As described on the front page, the onset of branching and the opportunities to expand into new lines of business have not only posed competitive challenges for the once staid community banking industry, but it has also led smaller banks to explore new opportunities for profits and growth.
Officials of BNCCorp, a Bismarck, N.D.-based bank holding company with branches throughout North Dakota and two institutions in Minnesota say that such growth can still be realized with the traditional "values" of community banking. "Everything we're doing involves a sit-down, face-to-face meeting with the customer. We want to bring people in the door," says Tracy Scott, BNC chairman and chief executive officer.
It's possible to expand and still offer personal service, Scott says. "They say they're going to credit-score commercial loans," he says about some banks' plans to use credit scoring to determine what loans are made. "I hope they do. They aren't going to be successful."
BNC wants to be a "one-stop shop" for financial services, Scott says, but its emphasis will continue to be on small to mid-sized commercial loans. Once BNC has established a relationship with a commercial borrower, then the bank can begin to offer other services, such as insurance, (401)k plans, estate planning and consumer lending. BNC recently created a separate division within the bank called financial services, which was established to turn BNC into a full-service financial institution.
But the important thing for the institution to remember is to not jeopardize the lending relationship, Scott says. "This begins internally. We have to believe in our own people," he says. To that end, BNC recently purchased the accounting firm of Gregory Cleveland, BNC's president, giving the bank a total of seven certified public accountants on staff, and, in Cleveland's opinion, firmly establishing the bank's commitment to personal banking.
"If all you're doing is competing with price, you'll lose," Cleveland says, because the big banks can "kick your teeth in with price."
One strategyand not necessarily the easiest, Cleveland admitsfor acquiring the capital for growth is to go public, a move that BHC made a couple of years ago to gain the resources to establish its newly chartered bank in downtown Minneapolis. The stock offering raised nearly $10 million, about half of which was used for the Minnesota start-up.
"Obviously, if one could raise capital in any other way, one would do so," Cleveland says about the effort involved in going public, but so far he says it has been worth it. He also believes his company's stock is currently trading below its value and expects the price to rise as the bank continues to grow. As of Aug.7, BNC shares were trading at $13.25, on the NASDAQ Exchange.
BNC's goal is to become a well-capitalized $1 billion operation with an emphasis on "local relationship banking." From December 1992 to March 1997, the bank's net loans increased from $69.3 million to $207.7 million, total assets rose from $118 million to $307.8 million, and total deposits climbed from $102.7 million to $253.3 million. Also, the ratio of nonperforming loans to total loans decreased from 5.8 percent to 0.22 percent during that time.
In its May 1997 registration statement to the Securities and Exchange Commission, BNC notes the heightened competition within the banking industry in recent years, making a special point about North Dakota and Minnesota: "The North Dakota and Minnesota market areas are highly competitive banking environments. Competition is encountered primarily in seeking deposits and in obtaining loan customers."
BNC believes that many of its competitors, though, have emphasized retail banking and financial services, leaving a substantial niche in the small and mid-sized business market. And it's that market the bank holding company will continue to try to exploit. "The banking business is highly competitive, and the profitability of the company will depend on its ability to compete in its market areas," the bank reports to the SEC.
In other words, says Scott: "We can't get lazy."