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ECONOMICHISTORY Branch by Branch BY DOUG CAMPBELL

How n 1804, the North Carolina To be sure, there were many forces General Assembly chartered the at work besides branching that helped North Carolina I first two in state history. North Carolina banks get an edge over One of them, the of Cape Fear in their out-of-state counterparts. became a Wilmington, made its own sort of his- Creative and aggressive managers — tory by simultaneously opening a such as the near-legendary Hugh banking giant branch office in Fayetteville. Though McColl of NationsBank (now Bank of having a branch might not seem America) and Ed Crutchfield of First remarkable today, North Carolina’s his- Union (now ) — pushed torically liberal policies toward their organizations to grow. Also branching are key to understanding the important were policies like allowing state’s status now as a banking giant. banks to get involved in a lot of non- “Statewide branching ultimately bank activities, such as insurance gave our banks an advantage,” says brokering, of which BB&T is now a Joseph Smith, North Carolina’s com- nationwide leader. missioner of banks. “It allowed our But branching set the tone in banks to get to a size and scale of hav- North Carolina, it is generally agreed. ing greater resources to compete. It Without the experience from branch- gave our banks something of a head ing, no amount of management start in the mergers and acquisitions expertise could have produced the game, and it also promoted competi- banking empire that now exists in the tion that served them well going Tar Heel State. “They were competi- across state lines.” tive bankers, but they already had the North Carolina — the 11th-largest size that allowed them to be the state by population — today is the acquirers rather than the acquirees,” second-largest banking state in the explains Lissa Broome, a law professor country. It is home to the headquar- at the University of North Carolina ters of three of the top 10 U.S. banks who directs the school’s Center for ranked by assets. , Banking and Finance. based in Charlotte, is the largest U.S. commercial bank and Charlotte-based Rural Roots Wachovia is No. 4. BB&T Corp. of North Carolina’s original embrace of Winston-Salem currently sits at No. 9. branching was not the result of a far- Those three banks alone give North sighted strategy to build banks of An 1848 $10 bill from the Carolina a more than $1 trillion lead nationwide power. Rather, it was an Bank of Cape Fear, in over the third-largest banking state, immediate economic necessity. A Wilmington, N.C., one of California, though New York is still far predominantly rural state in the early the first state-chartered banks. and away the largest banking center. 19th century, North Carolina allowed branching as a means to get banks into more communities than otherwise possible. “To get banking services in the Carolinas at all they had to tap capital from people in a number of different places,” Broome says. Even though there were only three state- chartered banks in North Carolina until the 1850s, each had multiple branches, allowing for close to statewide coverage. PHOTOGRAPHY: COURTESY OF NC MUSEUM HISTORY COURTESY PHOTOGRAPHY:

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While other states were placing state — Iowa — had at the least signif- “All of us felt it was pretty clear that restrictions on branching, fearful that icantly relaxed branching restrictions. critical mass was important,” Medlin big-city banks would drive out smaller But for a time, North Carolina says. “If you had a computer system banks and then operate in a non- banks were in a relatively unique serving 100,000 customers, it costs competitive fashion, North Carolina environment that taught them how to the same as if it were a million maintained liberal policies. This compete. Knowing that other banks customers. You required economies of created a uniquely competitive bank- could eye a good market and swoop in scale to be efficient and effective.” ing environment in North Carolina, to steal share, North Carolina banks Broome says. Besides having the had strong incentives to keep costs Interstate Banking Arrives ability to set up branches, North low and innovate whenever possible. While banks in the Southeast com- Carolina banks had little restrictions By the late 20th century, technological pact zone could go about buying each in buying other state banks, giving advances such as ATMs were making it other, federal and state laws still them experience in integrating the even more sensible to pursue banking kept most cross-state purchases from operations of another bank and early on a wider geographic scale. Moreover, happening. The Douglas Amendment on showing the economic efficiencies bigger banks were in a better position to the federal Bank Holding Company of putting together two