The game is changing, sometimes dramatically, as small banks become large banks, credit unions take over a niche territory and big banks look for bigger profits. The good news? Maybe it’s that at the smaller banks, “loan committees meet several times a week,” according to one banker.
Note: The story below is an excerpt from our March/April 2015 issue. For the full story download our FREE iOS app or view our digital edition for FREE today!
Dan Smith
“You can’t tell the banks without a program anymore,” says Warner Dalhouse, a retired bank CEO and founding board member of HomeTown Bank. “Even by historic standards, we’ve had a lot of changes in the past two years.”
Dalhouse should know. As president/CEO of Dominion Bank, “I bought 59 banks and sold one. We tried to buy the largest bank in town” in small localities across this region. At one time in the 1960s, he says, “there were 18,000 banks in the U.S. That’s 7,000 now.”
The banking landscape in the Roanoke Valley has been at a roiling boil for some time now. It has nearly boiled over in the past 18 months. Consider:
• The enormous Bank of America packed up and left Roanoke recently.
• Several other big banks – generally headquartered in North Carolina – have pulled back their Roanoke operations and are becoming less visible, less involved in local community leadership.
• Union Bank of Richmond recently bought StellarOne, increasing assets to $5.8 billion to become, “a bank with the size and reach that Virginians haven’t seen in nearly 15 years,” says CEO William Beale.
• Valley Bank has been sold to North Carolina Bank (NCB), leaving HomeTown Bank as the lone Roanoke-owned bank still headquartered here. The merger created $5 billion in assets.
• Credit unions are growing at an impressive rate, threatening community banks with their tax-exempt status and continuing to offer an alternative to small investors and businesses. Still, they are to big banking, what cable TV news viewership is to network news: a shadow operation.
When Dalhouse’s former employer, Dominion Bankshares, was sold to First Union in 1991, it had 56 percent of the market’s deposits, says Dalhouse, and nine other banks in the valley had the other 44 percent. He says Wells Fargo (“which is three or four owners removed from Dominion”) has 21 percent these days. “They’ve lost more than half of their share” in an intensely competitive and fragmented market.
Dalhouse is tough on the big banks and their Roanoke relationship: “The most dramatic development is that Bank of America has left town. SunTrust has closed its headquarters here and has a skeleton operation. BofA, Wells Fargo and SunTrust have made it clear that they are not interested in most of the accounts available in the Roanoke area.” They would argue to the counter, though their argument would be arguable.
Dalhouse says he became interested in starting a community bank (HomeTown) while listening to former First Union President Ben Jenkins say his bank “couldn’t make any money on accounts of less than $100,000. I thought, ‘That presents a hell of an opportunity’” for creation of an alternate source for those loans.
The Bank of North Carolina’s purchase of Valley Bank created a value of $5 billion in assets for the two banks. HomeTown Bank, by comparison, had $418 million in assets in September of 2014 and Freedom First Federal Credit Union $355 million in assets.
The declining interest of some of the bigger banks has resulted in HomeTown Bank “opening more accounts in the last six months than ever before,” says Dalhouse. “Valley Bank has gotten its share, too.” Freedom First’s Paul Phillips says that credit unions have benefitted, as well.
Dalhouse believes the small banks have a distinct local advantage: “It’s about availability, responsiveness, being friendly. Loan committees meet several times a week. We’re custodians of the community’s cash reserves.” There are 86 community banks in Virginia and 100 total banks headquartered in the commonwealth, according to the Virginia Bankers Association. Roanoke has 70 bank locations in the valley (topbanklocations.com/virginia/roanoke-banks/).
Changes in big-bank leadership, says Dalhouse, have had a disruptive effect on community activities. Big banks “are not making the contributions they once made” because of executives’ movement from city to city. “If a non-profit gets $1,000 from a large bank these days, that’s huge” and “there is not the motivation [among executives] to be a part of the community there once was.”
John Francis, executive VP of First Citizens Bank, says growth and change are nothing new, and that “consolidation is not new … what is new is the very small number of new banks being formed nationally, which I believe was only two or three over the last two years.”
“While the banking landscape has changed notably in Roanoke over the last year,” he says, “there have been many periods of intense change over the years. For example, when I started in banking, I came to work for the original Bank of Virginia, which became Signet Bank, then spun off what became Capital One. What remained of Signet was ultimately acquired by First Union, then became Wachovia, and finally Wells Fargo.
