Tobacco country is under siege - and many banks there are feeling the heat.

Political, regulatory, and legal pressures on tobacco growers and producers culminated last week in an executive order by President Clinton that aims to curb smoking by teenagers.

These developments are deeply unsettling for bankers to the tobacco industry. They say rising production costs could cut into the profits at rural banks that cater to tobacco growers. And blows to the robust tobacco businesses of North Carolina, Virginia, Kentucky, and Tennessee could lead to job losses and economic woes that could ultimately hurt banks of all sizes.

The President's order "will have a tremendous impact on the bank," said Robert A. Strickland, chief executive of Horse Cave (Ky.) State Bank, which has $72 million in assets. Tobacco, he said, is about the only business in Horse Cave, and fully 60% of the bank's business depends on it.

Mr. Strickland isn't the only banker who's worried. Across the four states where 85% of the country's tobacco is produced, bankers see threats to the tobacco industry as threats to their bottom lines.

Banking and tobacco are intricately connected in these states. Growers and producers frequently are among banks' oldest and most profitable clients. Many small banks were built on tobacco fortunes, and some big ones got that way by hitching up with tobacco companies decades ago.

Wachovia Corp., for instance, is headquartered in the tobacco capital of Winston-Salem, N.C., where it has long tended to the cash management needs of R.J. Reynolds Tobacco Co. Today, the tobacco company's New York-based parent, RJR Nabisco, is a major Wachovia client.

Tobacco "is a way of life down here," said Thad Woodard, executive director of the Community Bankers Association of North Carolina. "It used to be almost like Christmastime when the tobacco farmers came to town after a harvest. It's still like that today in some areas."

Throughout the region, big banks have traditionally financed wholesalers and manufacturers of tobacco products, while small banks have concentrated on growers. Reflecting this division, the two groups of banks have distinctly different takes on the effects of a tobacco crackdown.

For bigger banks, tobacco loans are typically but a sliver of a diversified asset base.

For instance, Centura Banks Inc., Rocky Mount, N.C., has about 5% of its loans in tobacco-related businesses. That makes the $5.6 billion-asset banking company well cushioned against a downturn in the tobacco business, said chief executive Robert Mauldin.

Nevertheless, Mr. Mauldin said, "We obviously have some concerns."

For instance, if public policy pressures raise the cost of doing business for tobacco companies, wage earners could feel the pinch, and the result could be a sharp rise in credit problems. And a slump in profits among tobacco-related businesses would be felt on the commercial lending and cash management side.

For community bankers, the worries are more intense. In many rural towns, some small banks are almost wholly reliant on an affluent tobacco industry. They could be hard hit if government regulation makes tobacco growing more expensive and less profitable.

"One tobacco farmer summed it up to me last week like this: It's like there is a big rain cloud looming on the horizon, but you don't know how big it is and when it will get here," said Blake Brown, an agricultural economics professor at North Carolina State University.

Some banks in the region's small towns lend 40% or more of their portfolio to tobacco farmers. In Horse Cave, where tobacco is worth $40 million a year to a town of 2,000, farmers have tried to diversify in recent years into cucumbers, beans, tomatoes, even grapes, said Mr. Strickland. But none of them has produced the return that tobacco does, the banker said.

John T. Tilton, chief executive of $100 million-asset Heritage Bank, Lucama, N.C., said 15% to 20% of his loans are in tobacco production, and upwards of 40% of loans are tied to tobacco in some way.

"The key factor is how much of a ripple effect this would have on small businesses that are related to tobacco," Mr. Tilton said. For example, a bad tobacco crop in Lucama means bad business for the propane distributors and the seed suppliers, not to mention the fertilizer and chemical companies, he explained.

But farmers are a resilient lot, he said. "I don't think anybody is jumping out of third-floor windows at this point."

Some bankers expressed confidence in the tobacco farming industry.

Ayden R. Lee, chief executive of Four Oaks (N.C.) Bank & Trust Co., said his family has been in tobacco farming for as long as the industry has existed in this country. He maintains demand for the product will sustain the industry just fine.

"My father just had one of his best crops ever, and I suspect he'll have a few more," Mr. Lee said.

Mr. Lee and others, including Charles Harvey, a retired banker who is executive vice president of the Tobacco Growers Association of North Carolina, believe the growth in the popularity of American tobacco overseas will keep the industry prosperous.

"Opportunities around the world will continue to be there as long as our government doesn't screw up," said Mr. Harvey.

About 60% of the tobacco produced in the country is exported, a shift that began about a decade ago, said Mr. Brown, the agricultural economics professor. These foreign markets provide a buffer for the industry against the recent domestic tobacco squabbles, he said.

"This year they'll probably sell more than they have in a decade, and at the highest prices they've seen in a decade," Mr. Brown said. "So in the short term, things are pretty good, but the long term gets less certain."

Some banks have already begun weaning themselves from financial dependence on tobacco.

In Danville, Va., in the heart of that state's tobacco region, First State Bank, a $35 million-asset minority-owned institution, has probably benefited from the decline in the importance of tobacco to the region's economy in recent years, said Sylvesta L. Jennings, the bank's chief executive.

The percentage of the bank's total loans to tobacco has decreased from 10% as recently as five years ago to about 2% today, he said.

As a result, the bank has become more aggressive in securing business from some of the new companies in the area, such as Goodyear and Corning Glass, he said.

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