Rock of Ages

Come the end of this year, the longest-running act in banking will finally close. John Forlines, a doughty 86-year-old with strong, sparkling blue eyes and a shock of white hair, will no longer be the chief executive officer at the Bank of Granite Corp. in Granite Falls, North Carolina. After 50 years on the job, he’ll turn it over to his number-two man, president and chief operating officer Charles Snipes. Forlines will stay on one more year as chairman of the board and then, in all likelihood, will give that up, too. It will bring down the curtain on a storied career.

Forlines grew up in Durham, attended Duke University, and during World War II became a major in the Army’s finance unit. By 1954, he was back in Durham running the family hardware business when a new group of owners asked him if he’d like to move to Granite Falls-a tiny hamlet in the furniture country of North Carolina’s northwest corner-to reinvigorate the ailing Bank of Granite, which had been founded in 1906. He said yes, and over the next half century turned it into a paragon of profitability. The company went public in 1984 and posted record earnings for 62 straight quarters, until the string finally ended in third quarter, 1998.

Its apogee probably occurred in the spring of 1996 when famed investor Warren Buffett, during Berkshire Hathaway Corp.’s annual meeting, extolled Forlines’ bank for its efficiency and wondered aloud why big banks couldn’t do as well. Seems Forlines had sent Buffett a copy of the bank’s annual report. And apparently Berkshire Hathaway’s CEO had taken the time to read it. It was as if the great Jack Nicklaus said he knew of a club pro down in North Carolina who was a better golfer than most of the guys on the tour. The bank got swamped with calls from investors around the country wanting a copy of its annual report, and Forlines-who’s conservative to a fault-had to print more copies. Served him right.

North Carolina is one of the most concentrated banking markets in the U.S., home to Bank of America Corp., Wachovia Corp., and BB&T Corp. All three were voracious predators going back to the 1970s, and Forlines’ company survived simply by being better. His tiny bank-which has grown to about $1 billion in assets-was indeed more efficient. It was also more nimble. And it provided much better service, which has long been the Achilles heel of most big banks. All this resulted in enviable earnings growth and a richly valued stock. “We just performed really, really well and that kept people from taking us over,” says Forlines. “We used to get a lot of calls and banks coming to see us, and they’ve quit because they’d have to pay so much for us, they couldn’t afford it.”

Sadly, the bank hasn’t performed up to its historical standards of late. Its mortgage company unit has been hurt by a slowdown in refinancings this year compared to previous years. And in 2003 Bank of Granite made its first-ever acquisition, buying the $187 million First Commerce Bank in Charlotte-Forlines’ first foray into that market. Not only has the deal driven up Bank of Granite’s expenses, it has given Forlines heartburn in other regards, as well. He had a falling out with First Commerce’s president, who stayed on after the deal but later left the bank. A soft regional economy-the state’s furniture industry has been hit hard by imports in recent years-hasn’t helped the bank’s profitability, either. Its return on average assets through the first six months of 2004 was 1.3%-well off its stellar performance of 2.06% for the same period in 2003.

Forlines says his plans for the future are unclear at this point. He’ll spend more time with his family and will continue to serve as a director at numerous community-service organizations in the area. And he’s still open to new experiences. Forlines is a staunch Democrat despite North Carolina’s standing as a solid Republican state, and this year, he was a delegate at the Democratic National Convention in Boston. It was his first trip to his party’s national convention and Forlines, who describes himself as a political junkie, enjoyed himself thoroughly. He even jokes that he might launch a new career doing who-knows-what. And, he just might.

Bank Director Senior Editor Jack Milligan recently interviewed Forlines about service quality, consolidation, and those other North Carolina banks.

Let’s talk a little bit about service quality. Do banks treat customers better or worse than they did 25 or 30 years ago?

