Do multiple charters still make sense?

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Blue Ridge Bankshares in Luray, Va., is going against conventional wisdom as it plans a separately chartered bank in a neighboring state.

The $423 million-asset company is in the early stages of forming Carolina State Bank in Greensboro, N.C., a city that is about 240 miles away. While management confirmed the plans and has scheduled an event for potential investors, it has been sparse with other details about the effort.

The decision to create a new bank, rather than simply open branches across the state line, runs counter to an industry-wide preference to streamline, market watchers said. Following the financial crisis, many banks consolidated charters to cut costs and create a centralized system for assessing credit risk.

While a de novo effort could help with recruiting talent and garnering community support, it can also be a costly and time-consuming process, industry observers said.

“Given the cost and complexity of doing a de novo, I have no idea how you could argue that the advantages would exceed the costs ... especially when you can easily open a full-service office in Greensboro for a fraction of the cost, in a fraction of the time and with much less strategic effort," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.

The administrative, regulatory and corporate costs tied to operating two franchises in different states could burden Blue Ridge, Plath said, adding that the company will have to go through more audits and regulatory exams.

Blue Ridge could also make a local connection by simply operating any North Carolina branches as a division with its own distinct brand, said Chip MacDonald, a lawyer at Jones Day.

“Much of the appearance of a local bank can be gained by the use of fictitious names ... that reflect the branch’s locality,” MacDonald said. “Most people have decided a single bank is more efficient than multiple charters."

Still, there are some industry observers who believe the pros outweigh the cons.

The potential to gain an edge recruiting local talent could offset costs that shouldn't be too high "in the scheme of things," said Christopher Marinac, an analysts at FIG Partners.

Recent consolidation in North Carolina has also created a pool of capital that could back a de novo effort, industry experts said. Blue Ridge could also reduce its operational costs by running more back-office functions at the corporate level.

Longer term, it could be easier for management to sell Carolina State as a separate bank with its own investors, said Greyson Tuck, a lawyer and consultant at Gerrish Smith Tuck in Memphis, Tenn.

Blue Ridge isn't the only bank to seek a new charter in a neighboring state in recent years. International Bancshares in Laredo, Texas, received a separate charter in 2016 for its existing operations in Oklahoma. Tennessee Bank & Trust was created in October after operating as a division of Farmers Bank & Trust in Blytheville, Ark.

The main difference is that Blue Ridge doesn't offer full-service banking in North Carolina, though it has several mortgage offices across the state.

Even those who generally doubt the logic said they could see some reasons for the move.

Opening a bank in Greensboro could convince influential community leaders to serve on a board, said Chip MacDonald, a lawyer at Jones Day. He noted that such an effort only works in states such as Virginia and North Carolina that do not restrict interstate do novo charters by a holding company.

Georgia, in contrast, does not permit such an effort, MacDonald said.

Blue Ridge has already recruited several prominent local leaders to Carolina State’s board including co-chairs Don Vaughan, a Greensboro lawyer and former state senator, and Ken Flynt, a veteran banker and associate dean of Western Carolina University. (Vaughan's wife, Nancy, is Greensboro's mayor.)

A de novo effort could also help with recruiting local lenders and garnering community support and business. It could also create more buzz than opening branches, particularly in a market like North Carolina — and Greensboro in particular — that has lost all of its hometown banks.

“You can lay claim to being a North Carolina-chartered community bank, which as a corporate species is rapidly disappearing from," Plath said.

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