Gateway Financial Holdings Inc. (GBTS)
Interview with:
D. Ben Berry, Chairman, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
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Gateway Bank and Trust Co. that offers a wide variety of commercial, retail, and residential mortgage services to individuals and businesses in northeastern North Carolina and Tidewater, Virginia.

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Gateway Bank and Trust’s team of experienced and committed employees have significant banking experience and represent the "best of the best" in their market

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Regional Banks

Gateway Financial Holdings Inc.

1145 North Road Street
Elizabeth City, NC 27909
Phone: 252-334-1511

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D. Ben Berry
Chairman, President and CEO

Interview conducted by:
Lynn Fosse
Senior Editor
July 2004

Daniel B. Berry, age 49, is the Chairman, President, and Chief Executive Officer of Gateway Bank.  Prior to joining the Bank, he served as Regional Market Manager for Elizabeth City, Hertford, Edenton, and the Tidewater Virginia area for Centura Bank of Rocky Mount, North Carolina (“Centura”), a position he held since 1995.   Prior to that, Mr. Berry served as Senior Vice President and Regional Executive for Hobbsville, Hertford, Edenton, and Elizabeth City for Centura since 1991.  He began his career in 1974 with one of the predecessors to Centura, Peoples Bank, as a management trainee in Hertford, North Carolina.  He gained experience in retail and commercial lending and was named City Executive of Peoples Bank’s Hertford office in 1987.   In 1988, he transferred to Peoples Bank’s Elizabeth City office to assume the duties of Senior Vice President and Regional Executive for Hertford, Edenton, Elizabeth City, and the Outer Banks.  Mr. Berry attended Chowan College in Murfreesboro, North Carolina, and majored in Business Administration.  He is a 1981 graduate of the Mid-Management Program at the University of North Carolina at Chapel Hill and a 1983 graduate of the Advanced Management Program at the University of North Carolina at Chapel Hill.

He is also a 1987 graduate of The Graduate School of Banking of the South at Louisiana State University in Baton Rouge, Louisiana.  He is a native of Hertford, North Carolina and has been active in Elizabeth City’s business, religious, and civic activities for many years.  He is a member of the Board of Directors of North Carolina’s Northeast Partnership and Chairman of the Economic Development Advisory Committee.  He serves as Chairman of the Albemarle Mental Health Center and is a member of the Elizabeth City State University Foundation Board.  He is a member of the Board of Directors for the North Carolina Bankers Association, as well as a member of the NCBA Executive Committee.  Mr. Berry is a member of the American Bankers Association Community Bankers Council.  He also presently serves as an ex-officio member of the Board of Directors of the Virginia Beach Division of the Hampton Roads Area Chamber of Commerce.  He is a former member of the Board of Trustees and Foundation Board of the College of the Albemarle.  Mr. Berry is also the former Chairman and President of the Albemarle Area United Way.

He is married to the former Sylvia Gregory of Woodville, North Carolina, and they have three children.

Company Profile:
Gateway Bank and Trust Co. (GBTS-NASD) is a North Carolina chartered banking corporation that offers a wide variety of commercial, retail, and residential mortgage services. Gateway is dedicated to providing the best financial solutions to its clients while giving personal courteous service. Although Gateway Bank and Trust Co. is a relatively new bank, they have an experienced and committed team of employees. Every team member has significant banking experience and represents the "best of the best" in their market. The primary purpose of the Bank is to serve the banking needs of individuals and businesses in northeastern North Carolina and Tidewater, Virginia.

The Company offers banking services including checking and savings accounts; commercial, installment, mortgage and personal loans; safe deposit boxes; and other associated services. To enable it to offer more personalized service to its customers, Gateway Bank offers or expects to offer additional products and services for its customers. Products and services offered are a debit card program, automated teller machines and drive-through facilities at its branches, and internet banking to both business and individual customers. The Company, through its subsidiary, Gateway Investment Services, Inc., uses a networking arrangement to make available securities brokerage products to its customers. Commercial and personal insurance products are offered through the Bank's insurance subsidiary, Gateway Insurance Services, Inc.

In addition to the principal banking office in Elizabeth City, North Carolina, Gateway Bank has ten additional full-service financial centers located in Elizabeth City, Plymouth, Roper, Edenton, and Kitty Hawk, North Carolina, and Chesapeake and Virginia Beach, Virginia. The Bank also has two wholly owned subsidiaries. Gateway Insurance Services, Inc., an insurance agency with offices in Edenton, Hertford, Elizabeth City, Plymouth, and Kitty Hawk, North Carolina, sells insurance products to businesses and individuals. Gateway Investment Services, Inc. assists bank customers in their securities brokerage activities through an unaffiliated broker-dealer.

CEOCFOinterviews: Mr. Berry, Gateway Bank is a relatively new company. What was your vision when you started and where are you today?

