When James J. Giancola considers buying a bank, he doesn't immediately think about wringing out costs.

Though cutting costs to boost earnings has become fashionable in the past several years, Mr. Giancola, president and chief executive officer of CNB Bancshares, said banks that follow such a strategy are making a mistake.

They are cutting too deep and thus losing potential revenue, he said in a recent interview at CNB's headquarters here. And his own company, based in this small city in southern Indiana, is benefiting as a result.

"I believe the challenge ... is revenue growth, not slashing expenses," he said. "Other folks succeed in the short run cutting expenses. I question whether that is a viable strategy in the long run."

The $4.5 billion-asset CNB, which operates in Indiana, Illinois, and Kentucky as Citizens Bank, has profited from the mergers or restructuring programs engaged in by its larger rivals in recent years, Mr. Giancola said.

In particular, he said, it has attracted customers from Columbus, Ohio- based Banc One Corp., First Chicago NBD Corp., Cleveland-based KeyCorp, and Pittsburgh-based PNC Bank Corp.

All of these companies dwarf CNB, but that is no problem, Mr. Giancola said.

He predicts he will also win customers from two Indiana banking companies that Cleveland-based National City Corp. is scheduled to buy in the second quarter, First of America Bank Corp. and Fort Wayne National Corp.

National City officials beg to differ. "We've typically gained customers, not lost them, when we've done these kind of transactions," said Dan Shingler, a spokesman for National City. As for CNB, "We'll see them on the playing field," he said.

Not that Mr. Giancola is against bank mergers. On the contrary, his company has been extremely active, completing more than 30 bank and nonbank acquisitions in the past five years. And it expects to buy $2.2 billion- asset Pinnacle Financial Services Inc. of St. Joseph, Mich., in April for $583 million.

Pinnacle, which also operates in Indiana, would boost CNB's assets to $6.7 billion and make it the largest bank company based in Indiana, topping Old National Bancorp, which is also based in Evansville.

Mr. Giancola said getting into new markets is the main reason for the deal. CNB expects to take only 10% to 15% out of Pinnacle's costs, a conservative slice compared with the 30% to 40% contemplated in many of the biggest bank acquisitions.

Buying smaller competitors and feeding off lost business at bigger regionals has helped CNB's bottom line. Both activities depend on acting like a community bank-even though CNB is fast becoming a small regional.

It is an awkward size, according to some observers, but Mr. Giancola and others label CNB a super community bank-large enough to provide a diverse product line but small enough to act like a local institution.

Most banks its size would be considered acquisition targets, but CNB's earnings and stock valuation have been high enough to justify its continued independence.

CNB delivers a return on equity consistently above 15% and earnings-per- share growth of 12% a year. Return on equity was 16.38% in the fourth quarter and 15.38% for the year. The company earned $13.3 million in the fourth quarter, up 26%, and $49.7 million for the year, up 32%. Earnings per share were 64 cents in the quarter, in line with estimates, and $2.37 for the year.

"We're in a survival mode," Mr. Giancola said. "If we don't put up double-digit earnings growth year after year, we've lost the right to run the company. We don't want to sell, but we understand we work for the shareholders."

Mr. Giancola "understands the score," said Brocker Vandervliet, an analyst with Keefe, Bruyette & Woods Inc. "You either have to perform or sell. ... He's no dumb bunny."

A New York native, Mr. Giancola was educated at Harvard University. He co-founded consultant Speer & Associates in Atlanta in 1978 and left in 1985 to become president of Gainer Bank of Merrilville, Ind.

In 1992 he sold Gainer to NBD Bancorp (now First Chicago NBD) for $168 million. Mr. Giancola said he could have stayed with NBD but chose to go to CNB that year as executive vice president and chief operating officer.

CNB gives its market presidents great discretion in matters such as loan approvals and pricing as well as in relationships with customers and vendors. In a smaller community things as mundane as buying office supplies from a local business rather than a centralized distributor can make a difference, Mr. Giancola said.

"After an awful lot of research, we've determined our $20 bills are the same color as everyone else's," he quipped. "So we've looked at differentiating ourselves."

Having the product selection of a big bank but the style of a small one lets CNB make money in midsize cities - such as Louisville, Ky., Bloomington, Ind., and Evansville - while competing in tiny towns such as Brazil, Ind., and Mount Carmel, Ill., Mr. Giancola said.

"It's sort of the Wal-Mart syndrome," he said. "Everyone likes local hardware stores, but nobody shops there."

In small towns CNB competes head to head with community banks, whose ranks are dwindling, Mr. Giancola said. Though community banks will be around for a while, he said, companies such as his will be better able to compete in these small towns.

Expansion in traditional banking is only part of CNB's strategy. On Jan. 5 it bought Wedgewood Partners Inc., a St. Louis-based brokerage and asset management firm that caters to wealthy individuals.

Burgeoning fee businesses at CNB include asset management, brokerage, and insurance (it owns the largest insurance agency in Evansville). CNB also has a line of business that provides employee benefits to companies.

Though all of these fee businesses are growth operations, together they still don't amount to half of net interest income, which was up 4% in the fourth quarter, to $40 million.

Mr. Giancola said he would like to buy another large bank this year-and now that CNB is nearing $7 billion of assets, the target could be even bigger than Pinnacle.

"If we had the opportunity to do a $3 billion or $4 billion deal, would we do it? Sure, if we could make the math work.

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