NCCBI and the Bankers Association are accepting sponsorships for the event. Sponsors will receive extensive recognition. Platinum sponsors, at $5,000, will received two reserved tables for 20 attendees. Gold sponsors, at $2,000, will receive one reserved table.

For more information, contact NCCBI Vice President of Development Rosemary Wyche at 919-836-1413 or by e-mail at rwyche@nccbi.org.


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