I think banks generally are not treating customers as customers should be treated, and a good part of this is due to consolidation. As an industry we’ve gotten so big; it was a lot easier for us [to provide] crackerjack service when we were small than it is when we begin to get spread out. At a billion dollars in assets, we’re just a drop in the bucket [compared] to the really big banks in North Carolina. We’ve got 20 offices in seven counties and we’ve always operated as a family. We may be one of the few banks of that size that still gets all of our people together every other month to be sure we’re on the same page and talk about quality of service and that kind of stuff. We try to work at that all the time. That’s what our bank has been all about. We haven’t given a hoot about getting big through the years. We’ve just provided what I’d call “knock-your-socks-off” service. People say, “Wow” and tell their friends about it. That’s what builds our bank, coupled with the fact that we’ve always tried to provide better-than-average returns for our shareholders. That’s what we’ve been about. The big banks are talking a good game now, but they just can’t produce in the way of personal service.

Describe what you mean by “knock-your-socks-off” service.

It’s a type of service that indicates we really care about our people and [includes] the simple things like using people’s names. You’d be surprised what an impression that makes on folks if they’ve opened a new account and the next time they come in, you call them by name. Obviously those things get harder to do as you get bigger but we try to do that.

It’s really so simple, but it’s something nobody else does. I guess I’m the only one who calls it that; [at the bank] we usually call it “service excellence.” We monitor ourselves on it pretty regularly. We have a big quality-service day in each office about once a year. We have a checklist, and we stop all of our customers and ask them how they perceive the service and what can we do to make it better. You would be surprised at the letters we get. We always talk about people who have done something special. We’ve got a young woman in our Lenore office who is always doing this type thing.

One of her customers was in the bank and left his keys locked in the car with the motor running, of all things. He had his family with him, and this girl, Flo, just put them in her car and took them to their house to get the extra set of keys. She does that kind of thing all the time, but it’s perceived as a special kind of service that you normally wouldn’t get. The way I look at it is, make everybody have a transaction that is a delight for them.

So a lot of it comes down to just treating people in a nice way.

According to the Golden Rule. Treat them as you’d like to be treated. But there’s so little of that anymore when you go shopping. How many times do you go to a place, and you can’t find anybody to wait on you? I don’t do much shopping anyway, but when I do, that’s what I usually run into.

Is that a problem just with banks?

No, it’s a universal problem with service. And it’s brought about, to a large extent, by companies trying to increase profits and not have too many people standing around. That’s a problem with banks, in particular. It just tears me up when I walk out into our lobby to find three or four tellers and none of them are busy. We try to find something for those folks to do: Call a customer and thank them for the [account] they just opened; write them a little note or something like that. We do that all the time.

Would you consider service to be your big advantage over, say, Wachovia, Bank of America, BB&T-they’re all here in north Carolina.

Yeah, they’re all here big time. I think service would be the thing we try to do better. We feel like we’re more flexible, more nimble with something we want to get done due to the fact we’re not as big as they are. We can e-mail our people and get something started the next day, whereas it takes them forever to get any kind of a new program in place. I don’t want to keep saying this too much because they’ll make me eat my words, but we’ve beat the big banks coming and going in just about every place we operate.

Service is huge with us. We feel like folks deserve to be treated like individuals. Another thing is our people. We’ve operated in a very small area and our people are here to stay. They’ve got children in the schools, they’re on [local] boards-we encourage them to do all kinds of community service. Generally speaking, managers at the big banks are there for a short time. If they’re doing a real good job, they’ll be shipped to Georgia or some other place. We don’t have any place like that to send them, and folks don’t want to leave anyway. We’ve got office managers who have been with us over 30 years and they really know their [customers], so they don’t have to go through all the red tape that [the larger] banks do. A lot of times folks will say, “Well, I can get a better deal across the street.” And maybe it would be a better deal, but it takes forever to get an answer. We hired a couple of big bankers recently, and one of the toughest things we have to do is make community bankers out of them.

What don’t they understand?

Well they’re used to all these tiers of management going through all this bureaucracy, and they can’t believe it when someone calls and gets a loan approved, when other banks would take two weeks to do it. They love that-but they’re also amazed by it.

You must have known some of the big names in North Carolina banking, like Hugh McColl and Ed Crutchfield.

Knew them well. Hugh is not very well liked by most bankers in North Carolina. I get along fine with him, but I accept him for what he is: He’s just very domineering and he likes to tell you what to do. I like Ed as a person. The biggest problem with Ed was he was just trying to keep up with Hugh and made these acquisitions and paid far too much for them.

