In Rural Virginia, a Black-Owned Standout

First State Bank in Danville, Va., is more than meets the eye - and not just because it is one of the most profitable banks in the country.

At first glance an unassuming community bank with a single office and $25 million in assets, First State Bank is the only black-owned bank among the profit elite. Last year it earned 2.06% on assets, placing it among the top 100 in returns on less than $500 million in assets.

Far from the Inner City

First State contradicts the common conception of minority-controlled banks as inner-city institutions that were organized in the 1960s or 1970s and are reeling along with their neighborhoods from the current recession.

The southern Virginia bank dates to 1919, handily survived the 1930s Depression let alone the 1990-91 downturn, and has problem loans under control. First State's management is about as conservative as they come, maintaining a core-capital-to-assets ratio of 20%. The limited leverage depresses its return on equity to a merely passable 11%.

"We service clientele other banks refuse," said Sylvesta L. Jennings, the bank's president. They are words one would expect to hear from the chief executive of any bank serving a higher-risk community.

Growth Is Secondary

But conservatism is ingrained. Profit considerations and banking fundamentals take precedence over growth, and the policy seems to have paid off in the bank's longevity and image in the black community.

Its profitability last year was no fluke. ROA for 1989 was 2.34%, and in the first half of 1991 it earned 2.12%.

The bank's 1990 ROA of 2.06% was tops in Virginia, according to an annual ranking by Scott & Stringfellow Investment Corp., and 53d among all U.S. banks with less than $50 million in assets, according to an American Banker compilation published on June 6.

Open During |Holiday' of '33

First State was one of the few banks that was not forced to close during the bank holiday of 1933, Mr. Jennings said, "basically because of its cautious approach to lending."

"Although we have had steady growth, our growth in total assets has not been phenomenal when compared with majority banks in our area or minority banks in cities where the black population is greater." In fact, First State's assets were unchanged last year after rising 12% in 1989.

Danville, with a population of 53,000, is in south-central Virginia near the North Carolina border. Once known as a cotton and farming center, its economy has diversified and is growing rapidly, Mr. Jennings said.

The black population is about 11,000, a fifth of the total. About 90% of First State's customers are black, but it gets 25% of its deposits from other individuals, businesses, and government.

Holds 2% of Town's Deposits

First State holds 2% of the deposits in Danville. Two of the three other locally owned banks - American National Bank and Trust and Peoples Bank - each have $220 million in assets. There are seven banks active in the area, with a total of 20 branches.

"Competition is very strong and intense," said Mr. Jennings. "While all banks in our area are our competitors, we fell that the greatest impact upon our growth has come from the phenomenal surge of credit unions."

First State has plans to open its first branch, in a developing area on the northern side of town, before the end of the year. The bank is awaiting regulatory approval to take over a former thrift location.

"The new branch will help to build our deposit base and respond to loan requests," Mr. Jennings said.

The bank currently does not offer automated teller machines or credit cards, but both are under discussion by management and the board.

Keeping the Faith

Mr. Jennings, 58, a 33-year veteran of the bank, is one of a five-member management team that puts a premium on experience and affinity to First State's traditions.

"We have a total of 122 years of in-house banking experience," he said. "That gives us an average experience of 20 years."

Those managers and their track record have caught the attention of larger banks in town.

D.C. Hastings, president amd chief executive officer of Virginia Bank and Trust Co., with $81 million in assets, called First State "a nicely run bank" with an impressive profit record under Mr. Jennings. "We're all competitive and must be to stay in this market," he added.

|A Good Solid Bank'

Robert P. Blair Jr., vice president of American National Bank and Trust, which has four local branches, described Mr. Jennings as "a sharp banker who runs a very conservative bank with a good management team. First State Bank is a good solid bank and a good citizen, and it's growing."

In true community banking tradition, First State's corporate philosophy stresses fairness to all employees and customers. It is up to the former to serve the latter with warm personal attention as well as competence.

"We take a conservative approach to lending, bearing in mind that we are in business to make a profit," said Mr. Jennings. "First State believes in a good mixture of safe investments, with the highest yield possible, and in retaining a respectable percentage of earnings to continue to build a solid base of services."

Commitment to the CRA

Mr. Jennings said the bank is committed to meeting the credit needs of its community, and hence fulfilling the letter and the spirit of the Community Reinvestment Act. It recently appointed a CRA officer who is responsible for community programs and compliance.

"Our policy is to try to respond to all creditworthy segments of our market," Mr. Jennings said, adding that it is "good business practice and basic to the bank's own long-term vitality."

The bank and its officers have increased their visibility in Danville by participating in a number of community organizations, boards, and committees. The president, for example, is active in the chamber of commerce, the school board, and the board of Memorial Hospital, and is a vice president of the Head Start program.

Lawrence G. Campbell, presiding bishop of Danville-based Bibleway Church Worldwide and a First State director for 12 years, said the bank is "very sensitive to the community."

Bishop Campbell added that First State and its people serve as role models for black youth.

First State Bank's net income in 1990 was $507,000, compared with $42,000 in 1989 for the average minority-owned bank with assets of $10 million to $25 million, said William Michael Cunningham, an investment adviser in Washington who tracks minority banks.

The bank opened in downtown Danville on Sept. 8, 1919, the result of organizing efforts by business people and the pastor of a local church. "The need for such an institution was overwhelming, and these individuals were able to compile enough capital to receive regulators' approval to open the bank," said Mr. Jennings.

Originally called the Savings Bank of Danville, it later changed to Danville Savings Bank and Trust Co. and, in 1953, to First State Bank. William B. Muse Jr., 73, is the longest-serving director, elected in January 1950. He is also president of Imperial Savings and Loan Association.

PHOTO : SYLVESTA L. JENNINGS, president of First State, adheres to a tradition of cautious lending.

PHOTO : INTO THE FUTURE: First State is considering ATMs and credit cards.

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