Ted Ashby, long-time chief executive and president of Surrey Bancorp, said “We may be off the beaten path for some larger banks, but we like our place and our business model.”
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Posted: Saturday, January 16, 2016 11:00 pm
MOUNT AIRY — Blending an old-fashioned atmosphere with modern banking services is at the heart of Surrey Bancorp’s motto of “Small enough to know you, large enough to serve you.”
Customers are greeted by name as they entered the main branch of the Mount Airy community bank, just what you would expect in a rural town that embraces the embodiment of fictional Mayberry.
Tellers await behind dark wood panels that resemble church pews. The office of Ted Ashby, long-time chief executive and president, is not only accessible, but right off the lobby by design.
The focus of the $276 million bank has been on business banking since the bank’s founding in July 1996, with a particular prowess for U.S. Small Business Administration loans in North Carolina and Virginia.
Yet, Surrey and its workforce of 76 offer financial products and services beyond the typical community bank, such as investment, property and casualty insurance, mobile banking and online services.
Surrey recently opened a branch at 393 CC Camp Road in Elkin, its sixth overall, with the goal of moving past Wells Fargo & Co. for the No. 2 market share in its home county behind BB&T Corp. A loan-production office is open at 717 Main St. in North Wilkesboro.
“We want to offer customers a hometown feel no matter where we are,” Ashby said.
“We also have been generally profitable above our peer group, and our shareholders are generally doing better.”
Surrey is one of the few North Carolina and Southeast banks, joining BB&T and BNC Bancorp, that produced a profit each quarter through the financial crisis that began in late 2007.
“We were proud of the fact we did not report a quarterly loss during that period,” Ashby said. “It helped validate our business model.”
Surrey has provided shareholders with a special dividend each of the past five years, increasing from 15 cents in fiscal 2011 to 27 cents for fiscal 2015.
As a result, Surrey has been ranked consistently by Florida financial-services firm BauerFinancial as a five-star “superior” financial institution. Bauer has recommended Surrey to investors for 44 consecutive quarters.
“BauerFinancial employs conservative measures when assigning these ratings, and consequently our analysis may be lower than those supplied by other analysts or the institutions themselves,” Bauer said.
“More than 30 years of experience has shown this to be a prudent course of action.”
Ashby said he and the Surrey board are aware that “you have to make money and competitive rates of return on stakeholders’ investments, or they will give up on you.”
“We’ve held to our values,” Ashby said. “We have a role in the success of our community with our ability to provide SBA and USDA (U.S. Agricultural Department) loans.”
Ashby said being small has its advantages for his management team and the board of directors.
“Our board can be more patient than private equity when it comes to return on investment,” Ashby said.
“We have worked with our customers to help them as we can when things don’t go as planned for them. We always shoot straight with them, even when it is bad news.
“As a result, we’ve earned the right to keep a local bank in Mount Airy and Surry County,” Ashby said.
Retaining a local community bank is not a given, particularly as the North Carolina industry is in the midst of another consolidation round.
Since the momentous departure of Wachovia Corp.’s Winston-Salem headquarters and 1,300 jobs in the First Union Corp. deal of 2003, the Triad has lost 13 headquarters through bank acquisitions, including seven in suburban and rural communities: Asheboro (twice), Elkin, Lexington (twice), Mocksville and Pilot Mountain.
Some of those deals were spurred by banks that took on private equity as a life preserver for managing or paying off toxic residential mortgages and commercial loans. The banks were sold when they became healthy enough to provide those firms with a small profit.
Following the expected 2016 completions of Yadkin Financial Corp.’s proposed $456 million acquisition of NewBridge Bancorp of Greensboro and BNC Bancorp’s $141.3 million deal for High Point Bank & Trust, the Triad will have just two prominent banking headquarters: BB&T Corp. in Winston-Salem and BNC Bancorp in High Point.
