More banks for the buck: our Financial 100 ranking shows fresh competition keeps flooding the field even as the economy softens.

• Author: Maley, Frank
• Position: FEATURE

Greg Gibson admits his obsession with growing his bank borders on the extreme. "We jokingly say, 'We're not building a bank--we're building a cult.'" To a casual observer, it's probably not a very scary one. Its sacred text is Good to Great, a manual for business success. Branches offer rocking chairs and freshly baked cookies. Employees wear golf shirts and khaki pants instead of suits because customers said in surveys that fancy pants and jackets intimidate them.

The down-home routine might seem corny until you look at the numbers Hendersonville-based Mountain 1st Bank & Trust has been reporting. Launched in April 2004 with Gibson as CEO and a goal of reaching $1 billion in assets within eight years, it ranked 98th on BUSINESS NORTH CAROLINA'S Financial 100 last year by grossing $4.1 million in its first partial year in business. This year, it shot up to 52nd--the biggest mover on the list--after grossing $17 million in 2005 and turning its first annual profit. It ended the year with $322 million in assets. Its return on assets and return on equity were less impressive--among the worst on the list. But that's mostly because its loan portfolio is growing so quickly that much of its income ends up in loan-loss reserves.

Gibson knows he can't build a billion-dollar bank on rocking chairs, cookies and comfy duds alone. But they're perhaps the most visible signs of his main principle: Build cozy relationships with customers, and good numbers will follow.

It also helps that Mountain 1st had more startup capital than most banks--$18 million, six times the state minimum. The bank raised $23 million more a year after opening, and 34 of its first 35 employees had worked at MountainBank Financial, which was started in Hendersonville in 1997 and reached $1 billion in assets before being sold six years later. Gibson was its chief financial officer. The staff's local connections helped in the beginning, but Mountain 1st has spread to places MountainBank didn't go, so employees know they can't always rely on reputation to win and keep customers. They have to hustle. "We're consistently out calling on customers."

That's a must, because the financial-services sector in North Carolina has long been among the most competitive in the nation. With two banks among the top five nationally, three in the top 15 (only New York has more), 18 financial institutions that have more than $1 billion in assets and more than 200 other banks, thrifts and credit unions, Tar Heels have a wide range of homegrown options. And that doesn't include big, aggressive out-of-state banks such as Toronto-based Royal Bank of Canada, which owns Raleigh-based RBC Centura Banks, and Atlanta-based SunTrust Banks.

Of course, the big banks get the lion's share of the business statewide, but most Tar Heel financial institutions have been able to make money on what's left. And more banks are joining the fray. As of Sept. 30, the state had chartered eight banks this year, and three more had been proposed. Only three were chartered last year.

The influx comes as consumer income is rising, jobless rates are low and gasoline prices are down, says Tony Plath, associate professor of finance at UNC Charlotte. "All of those things put more money in people's pockets."

But as the U.S. housing market cools, institutions that rely heavily on mortgages might struggle. "The economy is slowing at a time we've got the number of banks picking up," Plath says. "We're going to have winners and losers. Some of the banks just aren't going to be able to gain traction in the marketplace, and they're not going to be able to grow organically because the market is not going to be growing that rapidly."

Harry Davis, a finance professor at Appalachian State...