banking to use those same technological Act of 1956 restricted bank holding organizations. advances and their accompanying cost companies from buying banks in other Beyond the fear that big banks savings to their advantage. In this way, states. Not until Maine in 1978 eased would exercise monopoly power, technology provided something of a restrictions on entry by out-of-state why would states restrict branches? double benefit (one that smaller banks did the barriers begin to fall at Thomas Hills, a retired bank executive banks were less able to take advantage the state level. At the federal level, it who has studied North Carolina of) to the already-large banks in wasn’t until the Riegle-Neal Act of banking history, suggests several North Carolina. 1994 that bank holding companies reasons. One is that for many years John Medlin was chief executive of were allowed to acquire banks in any North Carolina had four large Wachovia in 1985 when a pivotal state. (The act’s House sponsor was population centers evenly distributed Supreme Court ruling was handed Stephen Neal of North Carolina, around the state — Charlotte, Raleigh, down. The court in June, in upholding whose banks lobbied heavily in favor Greensboro, and Asheville. This was a similar New England law, essentially of the reform.) in contrast to states like , with upheld the lawfulness of the so-called Primed to grow, North Carolina a single big city in . “There was “Southeastern Regional Banking banks were ready when the nationwide never the big city against the agrarian Compact,” an agreement between 10 barriers to cross-state entry began to area dynamic,” Hills says. Southern states, including North fall. In 1989, North Carolina was the Meanwhile, North Carolina banks Carolina, South Carolina, , sixth-largest banking state by assets. were amassing size and scale that and Georgia, to allow banks from par- Hot on its heels were Massachusetts, out-of-state banks weren’t close to ticipating states to acquire each other. Michigan, and New Jersey. By 2006, approaching. The mid-20th century “When it became possible to [cross North Carolina was the No. 2 state in was a time of slow but steady growth in state borders] in 1985, our banks were the nation ranked by bank assets. North Carolina banking. In 1950, not better prepared for that challenge,” (New York has long held the top spot.) a single North Carolina bank was Medlin says. “Going up to Virginia for Most of this leap in the ranking among the 50 largest banks in the us was no farther from Winston-Salem came by virtue of the activities country. By 1960, Wachovia had than going to Asheville. This gave us of NationsBank and First Union. cracked that list. By 1980, North an edge on banks in other states like in The most notable acquisitions for Carolina National Bank (NCNB) had Virginia, where banks were confined NationsBank came in 1991, with the vaulted over Wachovia and into the to counties, and .” purchase of Atlanta’s C&S/Sovran top 25 largest U.S. banks. The week after the Supreme Court Corp., then in 1998’s merger with ruling on the compact, Wachovia -based BankAmerica. Branched Out bought First Atlanta. Around NationsBank took BankAmerica’s In 1975, North Carolina was one of that same time, First Union picked name, but kept the headquarters in just 16 states (plus the District of up Atlanta Bancorporation of Charlotte. The most recent big acqui- Columbia) that allowed statewide Jacksonville, Fla. In 1986, NCNB — sition was of Boston’s FleetBoston branching. (As it happened, , which had used a loophole in 1982 Financial Corp. in 2004. Virginia, and South Carolina also to buy a trust company in Florida, The big buys for First Union, allowed some degree of statewide which then allowed it to also buy meanwhile, came with pickups in 1996 branching, with only West Virginia in banks in the state — acquired banks of First Fidelity Bancorp of New the Fifth District keeping branch in South Carolina, Virginia, and Jersey, in 1997 of Signet Bancorp of restrictions.) By 1992, all but one Maryland. The race was on. Richmond, and in 1998 of CoreStates

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Financial of Philadelphia, the last of leaders in people like John Medlin in North Carolina Banks Timeline which set a record with its $17 billion Wachovia, Tom Storrs and Hugh price tag. Then in 2001, First Union McColl at NCNB, and Ed Crutchfield 1805: The Bank of Cape Fear opens as one of bought cross-state rival Wachovia and at First Union. North Carolina banks North Carolina’s first state-chartered banks. (The kept its name. were positioned legally and also from a charter was granted in 1804.) Simultaneously, During this period, Winston- management strength and a strategic it opens a branch in Fayetteville. Salem’s BB&T, led by CEO John planning standpoint to take advantage 1872: Branch and Hadley, the precursor to BB&T, Allison, quietly emerged. Since 1989, of those laws.” opens in Wilson. BB&T bought 59 banks and thrifts. Medlin agrees with that assess- Most of those deals paled in size com- ment. The competitive environment 1874: , the precursor pared with the mega mergers of Bank in North Carolina, he says, “challenged to NationsBank, opens in Charlotte. of America and the new Wachovia. management. We developed not Nonetheless, BB&Ttoday ranks as the necessarily smarter management but 1879: Wachovia National Bank opens in Winston ninth-largest bank holding company more experienced management. The (which later merged with the neighboring city in the . It also added 80 competition between us made each of Salem). insurance agencies and 30 nonbank of us better.” 