Think big, act small

'Branch' and 'diversify' become buzzwords as community banking adapts to changing industry

David Fettig | Editor

Published July 1, 1997  | July 1997 issue

Q. What are the secrets to a successful banking operation?

A. Grow through branching and/or acquisitions, as well as expansion into activities that traditionally have not been associated with banking, such as insurance and brokerage services. And, perhaps most importantly, don't forget about the customer.

While that may sound like a prescription for a large bank, that's the formula espoused by Gregory Cleveland, president of BNCCorp, a Bismarck, N.D.-based bank holding company of about $307 million in assets. What began in 1987 as Linton Bancshares, headquartered in the south central North Dakota town of about 1,400, has become a bank holding company with branches throughout North Dakota and two institutions in Minnesota. And Cleveland is hoping for more growth in the future.

"We're not bankers," says BNC chairman and chief executive officer, Tracy Scott, explaining that the bank has seven certified public accountants on board, including himself and Cleveland. "We don't see the banking world like that," Scott says, dismissing the traditional notion of a community bank firmly ensconced in one town.

The way those CPAs and their staff view the banking world is one of opportunity, says Scott, which is why they abandoned their accounting careers in 1987 to start a small community bank in Linton. The proposed changes to Depression-era laws that separate banking and commerce are certainly important, BNC officials say, but the big changes for small banks have already occurred, and it's time for community banks to take advantage of the new opportunities.

In 10 years, BNC has grown to include eight branches in small North Dakota cities, a newly chartered bank in downtown Minneapolis and an asset-based lending corporation, BNC Financial Center, in St. Cloud, Minn. Whether it was purchasing seven branches from First Bank System or making the jump into Minnesota, Scott says, each move made sense for the publicly traded bank holding company. Banking in small towns will continue to be profitable as long as a community base exists, Scott says, and that is why they will continue to seek further branching opportunities.

As for the move to Minneapolis, where there are already a number of established large and small lenders, Cleveland says the decision was relatively easy. "The market is so huge that it allowed another player to move in and be successful," Cleveland says of BNC's decision two years ago to establish a downtown Minneapolis bank with an emphasis on commercial lending. "We stay away from residential lending. The big guys do that very well, so why compete with them at their strength?"

A new way of community banking

This is community banking with a keen eye on the marketplace, and it represents the wave of the future for smaller banks, according to Arlene Melarvie, longtime executive director of the Independent Community Banks of North Dakota (ICBND), who will resign from her position this year. When Melarvie began working for the interests of North Dakota community banks in 1983, there were as many small banks as there were small towns. These days, community banks have become bank holding companies with branches in neighboring towns and with a desire for more growth.

"Branching is starting to explode in North Dakota," Melarvie says. "There are no boundaries anymore."

To make her point, Melarvie notes that in 1983 there were 125 member banks in ICBND, and today that number has fallen to 93; however, there are also 83 branches on her mailing list, giving her association a much larger constituency to serve. Of course, some of the new branches are affiliated with large banks, but many are a part of smaller institutions. "They may be branches, but they're still fulfilling a community role."

The idea of branches performing a community function used to be anathema to independent bankers' groups, but times have changed, Melarvie admits. "This is a new way of banking for community bankers. Everybody's thinking out of the box."