When less is more.

• Author: Gray, Tim
• Position: Analysis of First Charter Corp.'s growth and acquisition of HFNC Financial Corp.

By gobbling up the state's largest savings and loan, little First Charter shows its size belies its appetite.

Joe King, president and CEO of Charlotte-based HFNC Corp., figured he knew what Lawrence Kimbrough wanted when Kimbrough walked into his office in late July 1997. He had not offered any specifics when he set the appointment. And King hadn't asked for any. HFNC, parent of Home Federal Savings and Loan, was for sale, and King assumed Kimbrough, president and CEO of First Charter Corp., would lay a bid on the table.

Until Kimbrough called, King hadn't considered the Concord bank a potential buyer. Though based in a town that had become a Charlotte suburb, First Charter was smaller than Home Federal, with $700 million in assets to the thrift's $1 billion. Big usually swallows small, not the other way around. Plus, King had thought his company, with oaken roots in downtown Charlotte, would draw bigger, richer banks. But he didn't brush off Kimbrough. More bidders could mean a higher price.

Kimbrough wasn't ready to talk numbers that day. "We just talked about how a merger sounded theoretically, philosophically," he says. As much as anything, it was a get-acquainted session. The two men had run into each other from time to time at statewide bankers' meetings, but they didn't know each other well.

As they chatted, King, though genial, would offer only that the prospect of their pairing up was "intriguing." "Joe's a sphinx," Kimbrough says. "Sometimes, you know less after you've talked to him than before you started." King had eyed the way First Charter's branches ringed downtown Charlotte and mused on how it complemented his in-town franchise. Still, as the meeting ended that day, he considered First Charter a long shot. He was confident one of the big boys would buy his company.

They didn't. Only First Charter made a bid high enough to turn King's head. And with the $241 million deal, expected to close Sept. 30, Kimbrough had pulled off the most surprising bank acquisition of 1998. Sure, NationsBank Corp.'s merger with BankAmerica Corp. is 200 times bigger. But people have been speculating about that pairing for years. Nobody - not analysts, not other bankers, certainly not Joe King - expected a bank based in sleepy little Concord, a former textile town that's finding new life as a Charlotte bedroom community, to buy the state's biggest savings and loan.

Orthodoxy said one of the state's mid-tier banks - BB&T Corp., CCB Financial Corp., Centura Banks Inc. or First Citizens BancShares Inc. - would scoop it up. They'd gobbled up thrifts in the past and supposedly coveted Home Federal's slice of Charlotte. Conventional wisdom said that community banks such as First Charter should stay small, stressing customer relationships. But First Charter typifies a group of North Carolina banks ignoring convention. Neither monsters nor midgets, analysts call them "supercommunity" banks.

"The concept is to form holding companies that can offer products that big banks do but have the flexibility of small banks," says Tony Plath, a finance professor at UNC Charlotte. They include perennial profitability leader Bank of Granite Corp. in Granite Falls, with $577 million in assets, and Triangle Bancorp Inc. in Raleigh, with $1.7 billion. These banks believe that as the big get bigger the small can, too. Five years ago, you wouldn't have been considered a community bank if you exceeded $1 billion in assets. But that was before NationsBank grew to more than $500 billion.

"The supercommunity...