Dogwood, CresCom help revive N.C. community banking
A spate of purchases by out-of-state companies and increasing dominance of large banks helped shrink the number of N.C.-based community banks significantly in recent years. Now, Dogwood State Bank of Raleigh and Charleston, S.C.-based CresCom Bank are among the financial institutions hoping to buck the trend by building strong networks across the state.
Dogwood CEO Steve Jones and Chairman Scott Custer assembled a group of Tar Heel businesspeople to start a bank from scratch after the duo had previously built Raleigh-based Yadkin Financial, which was sold for $1.4 billion to Pittsburgh-based F.N.B. in 2017. With Dogwood’s fundraising efforts sluggish, the organizers instead arranged a recapitalization with a holding company that operated Sound Bank, a Morehead City-based institution with $366 million in assets and branches in Greenville and Wilmington. To pay for the deal, Dogwood raised $70 million from three investment firms that specialize in bank investments, plus $30 million from individuals and families.
Dogwood has opened an office in Raleigh and plans one in Charlotte. “There are no community banks headquartered in Charlotte, and we are one of only two headquartered in Raleigh,” says Jones, a former chief banking officer of Yadkin Financial. North State Bank is also based in the capital city, while the Charlotte metro area has some locally owned institutions including Cornelius-based Aquesta Bank; Mooresville’s BlueHarbor Bank; Newton-based Peoples Bank; and Albemarle-based Uwharrie Bank.
But leveraging its $100 million in capital may enable Dogwood to reach $1 billion or more in assets relatively quickly. It now employs 75, including 25 working at the Raleigh headquarters, and has launched a Small Business Administration lending group that will operate from Charlotte. Yadkin was among the state’s most active SBA lenders.
“We are uniquely positioned if we get the right people, because these are two of the best markets in the U.S. to do banking,” Jones says.
CresCom’s holding company, Carolina Financial, has equally ambitious plans. With $4.5 billion in assets, it’s the second-largest community banking firm based in the Carolinas, behind Southern Pines’ First Bancorp. Carolina Financial entered the state by buying Washington-based First South Bancorp for $178 million last year, adding 28 offices in eastern North Carolina.
It is now acquiring Lincolnton’s Carolina Trust for $100 million, pending regulatory approval. Carolina Trust CEO Jerry Ocheltree will lead N.C. commercial banking for CresCom.
Carolina Financial’s profitability in recent years has exceeded most of its peer community banks, reflecting a cautious approach and successful merger history, says CresCom CEO David Morrow, a 40-year banking industry veteran. The company’s shares have increased about 190% over the last five years through mid-October, versus a 52% gain in the Standard & Poor’s 500 Index.
“We don’t acquire just to acquire,” Morrow says. “It has to be a good fit for us culturally.”
While Carolina Trust has excelled in counties adjoining Charlotte, the company expects faster growth with a new Mecklenburg County site. “We like mergers like Carolina Trust. If you can buy a bank with half a billion dollars in assets every year and have 8% to 10% growth, you will continue to grow,” Morrow says. “If you don’t, your earnings will flatten out, then investors will ask what’s going on with your stock.”
Morrow says CresCom has retained much of the First South staff while growing the business effectively. “Of course, we’re mostly going to lend in Raleigh, Fayetteville [and] Greenville, where there are significant business concentrations, while we have good markets on the deposit side in the smaller communities,” he says. “The bigger banks are increasingly exiting many of the smaller cities and towns.”
Both Morrow and Jones believe continued consolidation among large banks, including the pending BB&T and SunTrust Banks merger, should benefit community banks. Natural disruption of a merger turns off some customers and employees, Jones says.
Morrow says large banks can’t provide the same personal service as community banks, a trait that will keep them competitive even as technology changes the financial-services industry. “As a community bank, you touch people,” he says. “We like to kick the tires and look borrowers in the eye and ask the right questions. You need to know the people with whom you are working.”