- The Washington Times - Monday, January 10, 2000

Executives from Wachovia Corp. and BB&T; Corp. have been crossing paths for years in Winston-Salem, N.C., where both banks maintain their home offices.

Now, they're bumping into each other in Northern Virginia.

Attracted by one of the hottest and most crowded banking markets in the country, Wachovia and BB&T; began moving into metropolitan Washington two years ago.

They face tough competition from the mammoth Charlotte, N.C.-based Bank of America to small institutions like Century National Bank of the District. And from each other.

The two are billing themselves as large banks in community banks' clothing institutions with a full range of products that can give consumers a community feel.

BB&T; has a presence in the District, Maryland and Virginia, while Wachovia only has branches in Virginia. And they have different strategies: BB&T; has a decentralized, locally based management structure, while Wachovia is more centralized and focuses more on corporate clients. Neither could resist the lure of the lucrative Washington market.

"The metropolitan D.C. area is one of the best markets in the world," said Kelly S. King, president of BB&T.;

Washington has the stability of the federal government and high growth in its technology sector, both of which make it attractive, Mr. King said.

According to one local analyst, both banks may have trouble squeezing themselves in among the players in the area.

"It's hard to see a good role for these people," said banking consultant Arnold Danielson, head of Danielson Associates Inc. of Rockville.

"They are banks headquartered out of the area, and the combination of that and their size means they can't play the local card like a Sandy Spring or even a First Virginia," he said. "So they're competing directly with large banks, who offer so much more market clout in terms of having stores on every corner."

A big community bank

BB&T;, the nation's 21st-largest bank, is organized into 20 regional subsidiaries, and decisions are made on the local level.

"Our goal is that 95-plus percent of all decisions are made in the local market," Mr. King said.

Analysts see BB&T;'s commitment to community as genuine.

"When people talk about community banking, that's BB&T;'s MO," said Marni Pont O'Doherty, a banking analyst with Keefe Bruyette & Woods Inc. in New York.

The man in charge of the local market here is Robert Pincus, a 25-year Washington banking veteran. He was the chief executive officer of Franklin Bancorporation Inc. of the District from 1991 until its purchase by BB&T; in 1998.

"We're so compatible with BB&T; and their values and their management philosophies … I would not have sold to any other bank," Mr. Pincus said.

Franklin was a commercial bank only, and did not take on any retail customers. The July 1998 merger allowed the bank, in becoming part of BB&T;, to expand, Mr. Pincus said. Prior to the sale, when corporate clients wanted to do their personal banking with Franklin, he had to turn them away.

"And now we can cross-sell to our existing customer base, we can penetrate and get their business," he said.

Mr. Pincus also highlighted BB&T;'s decentralized management structure, and said no one who worked for Franklin prior to the merger has left the bank and only one employee in the main office came from BB&T.;

The acquisition of Franklin was merely BB&T;'s first foray into the area. In October 1998, the bank bought Maryland Federal Bancorp of Hyattsville, and followed it with the purchase of two other banks, a Richmond brokerage, and a Fairfax insurance agency. Now BB&T; has over 30 branches in the greater Washington region.

Mr. Pincus said the bank's assets in its Washington segment have increased 35 percent since it entered the market.

The company has not done a lot of advertising in this area, preferring to market on a more grass-roots level, Mr. King said.

"We'd rather sponsor … events that help the community and frankly, help us too," he said. Hence, the BB&T; basketball tournament recently held at MCI Center and events sponsored at the Kennedy Center.

The bank has a long community tradition in its home state of North Carolina as well. Founded by Alpheus Branch after the Civil War, the bank made loans to farmers whose property had been ravaged by the war. It became Branch Banking and Trust Co. in 1913, eventually shortened to BB&T.;

'Der Wachau'

Wachovia has its roots in North Carolina, and has grown to the 15th-largest bank in the United States, with $65.8 billion in assets.

"Wachovia" is the Anglicized version of "der Wachau," a valley along the Danube River. When German Moravian colonists arrived in North Carolina, they found the Piedmont region reminiscent of der Wachau. The bank was formed in 1911 by the merger of two Wachovias, Wachovia National Bank and Wachovia Loan and Trust.

