Big banks are getting bigger, but small banks can still prosper, according to celebrated investor Warren E. Buffett, who continues to single out North Carolina's Bank of Granite Corp. as his favorite example.
"It's a fabulous operation. It disproves a lot of myths that people have about banking," Mr. Buffett asserted in a weekend interview before the annual meeting of Berkshire Hathaway Inc., of which he is chairman.
"The Bank of Granite earned (a return on assets of) 2.74% in the first quarter, while keeping its customers happy," Mr. Buffett noted, pulling the bank's earnings report from his breast pocket.
Among the myths about banking, he said, is that "you have to be big to compete" and that growth itself can always "be combined with high profitability and customer satisfaction."
Berkshire Hathaway does not own a stake in Bank of Granite Corp., because the latter's market capitalization of about $300 million is too small to meet the company's investment guidelines. Mr. Buffett himself no longer makes personal investments.
But the renowned investor's fulsome praise has bolstered the stock of the company, which is based in Granite Falls, N.C.
Bank of Granite's chairman, John A. Forlines Jr., was in Omaha this weekend among 13,000 others headed for the Berkshire Hathaway annual meeting. He said his $564 million-asset banking company last year had a 2.82% ROA.
"Other banks are knocking on our door all the time. But we don't feel pressure to sell," said Mr. Forlines, who is still active in the business at age 78. He is especially proud of having increased cash dividends at Bank of Granite for 45 consecutive years.
Though Mr. Forlines said he is not inclined to sell, investors are still amenable to buying the stock. After Mr. Buffett first focused attention on Bank of Granite in 1996, its shares surged in value. Berkshire Hathaway investor Grant Alleyne, a retired physician, said he does not doubt that the bank's stock will surge again once Mr. Buffett's views become known.
Mr. Buffett's earlier comments "piqued my interest," Mr. Alleyne said. "The fundamentals look good. Why do people have to get into mergers when stand-alone banks are doing well?"
The bank's stock has become very expensive, at nearly 24 times earnings. That prompted a downgrading in an evaluation last week by analysts at Legg Mason. In Monday trading, the stock was up 75 cents, to $37.50.
Mr. Buffett said Bank of Granite reminds him of another small institution, Illinois National Bank and Trust Co., Rockford, Ill., which Berkshire Hathaway owned before a required divestiture. This bank has since been sold to Amcore Financial Inc.