Bigger & better.

• Author: Gray, Tim
• Position: Includes tables of top 110 banks and performance measures - BB&T Corp. - Cover Story

BB&T CEO John Allison believes size isn't everything when it comes to building a top-performing bank.

In the '90s, orthodoxy in banking has been that bigger is better. At least that's what executives at Charlotte-based Bank of America Corp. and First Union Corp. believed. It's the tyrannosaurus rex school of bank management. But lately, First Union, in particular, has looked less than fearsome, twice announcing this year its earnings wouldn't meet expectations. That's led to speculation that the bank may become prey, rather than predator, and that its CEO, Ed Crutchfield, could be in jeopardy.

While Bank of America and First Union gorged themselves, they got passed by a fleeter, lighter competitor - Winston-Salem-based BB&T Corp. Call it a reminder that it was the dinosaurs, not the wee, wily protohumans, that became extinct. John Allison, BB&T's chairman and CEO, has lately drawn praise for his superior performance on key bank profitability measures. Business Week even ranked BB&T the nation's best-performing full-service bank and Allison one of the best values as a CEO.

BEATING THE BEHEMOTHS BB&T is besting North Carolina's three bigger banks both in financial management (return on equity) and shareholder performance (total return). 1998 ROE 1. BB&T 20.4% 2. First Union 18.9 3. Wachovia 17.2 4. Bank of America 14.8 One-year total return(1) 1. BB&T 8.85 2. Wachovia 3.0 3. Bank of America (5.8) 4. First Union (17.3) * July 1, 1998, through June 30, 1999 Source: Bloomberg Financial Markets The market, too, has liked BB&T, with its stock outperforming the Big Three (see chart below). Allison recently sat down with BUSINESS NORTH CAROLINA to discuss the state of his industry. His bank, formed by the 1995 merger of BB&T Financial Corp. and Southern National Corp., is the state's fourth-biggest at $1.8 billion in revenues.

BNC: Do you resent that Bank of America and First Union have gotten more attention when your bank has better numbers?

Allison: Our goal has always been to be good rather than big. And how we approach banking is different than some of the bigger companies. We view it as personal-relationship business. Some of our competitors approach it in terms of technologies and products.

How can you be relationship-driven at more than $30 billion in assets?

It's philosophy and structure. We're organized differently than any large bank I'm aware of. We operate as a series of community banks, pushing decision-making much closer to the client. The most obvious example is loan decisions. Our community-bank presidents have pricing discretion. Say a new plant manager moves to town. He got divorced last year and has some credit problems and is trying to get a mortgage. Our community bank president can make an exception for him.

Can banks get so big they get inefficient?

If you look at the facts, they suggest that economies of scale in banking optimize in the $25 billion to $75 billion [asset] range, maybe $100 billion. There's no evidence of economies above that level. That's true around the world - the largest banks aren't the best performers. It's an issue of whether they can really manage credit risk in difficult times. The second issue is human management. Can a large organization deliver personal service in what remains a personal business?

So what did you do to get Business Week to fall in love with you?

The merger of BB&T and Southern National allowed us to create a far more efficient organization. And we've implemented a new kind of sales system. We've probably had five systems, and the first...