A Conversation with Mike Crapps, President, First Community Bank

MidlandsBiz:
Where were you born and raised?

Mike Crapps:
The house where I grew up is literally three miles from our main offices here in Lexington.  My Mom tells her friends that her son has not gone very far in life.

MidlandsBiz:
Where did you go to college?

Mike Crapps:
I graduated from Clemson in 1980 and spent the next five years at South Carolina National Bank before joining what was then Republic National.  When Jim Apple moved over to First Citizens Bank, I became President at Republic.

MidlandsBiz:
When and why did you decide to start your own bank?

Mike Crapps:
I still remember the conversation that Jim Leventis and I had about starting the bank as though it were yesterday.  We both shared a vision of a locally owned bank that would serve the needs of what we felt was an underserved sector at the time – local business.  Jim and I wanted this to be way more than just another bank.  We studied the history of 22 new banks that had started in South Carolina between 1984 and 1990 and put together our business plan. We wanted to do things right and make the new bank a reflection of the unique identities of each of the communities we served.  And we wanted to offer a great return on investment for our investors.

That first conversation took place in early 1994 and we opened our first branches in August of 1995.  There were two original locations – Lexington and Forest Acres – both housed in what we called temporary, modular banking facilities, though people may be more familiar with the term triple wide trailers.

To this day, we still take a studied approach to any new strategic initiative and only enter into a new line of business if we feel we can do it well, and do it with integrity.

MidlandsBiz:
How did you capitalize the bank?

Mike Crapps:
We decided that the best fit for us was to raise the money ourselves rather than through a broker.  The initial stock offering raised about $7M from 700 initial investors, 97% of whom lived in Richland and Lexington counties.  In order to attract such a large number of initial investors, we set our minimum threshold for investment at a relatively low $1,000 (a typical amount is $50,000).  Our thinking on this was that someone who buys 100 shares (at $10) will be just as vested in our future success as someone who buys 5,000 shares.

MidlandsBiz:
From that $7M in initial assets, where do you stand now?

Mike Crapps:
Today, we are at $630M in assets.

MidlandsBiz:
What is your ownership structure?

Mike Crapps:
In 2001, we started trading on NASDAQ.  We are publicly owned.

MidlandsBiz:
Why have we seen so many new banks opened over the past couple of years?

Mike Crapps:
The recent build up of new banks has been driven by the availability of new capital, and capital seeks returns.  If you go back a few years, banks often traded at 20 times earnings.  Given that there have been virtually no failures over the history of banking in South Carolina, starting a bank offers the investor an attractive rate of return with very little downside risk.  When I studied the banking business back in 1994, of those 22 startup banks, only 4 didn’t make money for their investors, and even then, they at least returned their initial investment.

MidlandsBiz:
Will we continue to see new banks starting up given the current financial crisis?

Mike Crapps:
The conditions that were favorable for startups a few years back have shifted.  Capital has dried up in the private equity markets and banks are now trading at, or below, net tangible book value.  Investors are more interested in established banks with a proven earnings stream whose stock value may be undervalued.

MidlandsBiz:
Would that accurately describe First Community Bank?

Mike Crapps:
Yes, I think so.

MidlandsBiz:
Assess the current banking environment.  What happened?

Mike Crapps:
First of all, at First Community Bank, we have plenty of liquidity on our balance sheet and are eagerly looking to lend to qualified borrowers.   Last year, we grew our loan portfolio 13%; this year it has slowed to 7%, but it is still growing.  With headlines screaming bad news at you everyday, the problem now is more a crisis of confidence than anything else.

In my opinion, it started with an oversupply of housing driven by speculation. The price explosion that went on in housing, particularly in some markets, was unsustainable.  Like any other asset where the price rises rapidly, and a gap develops between fundamental demand and supply, price corrections will occur.

Some people focus on subprime lending as the root cause, but I see it as an adjunct to the problem.  The ability for people to borrow that maybe didn’t qualify, or that qualified only under special terms (such as interest free for two years) just fueled the fire that had already started.

During the boom, credit markets got too liberal.  What we are witnessing now is a swing back the other way – the credit market is maybe too conservative.

MidlandsBiz:
But the current situation must have affected you in some ways?

Mike Crapps:
We are fortunate we are not experiencing anywhere near the degree of asset quality concerns that we have seen elsewhere.  We are shielded somewhat from the current problems by the quality of our customer base and our proven track record in underwriting quality loans.

But community banks are not immune from what is going on in the economy. When the economy slows down and consumers start to change their spending habits, we are going to feel it.  Our business is a reflection of the local economy.

MidlandsBiz:
Why have larger financial institutions been in the news and not smaller ones?

Mike Crapps:
The balance sheet of a typical community bank is a lot less complex than that of a large organization.  The linkages are much shorter between, say, a Lehman’s bankruptcy and larger banks than they are to a local community bank such as ours.

MidlandsBiz:
There are rumors about consolidation in the banking industry as a result of the financial crisis.

Mike Crapps:
I think there will be consolidation both nationally and locally.  There is too much supply and not enough demand and the way that plays out in the banking industry here in South Carolina is not failures, but consolidation.

MidlandsBiz:
What strategies did you use to build the bank’s assets?

Mike Crapps:
There are different models to grow your assets in the banking business, but our strategy has always been focused on building the bank through core deposits.  We started with our initial investors and Board members and built our local relationships from there.

Other models for building assets are based on banks borrowing money from national wholesale networks and through brokered CD’s.  These may be a cheaper source of deposits, but the value in a bank is really driven by the customer relationships that you have, and the business that you have generated though those relationships.  And as we have seen recently, CDs are very sensitive to price fluctuations in the market.

