Gateway Bank and Trust Co., a two-year-old North Carolina bank with $80 million of assets, is taking the unusual tack of expanding both its fee income, through insurance and investment product marketing, and its traditional banking services.

"Most start-up banks will focus on loans and basically bulk up in size, sort of as a one-product operation," before turning to fee businesses, said John Moore, an analyst at Wachovia Securities. "That's not their focus here - they want to build fee income at the same time."

Gateway, which is based in Elizabeth City, would expand its auto and homeowners insurance offerings when it closes a deal announced Jan. 8 for Fidelity Insurance in Plymouth, N.C. Fidelity is to become a subsidiary of Gateway/Dowd & Twiddy Insurance Services Inc.

Last January, Gateway bought Dowd & Twiddy, a personal lines agency with offices in Edenton, Hertford, Elizabeth City, and Nags Head, N.C., to begin its insurance sales push. The agency sells auto, homeowners, life, and health insurance, as well as some commercial lines.

The bank is not pursuing an aggressive cross-selling strategy, and it intends to run each agency individually, said Mark A. Holmes, executive vice president and chief financial officer of Gateway. "Insurance people know insurance, and bankers know banking," he said.

With the Fidelity deal, Gateway's insurance businesses are expected to bring in $1 million of commissions annually, Mr. Holmes said.

Gateway also is expanding its branch network within and outside its home state. Last July, it opened its first Virginia office, in Virginia Beach. The company, which has four branches, plans to expand this year into Chesapeake, Va., and to open more branches in eastern North Carolina.

The bank will keep looking for agencies as it grows, Mr. Holmes said. "We're always looking for a good deal," he said. "We're very interested in buying one in Virginia."

Mr. Holmes said that although his bank is seeking agencies in the same geographic area as BB&T Corp., an 800-pound gorilla in bank-agency mergers, Gateway is looking for smaller agencies that are probably not on BB&T's radar. "I don't think we're going head-to-head with BB&T," he said.

In addition to its insurance businesses, Gateway Bank has been selling investment products, including stocks, bonds, and online brokerage services, through its Gateway Investment Services subsidiary, which it started in late 1999. "It has always been our intention - stated by our CEO from the start - to be a full-service provider of financial services," Mr. Holmes said.

Gateway was founded in December 1998 by former Centura Bank executives who wanted to return to community banking. It has branches in Elizabeth City, Plymouth, and Roper, N.C., as well as in Virginia Beach.

Gateway's president and chief executive officer, Daniel B. Berry, had been Centura's regional market manager for Elizabeth City, Hertford, and Edenton, N.C., and the Tidewater, Va., area. Stephen C. Skinner, executive vice president and chief lending officer at Gateway, also was a regional market manager for $11.5 billion-asset Centura. Mr. Holmes came to Gateway from the Morris Plan Savings Bank in Burlington, N.C., where he had been cashier, executive vice president, and chief executive officer.

Though Gateway has grown aggressively for a bank founded just over two years ago, it says it will stay focused on its communities. "We think we're a small community bank," Mr. Holmes said. "The decisions are made locally, not far away."

Building fee income through insurance and investment products will let Gateway better weather the storms of an economic downturn, said Wachovia's Mr. Moore. "With young banks and start-up banks, you really have untested loan portfolios when you have a downturn in the economy," he said.

Bringing fee income from insurance onto the balance sheet decreases the risk faced by these young, untested banks, Mr. Moore said. "There's no loan losses on your insurance."

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