Writer: Eleana Teran
4 min read April 2024 — Leaders in Raleigh-Durham’s banking sector are redefining what it means to be a financial institution in a rapidly evolving market. Championing innovative banking practices and harnessing the region’s unique demographic and economic dynamics, they foster substantial growth and development. The industry is evolving to meet the needs of the local community and to position the Triangle as a hub for both traditional banking and fintech collaborations. These efforts underscore a shift in the banking landscape, where customer-centric approaches and digital advancements converge to set new industry standards.
James Sills, president and CEO of M&F Bank, and Ron Day, president and CEO of First Carolina Bank, discussed these changes with Invest:. They explored key topics such as technological integration within banking services, the impact of regulatory changes, and the adaptation to evolving market demands and consumer expectations. These insights highlight the strategies contributing to their banks’ success and shaping the future of the banking landscape in Raleigh-Durham.
What are some of the overarching opportunities you are looking to capitalize on in the near term?
James Sills: In 2023, we had our best year in the history of the bank, generating $5.4 million in net income. Our year-over-year loan growth was 8.6%, one of the highest rates compared to other peer banks in the area. The Raleigh and Durham economy is strong, ranking 4 out of 5 stars. A significant portion of our growth occurred in the fourth quarter of last year.
As a small business lender, the Triangle market has a strong small and medium-sized business sector, which is our niche. Many large-scale institutions segment their loan portfolio by revenue size; we focus on small businesses generating less than $5 million annually. We’ve been successful in targeting businesses with 15 employees or less, offering the commercial banking relationship model instead of treating them like a number or calling an 800 number to receive routine service at a larger bank.
Ron Day: The demographics are favorable, with a significant in-migration to the Triangle area, making it a sought-after place to live and do business in. The region boasts strong infrastructure, excellent roads, and a robust business climate, further making it attractive for businesses, and the public-private relations are well-balanced, contributing to the area’s growth and stability. Additionally, the presence of renowned universities ensures an educated population with a strong and diverse talent pool for businesses to tap into. With all these factors in play, the banking opportunities are abundant, making it an ideal climate for conducting banking business.
Are there any upcoming or recently enacted regulations or policies that you are closely monitoring?
Sills: We are closely watching regulations affecting bank fees, such as those for overdrafts and late payments. There is also legislation requiring the collection and sharing of business information from small business customers, which we believe is excessive. Additionally, proposed changes to the Community Reinvestment Act (CRA) and other laws could further complicate operations for banks. We advocate for regulation that is tailored to a bank’s business model and size, as the current one-size-fits-all approach can hinder our ability to serve our clients effectively.
Day: Regarding actual policy changes impacting us, there have been some proposed changes to capital requirements for larger institutions. However, we are extremely well capitalized, with a surplus of capital in some respects. This positions us well for growth opportunities.
Our loan portfolio stands at $2.1 billion and we take great pride in the fact that we have not had a single past-due loan in over seven and a half years. This remarkable track record sets us apart from other banks in the entire country, making us a unique and reliable choice for our customers.
How is the bank adapting to the evolving landscape of the Triangle, in terms of demands or trends among your clients, and how are you shifting to meet those needs?
Sills: We’re the second oldest African American-owned bank in the United States, with a history spanning 117 years. We’re seeing an increased demand for payment options, specifically in how small businesses receive and make payments to access their money faster. We’ve joined the Real-Time Payments network and FedNow, and we’re revamping our treasury management services to accommodate customer inquiries about quicker access to funds. Further, we are receiving questions on how to speed up the crediting of sales on merchant accounts, reflecting a growing desire among our clients for faster financial transactions while maintaining a strong relationship with a community bank.
Over the past 18 months, we have received numerous questions about interest rates, which are unpredictable and beyond our control. We spend a lot of time educating our clients on the economic outlook. Despite the Raleigh-Durham area’s growth and expansion, high interest rates have led some businesses to postpone expansion plans. Currently, with the prime rate at 8.5%, many are waiting for a potential drop in interest rates, although the timeline remains uncertain. We believe a soft landing is possible but with inflation not yet under control, it may take some time to reach more favorable conditions.
How are you incorporating and leveraging technology to satisfy customer needs?
Day: We have branches in Virginia Beach, Rocky Mount, Raleigh, Cary, Wilmington, Greenville, Columbia (all in South Carolina), Reidsville (North Carolina), and Atlanta. With this setup, we can efficiently handle financial footings, loans, and deposits from one location. Interestingly, our model has attracted the attention of many businesses in the communities we serve and they primarily seek us out for availability of credit. Thus, as we continue to grow and make larger loans, the funding gap between the loan demand and the deposit business is widening. While our organic deposit-gathering activities are robust, they are not enough to keep up with the increasing loan demand. To bridge this gap, we began exploring fintech partnerships about 18 months ago, which is where BMTX comes in.
Around 90% of the U.S. population conducts some form of business through fintech applications, making embedded finance an essential part of the financial world. Fintech applications approach major brands like Walmart or Target, offering the opportunity to open a deposit account digitally with customers. However, fintechs cannot issue FDIC insurance, so they need to partner with banks to provide this service. This is where we come in. By partnering with fintech companies, we can generate additional deposit business through such relationships. One such partnership we are exploring is with BMTX. They specialize in assisting students with the efficient receipt of federal grant funds for tuition, room, board, and spending money while in college or university. When students choose the BMTX option, they can open a new checking account digitally through our partnership, becoming customers of our bank. This initiative not only helps students but also boosts our deposit balances, providing more core funding that we can lend out in the communities we serve.
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