Interview: Ron Day, President & CEO First Carolina Bank

Ron Day

President & CEO First Carolina Bank

How would you characterize the state of business for your operations?

It has never been better. We have doubled the size of our bank in the last 18 months, crossing the $1.2 billion asset mark in May 2021. We’ve been in quite a unique position here in North Carolina. The number of statechartered banks has decreased from over 110 prior to the 2008-09 recession to less than 40 today. One of the things that we have learned through all of this is that customers like dealing with smaller institutions that are responsive and decisive.

We were only a moderate participant in the PPP loan program, focusing mostly on our existing customers and a high level of personal attention with them throughout origination and now forgiveness of these essential loans. We were able to take relationships from larger banks because we were more responsive on full operating relationships throughout the pandemic (not just PPP). Our opportunities for attracting new customers and hiring new people who wanted to come to a less complicated platform and a place where they could serve their customers have really been remarkable.

What is First Carolina’s Bank vision for the future of its retail footprint?

Our strategy is not to have multiple locations per market. We have one location per market. We focus first on finding a good leader and then opening one office and serving the market from that one office. We tend to build our customer footing by bringing in commercial business that in turn leads to additional referrals and retail opportunities with the employees of those businesses. We focus on operating efficiency even as we invest in new markets, and lower is better. We are the most efficiently run bank in the state of North Carolina, and rank in the national Top 20 in that regard. Our efficiency ratio is around 40%, which means that for every 40 cents of noninterest expense, we generate a dollar of revenue. That is a testament to our talented people and demonstrates our excellent operating processes.

The Triangle attracts investments from local and international venture capital firms.

( ) Triangle as a priority market due to the ripe opportunity not only in terms of retail banking (doubling its local branches from five to 10 and projecting another 10 for 2021 alone), but also in terms of commercial banking and wealth management.

Raleigh-based First Citizens is on schedule to conclude its CIT Group acquisition announced in October 2020, despite the COVID-19 complications. By 2Q21, the new financial institution with more than $100 billion in assets emerging from the deal will turn First Citizens into one of the Top 20 largest banks in the United States. Even with the double challenge of a merger and navigating a pandemic, the bank closed 2020 with total pre-merger assets close to $50 billion. Southern Pines-based First Bank also reported strong numbers with uninterrupted, organic growth in Raleigh. The Raleigh office boasts the largest organic growth of the bank’s entire 103-branch network.

Also driving the sector is a booming real estate

market. PwC and the Urban Land Institute (ULI) ranked the Raleigh-Durham area No. 1 for expected growth in housing construction for 2021. Fuelled by the pandemicrelated inmigration and attractive housing costs, the Triangle is a safe bet for financial institutions giving out construction loans. Durham, specifically, has a limited housing inventory with 1.7 months of availability. Singlefamily housing construction permits, however, surpassed forecasts with 346 permits issued as of February 2021, a 33.6% difference to the projected 259. The same was observed with multi-unit permits, with 158 permits compared to the projected 135. Meanwhile, Durham delinquencies (5.5%) remain lower than the national average (6%), while foreclosures sit at 0.2%, also below the national average (0.3%)

CARES Act and PPP loans By the end of 2020, Raleigh and Durham ranked second and third in terms of PPP loans approved in North Carolina, right behind Charlotte. The former raked in 10,149 PPP loans for a total $1.22 billion, while the latter obtained 4,036 PPP loans for an aggregate $434.43 million.

On Aug. 10, 2020, the Small Business Administration (SBA) opened its PPP forgiveness portal. The loans can be partially or fully forgiven if used for payroll, rent, mortgage interest or utilities. As per the established SBA guidelines, the threshold to be eligible for full forgiveness is being able to justify that a minimum 60% of the PPP loan was spent on payroll costs, while up to 40% can be spent on other allowables, including rent, lease payments and mortgage interest.

Chuck Purvis

President & CEO – Coastal Federal Credit Union

Many consumers took it on the chin during the pandemic. All the stimulus payments and unemployment extensions helped but it has been a difficult time for them. Our business wasn’t heavily affected. People don’t borrow money when their future is uncertain, so we saw some decline in consumer lending. Consumers, particularly low-income service-oriented consumers, were hit hard. We did payment deferrals on about 30,000 loans, totaling about $600 million in loan balances, to give our members the chance to manage through the crisis financially. We know unemployment was somewhat high among our members, so we did everything we could do financially and in terms of loan payments to help them through what turned out to be a year of hardship.

Characterized by a chaotic rollout for the first round of PPP in the spring, by the time the second round rolled around in summer 2020, most entities, in particular the smaller community banks that proved pivotal in the rollout, had mastered the learning curve. The industry was ready to deal with further federal financial aid, coupled with the addition of an SBA loan component that raised the guarantee from 75% to 90% as of February 2021.

Another modification to PPP loans enacted in February was the specification that only businesses with fewer than 20 employees would be able to apply to ensure that small businesses were the main beneficiaries of this round, a move that benefited minority-owned businesses and mom-and-pop shops. North Carolina bankers welcomed the change and shared the Biden administration’s goal to make PPP loans available to the largest number of struggling small businesses. The state’s financial institutions put their money to work, providing PPP loans to close to 144,000 small businesses for an aggregate $14.9 billion, according to the North Carolina Bankers Association.

Challenges Although the PPP rollout was considered a success that greatly bolstered banking revenues, there were also challenges for the sector. In particular, the Federal Reserve cut interest rates to near-zero levels as early as March 15, 2020 and in parallel launched a $700 billion quantitative easing program. Lower rates are good for consumers who have capitalized on the favorable borrowing environment to refinance mortgages, pay down debt or boost emergency savings but the rate environment squeezes bank margins, leading to lower profits.

The Triangle is a priority market for banking institutions due to its potential growth of commercial banking and wealth management verticals.