Our model is based on finding solutions for
local businesses, entrepreneurs and professionals.  We started the bank with that strategy and it hasn’t changed a bit.

MidlandsBiz:
You recently announced that you were expanding your financial planning and investment advisory division?  Why go into this area, particularly at this time?

Mike Crapps:
The stock market is down over 30% this year so there’s no the denying challenges that financial planning presents in this environment.

We do round table discussions once a month where our commercial bankers invite an existing customer or a prospect to lunch to talk about the biggest challenges and opportunities that they see in their lines of business.  The interesting conclusion from these sessions is that retirement planning is consistently ranked as the number one concern of business owners.  Even though they know it’s important, business owners are typically so busy running their businesses that retirement planning is put off until later.

We have offered investment services for a couple of years, but we recently decided to jump start this division with the acquisition of two financial planning and investment advisory practices here in Columbia.  We are expanding our division because we know that can deliver the service with quality and integrity.  David Poole and Allen Hancock share our same customer-centric values and they are a great fit in our organization.

Our shared vision is to be a provider of holistic financial solutions, not just a lender.  We have to think deeply and differently about everybody’s situation because everybody’s business is different.  Whether it’s financing a particular line of business, or structuring deposit accounts to maximize cash flow, or helping with planning for children’s education, or retirement planning, we need to provide well thought out advice, not just comments off the top of our head.

Customers will choose a financial planner based on whom they trust and whom they think has a high degree of integrity, particularly in times of uncertainty.  That’s where the opportunity is for our bank.  Our bankers have grown up in Columbia; you will see them in our churches, shopping centers and at the ball fields.  They are rooted in this community and have a vested interest in helping those local businesses be successful.

MidlandsBiz:
Are banks able to offer the same level of financial planning as the dedicated brokerage firms?

Mike Crapps:
In the past, banks did not offer financial planning, so some people still have that mindset.  But it’s erroneous to say that the banks don’t have the resources to deliver valuable, well thought out advice that leads to making really smart financial decisions.

MidlandsBiz:
What are your goals over the next 5 years?  Other markets?  Other acquisitions?

Mike Crapps:
Our priority is to focus on organic growth here in the Midlands in three main business units: commercial banking, mortgage banking (which we are being very successful at), and financial planning/ investment advisory.  I can also see some additional branches.

If we do all of these well, I see a very exciting future for our customers and our shareholders.

MidlandsBiz:
What is your leadership style?

Mike Crapps:
The other people around here would be better equipped to answer that question.

The most important role that I play in this organization is to constantly build, reinforce, and teach our company culture.  I read somewhere that 30% of a company’s performance can be attributed to culture – that has stuck with me.  Culture is extremely important to us and is reinforced constantly.

An employee needs to have a clear line of site to how he is contributing to the overall success of the company – whatever role she is playing.

MidlandsBiz:
But as you get bigger, that becomes harder and harder.

Mike Crapps:
Yes, but it’s not impossible.  Recently, we were proud to be the only company in the Midlands to be nominated in the small to medium sized businesses category for Best Places to Work.  We have grown from our original 17 employees to 150, but our core values have never changed.

One.  Quality and Integrity.  If we can’t do something with quality and integrity, we are simply not going to do it.  We will not make ego-driven statements in press releases about how big we are going to be in five years.  If we say we are going to resolve an issue for a customer by a particular time, we’ll do it.  We also expect promises made to each other inside the bank to be honored.

Two.  Passion for the customers.  Competency is expected; we want our customers to walk away feeling positive about every transaction with our bank.  Fair or not, customers will judge us on the most recent experience, not the previous 400.  Since you can’t teach people to be nice every day all day, we hire people whose mother’s taught them to be nice.

Three.  Dignity and respect.  Treat colleagues with respect and dignity, no matter what their role.  Our roles may be different, but they are all equally important to the overall success of the organization.

Growth and change are always a part of business.  Regardless of the external forces on your company, it’s the role of the leadership team to ensure that a company’s core values never change.

MidlandsBiz:
Name local leaders that you admire.

Mike Crapps:
Since 1985 when we started working together and through the process of starting this bank, Jim Leventis has been a great role model to me.   He is a servant leader who is a great example to the people around him.  I have yet to meet anybody in Columbia that doesn’t like Jim.

Another leader I admire in town is Dr. Bill Jones, the President of Columbia International University (CIU).  Bill’s passion is leading groups of professional businessmen to have a better understanding of Christ. He has led scores of men’s Bible studies around town and is a great teacher.  He is more effective with his use of time than anybody I have ever met.  Bill’s intellect – his understanding and knowledge not only of the Bible, but also the world in general – make him especially effective.

But his greatest strength is his ability to connect with people.  When you are with him, you would think that he had nothing better to do all day than spend that moment with you.  That’s a rare talent in a leader.

MidlandsBiz:
What books are you reading?

Mike Crapps:
The Bible – every morning.

Also two other great books on leadership: Primal Leadership and Be Last by local author Jeremy Kingsley.

MidlandsBiz:
Will the current financial crisis impact how we do business in general?

Mike Crapps:
Most of the time when you come out of an economic downturn, you end up with something that is remarkably similar to what you started with.  This time, when we arrive at the other side of this recession, I think we are going to be irrevocably changed.

There will be less emphasis on consumption and more on savings.  People are going to return to more of a neighborhood feeling, maybe start growing their own vegetables, get back to what is important.  Consumer behavior is going to be different: more value conscious, more focused on local.