Carolina Bank Holdings, Inc. (CLBH)
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specializes in lending to entrepreneur-owned businesses by offering an array of
value-priced banking products and a professional corps of commercial bankers
Carolina Banks mission is to provide the highest quality customer service in their community through what they call a Person-to-Person banking relationship and employ the best people and the best technology to effectively manage the bank and ensure its financial institution is safe and sound. The company strives to create a challenging and rewarding environment for its employees, where each individual feels empowered to take action and do the right thing, generate profitable growth to make this a shareholder-driven institution, to make a positive impact on the economic vitality of its community and provide flexible products and services which allow customers to control their personal finances wisely.
CEOCFOinterviews: Mr.Braswell, what was the vision when Carolina Bank started and where are you today?
Mr. Braswell: The vision of Carolina Bank was developed because the community banking market in Greensboro, North Carolina had become quite decimated by poor operating performances of local competitors. The larger banks were continuing to acquire larger market share within our Region and Greensboro was not the center that it once was for them. There was a feeling that a well managed and properly placed community bank could be successful if they maintained safe and sound banking practices and followed traditional good service requirements that are typical in community banks. We incorporated the bank in November of 1996 and have been successful in fulfilling that initial vision by becoming the largest community bank that is both headquartered and opened here DeNovo here since 1980. In Greensboro, we have been the most successful community bank based on profitability, size and credit quality in Greensboro by sticking to those fundamentals. Our vision for the future is to build off of our success and history of the past. We have entered a second market of Asheboro, North Carolina, which is approximately 30 minutes south of Greensboro, and have had a very welcomed reception there by using the same platform we have developed in Greensboro. We will find, when appropriate, other markets like that to continue our approach to banking, which is to have a quality oriented approach, high service, high touch, quick decision making, fair and honest, decisions being rendered.
CEOCFOinterviews: What was it that attracted you to Greensboro and what do you see in Asheboro that is attractive?
Mr. Braswell: Greensboro is the hub of the second largest SMSA in North Carolina. That surprises many that think Raleigh would be number two but it is Greensboro, based on the last census. With the heavy manufacturing environment that is in Greensboro and the Piedmont Triad, it seems to make the most sense to initially remain more focused in this region as our primary base. We have an excess of five and a half Billion dollars in deposits in Guilford County, which makes it an attraction for us and all the other banks that are here or want to be here. In our mind, Greensboro was a proper location to start, especially with the fact that there was a void at the time of there being a focused community bank in Greensboro; all the others had been acquired. Asheboro was attractive because while having two community banks headquartered there, their approach was not consistent with our approach in doing banking. They tended to be more focused on other efforts and were distracted and were not taking care of their knitting, if you will; consequently we have been able to take advantage of that weak spot so far by building a good franchise down there which is going to do nothing but get better.
CEOCFOinterviews: How do you break down between consumer and commercial and would you like to see that change?
Mr. Braswell: On the loan side, we are about 92% consumer and 8% consumer retail. On the deposit side, we are still, if you take out the CDs on transaction accounts, more heavily slated toward commercial. We do want that to change and we have installed a number of initiatives this year to add greater focus to our retail bank. We have enhanced our product offerings on the retail side with our three core personal checking accounts. We are adding bill pay service this month. All of these new additions come at no cost to our consumer, so we are adding value there. We do not, like many of our competitors in the marketplace, attempt to give away our basic checking account service charges, we do feel that there is value had by our service. We also augment that service by absorbing the ATM charges that our customers would incur using a foreign ATM. We think that is a unique advantage that we have in our marketplace. While there may be other banks in the country that provide that, we at least, are unique in our marketplace. That has been a great selling point for us. We are trying to move the retail bank forward and get a greater share of the retail market but it is a slow and exacting process, with only four branches, you can only move so far and so fast.
CEOCFOinterviews: Do you do much advertising?
Mr. Braswell: We are quite comfortable in advertising and have had several ads running as of late, depicting the new enhancements that we are making to our three core personal accounts, which are basically travel, entertainment , shopping discounts, and accidental health insurance. If you are a senior account you get additional discounts on vision, hearing aids and drug cards. These types of things have been resonating well within our client base. The advertising game can only get you so much, you cannot advertise your way into a market and be profitable, and our goal is to be as profitable as we can. We are coming off five straight quarters of record setting results. We have released our earnings for the first quarter , and we had a 50% increase in earnings per share, that followed at 91% increase in earnings in 2003. We announced April 1st, a six for five stock dividend, which is in essence a 20% stock dividend; we have to recognize our shareholders for their support. We could certainly advertise considerably more but we think our shareholders would prefer us to be as profitable as we can be and be able to provide the returns that we are giving them.
CEOCFOinterviews: Will you tell us about the commercial lending; who is your target and how do you reach your customer?