The modern bank is targeting the Washington area with a full suite of financial products and a strong corporate banking area.

"My sense is they're going after market sub-segments," Ms. O'Doherty said.

"There's a lot of wealth being created" in this area, and Wachovia is going after those high-worth clients, she said.

Wachovia puts an emphasis on real estate and automobile-dealership financing, said Jim Cherry, president of Virginia banking for Wachovia.

David West, director of research at investment firm Davenport & Co., said Wachovia tends to go into new geographic areas through financing before it builds branches there. For example, the bank has funded real estate projects in the District, but has no physical presence there.

The bank builds offices in what Ms. O'Doherty called a fairly rare arrangement, providing "work-site services."

That is, Wachovia puts branches and automated teller machines in company buildings.

"We attempt to provide financial products to the company, the executives and their employees at their workplace," said Martin Zorn, regional vice president of Northern Virginia for Wachovia.

Like BB&T;, Mr. Cherry said his company's bankers make decisions on the local level.

"We have the best of what you might call the community bank and the large bank, with a full breadth of products and a community banking delivery system," he said.

"Our commitment, whether it's on the consumer side or commercial, is really to create a long-term financial partnership," Mr. Zorn said.

But analysts pointed out that Wachovia and BB&T; are quite different banks, the former having a more big-bank, technology-driven mentality.

"Wachovia is much more of a major corporate lender," Mr. West said.

"They're approaching [their markets] really differently, but they're both savvy competitors," Ms. O'Doherty said.

Mr. Pincus insisted that BB&T; is the true community bank, even though Wachovia executives say they practice relationship banking. He said he has been in this market for a number of years, whereas Mr. Zorn and Mr. Cherry worked for Wachovia, not in Virginia, prior to Wachovia's move into the area.

Wachovia entered the Washington area in June 1998 with the purchase of both Jefferson Bancshares Inc. of Charlottesville and Central Fidelity Banks Inc. of Richmond. The bank now has over 350 branches in all of Virginia, almost 40 of those in the northern part of the state.

Where to?

Neither Wachovia nor BB&T; is content to clutch a small piece of market share and defend it against competitors. They both aim to grow in Washington.

BB&T; has a five-year plan to more than double its market share, which currently stands at 4.46 percent in the District, 3.16 percent in Virginia and 1.31 percent in Maryland, according to recent Federal Deposit Insurance Corp. figures.

Target locations include Centreville, Reston and a branch near FedEx Field in Landover. Mr. Pincus said also that if the company sees a good opportunity for acquisition, it will pursue it.

"We would very much like to continue with acquisitions in the greater D.C., Baltimore area," Mr. King said. He noted that BB&T; only does "friendly" mergers buying banks that agree to be bought.

Wachovia does not have plans to build branches in Maryland any time soon. It has a 10.63 percent market share in all of Virginia. Mr. Cherry said the bank will grow internally rather than increasing its size through acquisitions in the area.

"A good deal of that [internal growth] will probably not be through bricks and mortar, but through work-site services and such," he said.

"There's a lot of business we could do without a branch there," such as real estate financing, Mr. Zorn said.

The bank will open a new regional headquarters in Tysons Corner in late spring.

Shareholder view

The banks are not only expanding geographically, but financially.

"They're both very good banks, very high-quality institutions that generate materially above-average returns for shareholders," Mr. West of Davenport said.

Analysts at Friedman Billings Ramsey & Co. in Arlington agreed in research briefs.

"BB&T; has developed a unique franchise that continues to excel on an operating basis. Not only has it become one of the highest performing banks in the industry, it has displayed above average earnings growth for several years," wrote John B. Wimsatt in an October report.

Ms. O'Doherty said that even though the banks are strong financially, they have been victims of the low stock prices in the banking industry. On Friday, Wachovia's stock closed at $66.56 on the New York Stock Exchange, 24 percent off its six-month high of $87.75. BB&T;'s shares closed at $26.75, 27 percent lower than its high of $36.94.

Carla D'Arista, an FBR analyst, wrote in a December 14 brief on Wachovia that the bank's stock is undervalued, and said it would be a good buy.

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