Mr. Berry: “Our vision was to create a community bank that would be big enough to compete with the major banks in the North Carolina and Virginia market, but small enough to do banking in the traditional way where people are empowered to make decisions and take care of the customers and meet the needs of the customers in the community.”

CEOCFOinterviews: How many branches do you currently operate and are there any plans for expansion in the future?

Mr. Berry: “At the end of the first quarter of 2004, we had opened eleven financial centers and had grown to $354 million in total assets. We have been profitable now for quite some time and have just announced buying three branches from Provident Bankshares Corporation, which will close in October. In addition, we have a number of branches under construction. We will be opening at Nags Head, North Carolina in July of this year.  Also, we will be opening on the North Carolina/Virginia state line in a bedroom community called Moyock, which is adjacent to Chesapeake, Virginia, a very big area in the Tidewater market. We will be opening our Virginia headquarters building at the Hilltop section of Virginia Beach in probably January of 2005, as well as opening our Sand Bridge office in Virginia Beach in March of 2005. After we complete the Provident transaction and the other branch openings, we will have twenty financial centers in northeastern North Carolina and the Tidewater area of Virginia and southeastern Virginia, and our Bank will be over $600 million in total assets.”

CEOCFOinterviews: How are your financial centers different from banks?

Mr. Berry: “My vision included having retail and commercial banking, personal and business insurance, and handling investments such as 401Ks for small companies, law firms, doctors, and other professionals, which we have managed to do at this point. We were just ranked number 36 by the American Banker in terms of insurance revenue and profitability. We have about $60 million under management currently in our investment side and we have three financial consultants that have Series 7 license that handle the investments for their clients.”

CEOCFOinterviews: Did the downturn in the economy affect the areas in which you are located?

Mr. Berry: “In northeastern North Carolina, the economy has held out very well; unemployment is below 4% and the market is similar in southeast Virginia. These markets are not affected by NAFTA, as we do not have a lot of furniture manufacturing or other textile type industries where jobs have been moved overseas. Virginia Beach is one of the cities in our market and in 2003 it had the fourth highest per capita income in the United States. It is all part of the Hampton Roads area of Tidewater, Virginia, which includes Chesapeake, Portsmouth, Newport News, Williamsburg and those areas with a population base of 107 million. It is the 27th largest MSA in the United States and the fastest growing in Virginia. We are home to the world’s largest naval base in Norfolk, Virginia and we are also home to the world’s largest U.S. Coast Guard installation, which is in Elizabeth City, North Carolina. Much of our economy is government, service, and tourism driven. We have the highest hotel occupancy rate in the United States. The Tidewater area has about 4.4 million tourists visit the Virginia Beach/Tidewater area on an annual basis and the Outer Banks of North Carolina have about six million tourists visit there on an annual basis. Tourism is a big part of our economy in this market.”

CEOCFOinterviews: Why are people coming to Gateway?

Mr. Berry: “We feel we offer a big bank product line with a personalized service. Our average banker has over twenty years experience and they know their customers and know how to take care of them. We always remember that this is a people business and we are about serving others. We try always to do the right thing and we want to create a win-win situation for our customers in each of our communities. We feel if we do these things correctly that it will certainly impact our numbers and we will make that our measure of accomplishment.”

CEOCFOinterviews: Will you give us an example of something that might be over and above what a customer might get at another bank?

Mr. Berry: “I think the thing you will see is that our bankers are willing to meet with our customers on holidays, weekends, nights, or early in the morning to have breakfast. They will do whatever is necessary to accommodate the customers’ needs. They will go above and beyond and interact with them socially to help accomplish various things in the community. We have been supportive of a number of community activities; everything from the little theatres to various public events and fireworks for the Fourth of July, and just supporting things in the community to give people a better sense of community.”

CEOCFOinterviews: How do you break down between commercial and consumer and would you like to see that change?

Mr. Berry: “Our mix now is about 80% commercial and about 20% consumer. We would probably like to see that about 70/30, but our Bank is more of a small business bank than a retail bank because that is the experience level of our bankers; they are primarily commercial lenders. We offer retail services and we have all the retail bells and whistles, from internet banking to online business banking, equity lines, and every retail product you could imagine, but our niche is more small business lending.”

CEOCFOinterviews: Do most of your customers come in through the lending side and do you have much success in getting them to take advantage of your other services?

Mr. Berry: “We do get most of our customers through lending and then we cross sell our banking services. Obviously we are lending them money and we want to make sure they open their checking accounts with us, as well as their credit cards, equity lines, savings accounts, and CDs. We cross sell and give incentive to our employees to cross sell.”

CEOCFOinterviews: Do you need to prepare for the rate increases, and how does it affect your business?