Mr. Braswell: Our commercial lending is primarily targeted toward the small and medium sized business person and professional association. The larger banks, as they are growing larger and reducing their staff, are tending to focus more on the larger transactions meaning that this particular niche is being underserved. We are able to attract that market through several avenues. We have had from day one, a focus and consistent commercial calling program where all of our commercial lenders and branch personnel are required to make a certain number of calls per week and per month. While dividends are not always immediately received, we are continually pleased and surprised by the fact that we are getting business today that we called on three to five years ago. It is the constant nature of that business development effort, which will pay dividends. Secondly, through those efforts and networking with professionals, attorneys, CPAs and the like as they have seen more of our expansion in the lending area and when their clients have needs, we get referrals from that market as well. The best referral we get is from an existing customer. We are able to benefit from all three avenues at different times during each quarter.
CEOCFOinterviews: Are many of your commercial customers taking advantage of a variety of your services?
Mr. Braswell: They are! We have a very good cross sell penetration on our commercial side. We can do a better job on our retail side, which is why we have added these new product enhancements, which were mentioned earlier. We installed in mid February a new sales tracking system, which while only being up for approximately six weeks is having the desired results. So our number of sales and referrals are up considerably and time will tell how successful that system will be but it is clearly an enhancement over the process we were using earlier. We do a better job on the commercial than we do on the retail, but that is getting better.
CEOCFOinterviews: Are there services you are not currently offering that you plan to offer in the future?
Mr. Braswell: At this point I think that we are providing the bulk of services that our target market needs. We do not foresee the need to be in the insurance agency business, as many of our peers do. We think the cultures are completely different and you have to have sufficient size and scale to attract the proper insurance carriers to allow you to sell their product, and we see that as a challenge in a smaller community bank, working in a large market like Greensboro. That may work better in smaller community markets where you do not have the quality of insurance professionals as we do in this market, but we feel that we have all of the products that target and fit our clients needs.
CEOCFOinterviews: Will you tell us about community involvement for the bank?
Mr. Braswell: I think that has been another matter of which we have been successful in networking and attracting new relationships and retaining current ones. All of our offices are involved in one or more community boards of directors, civic clubs, etc. I think everyone is in at least one civic club or one board. Several senior managers, such as me, are on multiple boards, which allow us to use our time and talents to help serve the non-profit communities and needs and at the same time, allow the bank to be shown as being a community partner.
CEOCFOinterviews: Do acquisitions play a part in your future and do you see yourselves as a target?
Mr. Braswell: As far as being in the acquisition business, we are constantly on the lookout for an appropriate fit. We prefer to target institutions within a geographic time and distance that is manageable. I would not see us going to the mountains or to the coast to try and acquire something even if affordably priced, because the ability to manage and service it is going to be far more challenging. We are looking at those things in our vicinity, but there are not to many to chose from. As it relates to our being a target, we think one of the best ways to play defense is by playing good offense. We are performing at or above peer group level in earnings, growth, and the quality of our loan portfolio is much better than our peers, both regionally and nationally, save a few exceptions. We are clearly in the top one or two percent and as long as we are performing at that level, we feel that we have no need to sell out because we are achieving our goals. As I mentioned earlier, with the 91% increase in revenue last year, up 50% in the first quarter, very few banks are going to be able to achieve those consistent results, and that is our goal to do so. I cannot promise or give guidance that it will increase our earnings 50% this year, but they are going to be up noticeably over the last. That takes the pressure off in trying to sell out. We also know that our balance sheet is very asset sensitive. By that I mean that as interest rates increase, our income will increase relatively rapidly for about twelve to fifteen months until the pricing on our deposits catch up. By that very function, our level of income will go up materially faster and more than many of our peers who are not as asset sensitive as we are. That has been our strategy that we think is in our best interest. A number of our peers are less asset sensitive or even more liability sensitive, which depending upon how the balance sheets are structured, can be more of a challenge. In our particular case, we think we are on the right course, and with an added profitability that is basically sitting on the side lines, we know that gives us more of a cushion for the future.
CEOCFOinterviews: In closing, why should potential investors be interested and what should they know that they might not realize when they first look at the bank?
Mr. Braswell: I think there are several things that are part of the hidden value of Carolina Bank. We broke even in fifteen months, where most of our peers were losing money for two or three years and sometimes longer. In those fifteen months, we only lost $532,000 before we broke even and have been profitable every month since. With the fact that we lost less money than our peers, and in a shorter length of time, our price to book value is therefore understated. Had we lost more money, we would have a higher price to book value, so if a prospective investor is looking for price to book, then we will be seen as less than the median, but it is because we have been more successful than our peers. Our recent six for five dividends will correct some of that incongruity, but for the casual investor it may not be recognized. I think as far as our being a good investment for someone is concerned, if you look at the loan quality in our portfolio, you will see a strong dedicated and focused management of that function. That is not to say that our peers do not do so as well, but we have been able to execute on that a bit better. When you are investing in a community bank, you are investing in several things, you are investing in management and we have demonstrated that we have a strong management team from top to bottom. Secondly, our loan quality outperforms the majority of our peers and thirdly, our earnings and margins are improving very noticeably, which in a time when many of the national prognosticators are saying that margins will get tighter, ours will get better. We have had nearly five years of 30% average compound growth rate in our loan portfolio consistently. Most of our peers cannot say that, so the growth is going to be there in the future, the quality focus is going to continue and be there in the future. An investment in Carolina Bank is an investment in a safe, sound, improving profitable, financial institution, which others who will be more challenged will not be able to provide the same level of security for the investment.
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