1927: The Federal Reserve Bank of Richmond financial companies, building on its In 2006, it might seem that all opens a branch office in Charlotte. experience in a state that allowed such regulatory barriers to intrastate bank- forays into nonbanking activities. ing have been removed. But that’s not 1956: The Douglas Amendment to the Bank By 2000, North Carolina was well the case. Twenty-seven states, includ- Holding Company Act restricts ownership of established on the global map as a ing North Carolina, still place limits banking subsidiaries by bank holding companies financial services powerhouse. In on out-of-state banks from opening to only the state in which the holding compa- Charlotte, the headquarters of Bank branches inside their boundaries nies are headquartered. of America and Wachovia reach 60 (unless the out-of-state bank is from a 1958: Union National merges with First National and 42 stories, respectively, defining state where North Carolina has a Bank of Asheville, forming First Union. the Queen City’s skyline. More than reciprocal agreement). For example, a 32,000 people are employed by those South Carolina bank can’t currently 1960: North Carolina National Bank (NCNB) is two banks in Charlotte alone. open a branch in North Carolina — formed after successor to Commercial National unless the South Carolina bank buys a buys Security National of Greensboro. Great Leaders or Great Laws? North Carolina bank. For small banks When stories are told about North in particular that throws up a high hur- 1975: Some states begin to permit statewide Carolina’s ascension in the banking dle to growth because they usually lack branching, something that North Carolina has world, the names McColl and the capital to make such purchases. allowed since 1804. In 1975, only 16 states allow Crutchfield, Allison, and Medlin, Smith, the North Carolina banking statewide branching. among others, are raised. It was commissioner, believes such prohibi- 1989: North Carolina is the sixth-largest banking personal competition, one line of tions unnecessarily harm some banks. state in the United States, trailing California, reasoning goes, that led McColl to “There’s a whole economic market in Illinois, New York, Ohio, and Pennsylvania. top his rival Crutchfield with a taller western North Carolina, upcountry skyscraper. This “great man” theory South Carolina, and the mountains of 1991: NCNB acquires Atlanta’s C&S/Sovran, and holds that it was the leaders of Georgia — that’s one market,” Smith the new bank is called NationsBank. North Carolina’s banks that drove says. “Protectionism holds back small- 1994: The Riegle-Neal Act allows bank holding them to greatness. to medium-sized banks that could companies to acquire banks in any state. Thomas Hills, the retired First grow to their natural, optimal size.” Atlanta-Wachovia executive, recently In researching his thesis, Hills 1998: NationsBank merges with BankAmerica, wrote a 160-page thesis on the topic of came to an interesting realization: Not and the new company is called Bank of America. North Carolina’s banking prowess — a single, major bank with headquarters Headquarters of the merged bank is established and Georgia’s relative weakness — for in the Southeast has been acquired by in Charlotte. a graduate degree in history. (He now a bank from outside the Southeast. 2001: First Union acquires Wachovia, keeping works as chief financial officer for With regards to North Carolina, can the name Wachovia Corp. the state of Georgia.) Hill thinks that that record possibly hold up? both North Carolina’s regulatory On that question, Medlin is realis- 2006: North Carolina is the second-largest environment and its luck in getting tic. “I wouldn’t postulate today what banking state in the United States, trailing only some innovative chief executives were might happen 10 years from now. I New York and leading No. 3 California by more the key ingredients. would just note that there is a fairly than $1 trillion in assets. “They’re both equally important,” substantial lead right now and banks in Hills says. “You had brilliant banking North Carolina are still growing.” RF

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