-
Investors say their appetite for the nation's smallest banks has waned due to market uncertainty, leading more to consider bigger community banks.
October 26 -
Word that a banking pool had returned its money to investors prompted our assistant managing editor to take a second look at the state of banking. The answers are discomforting.
October 4
Ten years ago, Brian Simpson swore off banking and started a drapery manufacturing company with his wife.
"Frankly, I never thought I'd get back in the business" after Wachovia Corp. merged with his ex-employer First Union Corp. in 2001, says Simpson, the new chief executive of FNB United Corp. in Asheboro, N.C.
But then, the U.S. meltdown created an irresistible opportunity.
"While there is a tremendous amount of stress as the financial crisis unfolded … there's also a unique opportunity to rebuild from what is still there," he says.
Simpson, along with a management team and board made up primarily of First Union and Wachovia alumni, are stitching together two of North Carolina's most distressed community banks. FNB United
Getting the deal closed was a feat because no other private equity-backed venture has combined such battered banks without a loss-share agreement with the Federal Deposit Insurance Corp. But now, observers say, the real work begins. The orphans of the megabank world — like many other PE-backed bank buyers — will have to prove they can hack it as community bankers.
These executives "are used to a deep infrastructure and bullpen and they don't have that at a community bank level," says Tony Plath, a finance professor at the University of North Carolina at Charlotte. "I've watched people from the old First Union and Bank of America go into community banking and it's not uncommon that those guys struggle … because you have to do everything."
FNB United's new six-member senior management team is composed entirely of former Wachovia/First Union Bank of America executives. FNB United's new president, Bob Reid, its chief financial officer, David Nielson, and its treasurer, Angus McBryde, came from First Union and Wachovia. Its chief credit officer, David Lavoie, and chief workout officer, Greg Murphy, were senior risk managers at Bank of America.
Still, FNB United's executives contend that they once worked on the front lines, too.
"The time that I enjoyed [First Union] the most in my 31 years there was when I had the ability and responsibility to be very close to our customers," Reid says. "There were times in my career that that relationship base didn't exist as what I would have liked to, and that was painful."
Reid started his banking career with First Union in 1980 within the commercial banking group and retired in June 2009 as Wachovia's managing director of the real estate division. In between, Reid oversaw branch banking and integration of acquisitions as chief executive for Pennsylvania, New York, Connecticut and other states.
Both Reid and Simpson say the diverse roles they held in growing a big bank make them capable of operating a community bank.
"I learned a great deal about how to manage capital and how to proactively manage a bank's balance sheet," Simpson says.
Simpson, who joined First Union in 1985, headed the structured products and balance sheet management group and served on the asset/liability, credit/market risk and capital markets commitment committees. During that period, he worked with Jim Burr, who is now a managing director at Carlyle Group.
Burr said in an interview late Tuesday that the firm invested in FNB United because of management's vast skillset, both from a commercial banking and capital markets side.
"When we look at the community banking space, there are very, very few teams that we felt were capable of strategically rolling up community banks," Burr said. FNB United's management is capable of running a "top-notch community bank with the ability to identify, effectuate a transaction and successfully integrate opportunities both financially and more importantly, culturally."
But after 17 years at First Union, including the management and other changes after the merger with Wachovia, Simpson had had enough.
"It was clear to me I had gone as far as I could go," he says.
In 2002, Simpson and his wife, Eileen, started a drapery manufacturing company, Casa Fiora, which they still own. He noticed the service from his bank deteriorate after the financial crisis began. He found himself dealing with call centers more often than a familiar banker.
As a business with less than $10 million of sales, "we found we were not the type that's well-served or even targeted by large banks," he says. "We need to get back to face-to-face banking relationships."
Simpson recruited Reid to join him in what has become a grueling, three-year venture in shopping for seed money and acquisition targets. The effort to lead to the deal between FNB United and Bank of Granite, one of the most heavily capitalized and creatively structured deals in recent memory.
"They have the pedigree," says Chris Marinac, analyst at FIG Partners LLC. "But all of this is in the execution."
FNB United faces more challenges than working down the nonperforming assets of two ailing banks. It has to combine and rebuild the banks to attract new business. And FNB United is in the Southeast, where loan demand is soft at best and credit quality remains fragile.
"They have the capital in place to do the heavy lifting needed," Marinac says. "But the bank has, in some respects, been
Simpson acknowledges this, saying his short-term focus is to fix existing problems and to "re-energize" the banks as well as their employees before they seek other acquisitions.
"It's all about doing business with people you know and trust," he says.
FNB United and Bank of Granite will operate separately until spring, when regulators are expected to approve their consolidation. Once that happens, the combined bank will operate under the name CommunityONE Bank.
Marinac, who is cautiously watching before committing to full coverage of FNB United, says it will not be "a quick turnaround." However, "with the right focus and the right execution, they can make headway."