Mr. Berry: “Several years ago we were asset-sensitive, which meant that as rates went down, our profits declined and rates fell quicker than we anticipated. Now, we are well poised for a rate increase and we have been waiting two years for a rate increase because 73% of our loans float with the prime. Rates still are historically low and we can probably have 200 to 300 basis points and rate increases without it having a major impact on the economy or the portfolio.”

CEOCFOinterviews: Are there products ands services you are not presently offering that you would like to offer your customers?

Mr. Berry: “Right now, we offer everything that I am aware of that a big bank offers. The only thing we do not offer is true investment banking and that is a service we would leave to the big boys. Our asset management services are growing and we offer the online trading, but that is not a service that is profitable. Our main thing is asset management, which we continue to focus on by getting cross sells and referrals from the bank side.”

CEOCFOinterviews: You say you are a bank for the next century, what does that mean for you?

Mr. Berry: “Being a bank for the next century means that we continue to do banking the way that we know to do best, which is offering outstanding customer service as well as maintaining the appropriate product mix and branching and expanding into markets where the economy is vibrant and where we can continue to do well as a company. We will continue to meet the needs of the existing and potential customers and the local economy.”

CEOCFOinterviews: What are the challenges for opening and taking over several branches at one time?

Mr. Berry: “The main challenge is to convert them from their existing computer system to our computer system, which is the conversion process. This will be the third time that we have done it; the other two times it has gone exceedingly well and we feel that this time will be no different. Donna Kitchen, head of operations, is an old pro at this type of thing and she has her task force mobilized and ready to do that. So the conversion process is number one and number two is to train the existing employees on our policies and procedures. Number three, would be to train them on our products. We need to make certain that we retain the customers that they had and we do that by follow-ups on the phone, letters, and personal visits and making the process relatively painless.”

CEOCFOinterviews: Is there much competition for the type of banking that you are offering?

Mr. Berry: “There are several other community banks in our market and I would say that primarily where we compete is with the small bank to some extent, but generally with the larger banks through all the acquisitions and consolidations. The kind of customers they have get frustrated and once they deal with a community bank, they understand that their needs can be met and they can be taken care of in a more efficient and expedient manner. We want to be large enough so that we can meet their lending needs. I feel that our goal by 2007 is to be a billion-dollar bank and we feel that through organic growth, as well as a few acquisitions, we will be there.”

CEOCFOinterviews: In addition to years of experience, what do you look for in your people?

Mr. Berry: “We look for outgoing, friendly, and caring people; people that understand the needs of the market, that are good listeners, and willing to go the extra mile because the better you treat your customers, the better the bank will perform.”

CEOCFOinterviews: Why should potential investors be interested in Gateway Bank?

Mr. Berry: “We are a good growth company and we have continued to enhance our earnings performance. EPS is up eighty percent over last years and we have put the infrastructure in place. We have concentrated first on building a franchise and in our area, you have to have the financial centers in place to deliver the product. We focused on people and now that we are beginning to absorb those costs due to our growth, our earnings will continue to increase at a more rapid rate than they have in the past. By 2007, we feel like we will be performing and our strategic planning calls us to be in the 1% ROA and 12-15% ROE range.”

CEOCFOinterviews: What should potential investors realize about Gateway that maybe they do not realize when they first look at the company?

Mr. Berry: “The main thing they need to look at is our revenue stream. It is coming from the bank side, the insurance side, and the investment/asset management side. We do mortgage lending, but banks that have had tremendous earnings increases got a major portion of that from mortgage fee income through the refinancing business. While we had revenue in that area, it will continue to be stable and will actually grow based on our model, but it will not decline. Our level of non-interest income runs at about 35% of total income, which is a high rate for a bank our size, so we will not be totally dependent on our mortgage income and we are not totally dependent long-term on loan growth as we continue to expand our insurance and our asset management areas.”

CEOCFOinterviews: Have you changed your plan much since you started?

Mr. Berry: “The plan has changed in the fact that it is growing faster than I anticipated. We have worked on a strategic plan quite a few times and spent a great deal of time on a 50-60 page document in the summer of 2002. We went back in July of 2003 with our Board and modified it and we are in the process of modifying it again and we will present it to our Board again in August this year. They are with us working to continue to expand in our markets, as well as new markets and to get to that billion-dollar mark by the end of 2007, with the expected normalized peer group returns of a minimum 1% ROAs and a 12-15% ROEs. The reason I would not say a higher return on equity is because as you grow, there is more of a need for excess capital. As time goes on and we experience more normalized growth, we would expect that return on equity to be fifteen plus.”

CEOCFOinterviews: In closing, what would you like readers to remember about Gateway Bank?

Mr. Berry: “I think we are a full service financial center provider that wants to be like a big bank in terms of product line, offering line, and lending limit. We want to make sure that we maintain that personal touch and make sure our employees have local autonomy because I believe that motivated, happy employees create very satisfied customers and that creates very well satisfied shareholders.”


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