THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, November 20, 1995 TAG: 9511190088
SECTION: BUSINESS WEEKLY PAGE: 12 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 167 lines
They were the sorts of glitches that surface in the wake of most bank mergers.
Some customers' checks had been credited to the wrong accounts. Some of their monthly statements had been sent to the wrong addresses.
J. Morgan Davis responded by inviting those Princess Anne Bank customers with account discrepancies to drop by and talk with him. For three weeks in October, the bank president spent part of each day chatting with customers and resolving their problems.
Princess Anne, a Virginia Beach community bank with $93 million of assets at mid-year, had been acquired in August by CENIT Bancorp Inc., a Norfolk thrift holding company and parent of CENIT Bank. By the end of October, Princess Anne had put the merger-related complications behind it, Davis said.
Still, Princess Anne's chief executive officer acknowledged that several challenges remain.
One is finding quality loans for almost $100 million of funds that CENIT Bancorp has transferred to Princess Anne's books. With the transfer, Princess Anne doubled in size overnight.
Another challenge is holding onto its customers in the face of fierce competition from other banks, credit unions and non-bank providers of financial services.
In addition to transferring almost $100 million of funds to Princess Anne, CENIT shifted three Virginia Beach offices and 10,000 accounts from its CENIT Bank subsidiary to Princess Anne.
One of seven community banks organized in South Hampton Roads during the mid-1980s, Princess Anne was acquired for $13.59 million of CENIT Bancorp stock.
In exchange, CENIT received more than three bank branches and additional assets. It got a vehicle for expanding its pursuit of commercial loans and commercial deposits.
Like many thrifts, CENIT Bancorp's subsidiary has broadened its mix of services over the years to credit cards, consumer loans and some types of commercial loans. But it still relied on residential mortgage lending for much of its business.
Very few thrifts have had the financial resources, or the inclination, to grow by buying a commercial bank. But CENIT had sufficient capital and some familiarity with Princess Anne's management and operations.
``Morgan and I have known each other for years and have similar philosophies about banking,'' said Michael S. Ives, CENIT Bancorp's president and CEO. In addition, the two institutions had some common customers, he said.
Within two years, CENIT Bancorp probably will convert its thrift subsidiary to a commercial bank, Ives predicted.
By owning Princess Anne, the holding company has to file regular reports with regulators of commercial banks, and that familiarity with regulators will likely simplify the conversion process, Ives said.
Princess Anne, which reached a merger agreement with CENIT in late 1994, prepared for the recent influx of CENIT funds by doubling the number of its commercial loan officers. Earlier this year, it hired two lending officers who had been with Crestar Bank and a third who had worked with NationsBank.
Commercial loans already account for more than two-thirds of Princess Anne's lending. However, many of these have been secured by real state and are relatively simple to administer, Davis said. By hiring additional commercial lenders, the bank expects to make more sophisticated commercial loans, including those secured by inventories.
Yet local demand for commercial loans has been less than robust, and some of its expected loan growth will have to be taken away from rival banks, Davis acknowledged.
``That's the challenge - to grow the loan portfolio while maintaining quality,'' he said.
Another task for Princess Anne will be holding onto customers, including the depositors at former CENIT branches in Virginia Beach. Many of these customers have only certificates of deposit and will be more sensitive to the yields Princess Anne pays on its CDs than the bank's other customers are.
So far, the bank has not seen any outflow of deposits of the former CENIT branches. ``It's just too soon to tell'' if one will occur, Davis said.
To keep these depositors, Princess Anne will promote the expanded hours at its branches and its range of services, he said.
But Princess Anne also has to worry about keeping customers who have been with the bank for years, Davis acknowledged.
``Today, there are too many options for doing business in other places,'' he said while pointed out a newspaper article about banking on the Internet. ``The traditional mode of doing banking - visiting a branch - is becoming outmoded.''
To counter those forces, Princess Anne has to step up its attention to customer service, Davis said. Despite the inroads that home banking and other forms of technology have made in the delivery of banking services, Princess Anne has not given up on the role of branches. ``There is still a large segment of the population who think of branch convenience when they think of banking.''
Davis said he expects Princess Anne to open additional branches during 1996 in supermarkets and large discount stores in Virginia Beach. He declined to identify the store locations or the number likely to be opened.
While tackling the issues of loan growth and customer service, the managements of Princess Anne and CENIT also must blend two different cultures - CENIT's strait-laced, by-the-book approach with a more relaxed manner at Princess Anne.
In recent years, Princess Anne's style has been borne out in its annual reports. The reports have taken the offbeat appearance of daily newspapers with stories about the bank's activities on the front page and financial statements inside. Princess Anne's eight-page report to shareholders for 1994 - dubbed The Princess Anne Times - was a takeoff of The New York Times. In place of the New York newspaper's slogan ``All the News That's Fit to Print,'' the annual report carried the slogan ``All the Views Fit to Print.''
Princess Anne already has achieved some cost savings by moving its data processing from an outside provider to CENIT and consolidating other operations with those at CENIT. However, there have not been the cutbacks in jobs that some Princess Anne employees feared before the merger, Davis said.
Even with the consolidations, Princess Anne has had a net increase in jobs. Its workforce totals 67, including 15 who moved to the bank with the three former CENIT branches.
Outside the bank CENIT's influence on Princess Anne is already apparent. The maroon signs with scripted white letters that Princess Anne had used since opening its doors have been replaced with the dark blue signs and white lettering that CENIT uses at its offices. And underneath Princess Anne's name on the new signs is the phrase ``A CENIT Bancorp community bank.''
Bankers at some rival institutions express curiosity about how well the gregarious Davis will work with Ives, who is more reserved. Davis said their relationship has been harmonious.
Said Ives: ``We found very few areas of disagreement'' when working on the merger-related consolidations.
The seeds of Princess Anne's sale were sown when the bank was organized in 1985. Davis, along with then-chairman Homer W. Cunningham and other founders, set up Princess Anne within an existing bank holding company, Independent Banks of Virginia Inc. in Norfolk.
Independent Banks, parent of Heritage Bank & Trust, provided data-processing services and other assistance, while Princess Anne's organizers concentrated on raising capital.
``We felt we could get regulatory approval faster and open sooner'' by using Independent Banks, Davis recalled. That was important, he said, because another group in Virginia Beach was organizing a community bank. Some of Princess Anne's organizers figured that whichever bank opened first would have a competitive advantage over the other.
The relationship with Independent Banks did not worked out as expected, and by 1992, Princess Anne was spun off from the holding company. Pressure was building for some way for shareholders to cash out.
``Some (Princess Anne) stockholders had been in that investment for two decades, and they didn't have much liquidity,'' Davis said.
In 1992, Princess Anne accepted a merger offer from Commerce Bank, an expanding community bank based in Virginia Beach. Their deal was called off when an accounting rule complicated the way Commerce Bank would have had to handle the way it accounted for the transaction. ILLUSTRATION: Color photos Huy Nguyen/The Virginian Pilot
J. Morgan Davis, CEO and president of Princess Anne Bank.
Color staff graphic by Robert Voros/ The Virginian-Pilot
Research by Tom Shean
Princess Anne Bank at a Glance
Assets
Net Loans
Net Income
For copy of graphic, see microfilm.
VP Graphic
Princess Anne Bank's mix of Loans
Source: Princess Anne Bank
For copy of graphic, see microfilm
by CNB