From a small banking headquarters scale, all that remains will be Piedmont Federal Savings Bank in Winston-Salem, Carolina Bank in Greensboro, Oak Ridge Financial Services Inc., Great State Bank in Wilkesboro and Surrey. On Wednesday, Oak Ridge announced that Ron Black, its chief executive and president since its 2000 founding, was stepping down Feb. 1.
Ashby said Surrey benefits from having a relatively self-contained market that likely doesn’t appeal to regional (those more than $5 billion in assets) and super-community banks (those with more than $3 billion in assets), although some of those could eye Surrey as part of filling in their Triad territory.
“We’re not going to enter Forsyth because there is too much quality competition there,” Ashby said. “But our business model fits in with other surrounding counties, as we believe Wilkes will prove out.”
Ashby said he and Surrey’s board of directors have not been approached formally by a bank or private-equity suitor, which he said is not surprising given that banks large and small typically make it known when they are for sale, rather than receiving unsolicited offers.
“We may be off the beaten path for some larger banks, but we like our place and our business model,” Ashby said.
Todd Tucker, president of the Surry County Economic Development Partnership, cited several ways that Surrey “brings value to our community.”
“Economically, they create jobs within their own organization, which may seem obvious, but these are not just average-wage jobs, but high-paying jobs,” Tucker said.
“Being able to get decisions on lending at the local level is of great value and saves time. They know the businesses and people they are lending to and take that into consideration when lending.
“Socially, they bring value by belonging to civic clubs, being on the boards of local organizations, and being involved with local charities,” Tucker said. “I think it is safe to say that our community is a better place because Surrey Bank is here.”
Ashby realizes Surrey may be in a small circle of community banks its size for the foreseeable future given that only three startup banks have been chartered by the N.C. Banking Commission in the past seven years.
“When we started in 1996, the capital raise requirement was about $5 million to $5.5 million,” Ashby said.
“Nowadays, regulators are expecting northward of $20 million to be able to absorb several years of losses. In a community like Mount Airy, that has become almost cost-prohibitive.”
Tony Plath, a finance professor at UNC Charlotte, said Ted and the leaders at the other local community banks “remain dedicated to the principles of community banking for their customers, employees, shareholders and communities.”
Plath said there’s a 10 percent chance that Ashby and the Surrey board would put the bank up for sale.
“It’s relatively easy for Ted to say no, since he’s in a truly isolated market in Mount Airy and the offer price, when it comes, is relatively low,” Plath said.
Yet, Plath said the stunning sale of High Point Bank & Trust shows that the next generation of executives in community banking “is much more likely to take the money from the sale of the bank and run.”
Plath cited Carolina Bank, led by chief executive Bob Braswell, as another community bank committed to remaining independent.
“Carolina Bank’s a very different story there, since Bob runs an independent community bank in one of the hottest growth markets in the Carolinas,” Plath said.
Plath said Braswell likely is getting more inquiries and higher offers to sell, “which is going to make it much harder for Carolina to say no if a really rich offer comes along — which it undoubtedly will if High Point Bank and Trust is worth a whopping $141 million.”
That’s why Plath said there is a 70 percent chance that Carolina Bank is sold within the next five years.
“If it is truly is in the best interest of the shareholders to sell the bank to a larger franchise that’s willing to overpay for a little community bank, the board’s gotta act in the best interests of the shareholders,” Plath said.
Plath said the reality for Mount Airy and Surry is that if Surrey were sold, “the acquirer would simply turn the bank into a junior deposit farm, milking the community for its little book of deposits and making loans somewhere else.”
“These factors make it easier for the Surrey board to handily reject an offer,” Plath said.
Ashby, at age 62, knows retirement is around the corner, though not a door he expects to step through anytime soon.
That said, Surrey already is preparing a succession plan with its management team so that doesn’t become an obstacle to further growth or inhibit its ability to remain independent.
“We have been purposeful in having multiple generations involved in our loan portfolio, which is about two-thirds of what we do,” Ashby said.
“Whoever is chosen will bring a different personality to how Surrey is run, but they will have the same understanding of our culture and the standards that we lean upon.”
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