“By far, the most significant change in Roanoke banking remains the sale of the former Dominion Bankshares, in my opinion. The recent developments in Roanoke, however, closely track the decline in the number of U.S. banks, which has declined by nearly two thirds in the last 20 years. The Wall Street Journal reports there are fewer U.S. banks now than at any time since the Great Depression.”
Francis says First Citizens has never changed its attitude toward Roanoke: “The Roanoke Valley continues to be a very attractive and important one to First Citizens as should be evident by the major investments in facilities we have made/are making on both Electric Road and Hershberger Road over the last year.
“First Citizens has adjusted by growing from serving a single state (North Carolina) 16 years ago to serving 16 states plus D.C. today. Our approach to banking has served us well over the last 116 years. We are a $32 billion bank today.”
Frank Carter, president of Member One Federal Credit Union, which was founded at Norfolk & Western Railway in 1940, says credit unions add another dynamic: “With the current landscape, we will just add scale and adapt to help more people who may find themselves without a financial home. It is important we stay true to our core values and beliefs to remain stable for the areas – and people – we serve. Continuing to add convenient banking options and investing in the community will be our primary objectives.”
Paul Phillips, president and CEO of Freedom First Federal Credit Union, says the rules have changed, but the goals remain the same for credit unions. The credit union was chartered in 1956 as General Electric Credit Union with seven people and hand-written note with “charter” spelled “carter.” It now has 47,000 members, $350 million in accounts. The new campus beside I-581 in downtown Roanoke is large, impressive and growing. There have been close to a dozen mergers with other CUs since Freedom First’s founding, says Phillips. But the mission is pretty much the same.
Union Bank’s purchase of StellarOne, says CEO William Beal, brings scale to what was a small bank and it will “overshadow in-state competitors.” Union First Market Bankshares bought Charlottesville-based StellarOne for $445 million in stock, creating the Commonwealth’s largest Virginia-based community bank with assets of $7.1 million. Union is now in all of Virginia’s major markets, and Beale says banks “need scale to operate better” in the current climate. The merged bank has $5.8 billion in deposits, 146 branches, total assets of $7.1 billion and loans of $5.2 billion. Capital One, headquartered in McLean, is Virginia’s largest bank that is headquartered in the state at $62 billion in deposits.
The former Valley Bank became BNC’s (Bank of North Carolina) Virginia flagship June 1 and its loan potential grew exponentially to $50 million with the $5 billion community banking group. “The concept used to be that a community bank was $1 billion or less,” says BNC Virginia Market President Gutshall. “Now it’s $10 billion or less.”
BNC is looking at several Virginia markets – including Blacksburg and Montgomery County, which Valley Bank was considering by itself – and it has kept the Valley management team intact with long-term contracts, a fact Gutshall considers vital. BNC “didn’t come here to peel away the assets,” says Gutshall.
The combination of higher banking costs, much of it caused by the Dodd-Frank federal legislation, and a stagnant economy, says Gutshall, “has made revenue growth difficult” for free-standing community banks, especially. That opens the door for sales and consolidations. “When expenses outpace revenue growth, it forces the community banks into mergers and acquisitions.”
Roanoke banking is, right now, “solid,” says Gutshall, “but there won’t be any super increase in activity soon. We’re hoping customers will improve their balance sheets and income statements” before a lot of activity begins.
Susan Still, CEO of HomeTown Bank insists, “It’s a great time for us” as the only remaining Roanoke-owned community bank. I’ve been in banking for 38 years and have found that it goes in cycles.”
She says banks’ wealth has been consolidated in the past 20 or so years. “When I got into the business, there were 15,000 banks and now 80 percent of the assets are concentrated with just a few big banks.”
Because there are few company headquarters or large companies in this region, large loans are rare, says Still. “Big banks,” she says, “overlook small business people” and community banks don’t. HomeTown, by participating with other, larger banks, says Still, can generate quite an impressive loan amount if somebody comes along with a promising project.
Because of the “deep pile of red tape” generated by the Dodd-Frank Act, says Still, consolidations, “which have been trending for a long time,” are now coming at warp speed. Still says Dodd-Frank added another whole bureaucratic department to banks, which small banks could ill afford.
“Customers want community banks,” says Still, and that becomes a more viable choice in Virginia because “there aren’t any big banks headquartered” in the Commonwealth.
Francis believes the future will see more change, but not the kind most of us expect. “Perhaps the biggest change coming won’t be in products but in method of delivery of those products/services. Reliance on branches continues to decline while the use of mobile/remote banking in its many forms accelerates.
“Speed and convenience are what consumers are demanding in all services and banking is no exception. The pace of change will require my industry to be very nimble but I cannot recall a more exciting time to be a banker.”