You watched those guys come and watched them go. What do you think of what McColl and Crutchfield left behind?

Well it may be too early to judge yet, but, in some cases, they created a monster. The thing that is so tragic to me is with these huge banks, it’s not uncommon for them to be involved in some kind of malfeasance and get fined $300 million, and they just sweep that under the rug and nothing much is said about it. Whereas with smaller community banks, that would wipe us out from the standpoint of public opinion. People just don’t take the same attitude toward big banks as they do community banks, I think.

You’ve announced you’re going to resign as CEO at the end of the year.

Those are my plans, as far as the corporation is concerned.


Good question. I guess a lot of people would think it’s because I’m getting a little too old for the job.

I have a feeling that’s not why you’re doing it.

Well, I have four children and eight grandchildren now. My wife died in 1982 and I’ve been devoting just about all my time to the bank. I tell everybody I might start a new career or something. Some folks have called me about writing a book. I’ve got enough information- if I could find it. I don’t keep scrapbooks or that kind of stuff.

You’ll still be chairman of the board?

I’ve agreed to one more year as an active chairman and then we’ll just kind of play it by ear and see what happens. It’s not as much fun as it used to be.

Really? What’s not fun?

Well it’s still fun the way I do it because I mix in a lot of other things with the banking. I’m really active in the community. They just named a building after me up at the local community college. [Editor’s Note: Forlines serves on the board of the Foundation of Caldwell Community College and Technical Institute, and Bank of Granite is a major contributor.] Had this big to-do about that. It kind of scares me every time I walk by it and see my name on the building. I said, “I’ve never owned a building before. What do I do with it?” But I work on [the foundation] and I work on the Caldwell County Hospice board. My wife was the first hospice patient when we started it 20-some years ago. Hospice care is usually done in homes, but we’ve got this huge mansion that was given to us and we converted it into really a small hospital. It has six beds and we have nurses and doctors around the clock. We were the first one in North Carolina, although there are several now. We set up a foundation and have $3 million or $4 million in that, so we’re really doing well. I’ve got several things like that I work on.

Are you comfortable turning the job over to such a young and inexperienced man as Charles Snipes? I mean, he’s only 70.

He’s 72. We’re trying to keep the ages a little bit on the low side. For a long time people would ask me, “How old is Charles?” And I’d say, “He’s 65.” But that’s what he was when he joined us. I just don’t think about him getting older. His [first] wife died and he’s getting married again this month, so I don’t know whether he’s going to be worth a damn after that.

It isn’t a matter of having confidence in him, it’s a matter of [how much] banking has changed and gotten to be so difficult. That’s part of the reason I’m talking about not being [involved as much]. This Sarbanes-Oxley thing has caused enormous problems for the community banks, and particularly our bank. It was poorly written legislation in my opinion. I talked with [Winston-Salem, North Carolina-based BB&T Corp. Chairman and CEO] John Allison a while back, [and] he didn’t have a financial expert who would qualify on the whole BB&T board. You know the Warren Buffett story-they don’t think he’s a financial expert! That hasn’t been a problem for us because I had two CPAs on the board, and I put one of them in charge of the [audit committee]. He had been a chief financial officer in a big outfit, so he qualifies as far as I’m concerned. But [the law] is just so unreasonable. I know a lot of smaller banks that have had their stock publicly traded but only have a little over 500 shares, and they’re trying to buy it back to get under the threshold [of being required to file periodic financial statements with the Securities and Exchange Commission and, therefore, being subject to Sarbanes-Oxley]. Also, a lot of the really small ones are trying to sell the bank because they can’t operate in these kinds of conditions.

Why haven’t you sold the bank? You could have, I’m sure, made a fortune.

Up until recently, I don’t think that was the truth. I’ve gotten myself in a little bit of a jam now without even trying. I haven’t bought much stock along the way, but we have had so many splits and stock dividends that I’m the only 5% shareholder in the bank. And when you figure what the stock’s been selling for and you multiply it by the number of shares I’ve got, why, I’ve made a lot of money. The problem is, it’s not that liquid. I can’t just throw it on the market like I could General Motors stock. So that’s created a little bit of a problem for me.

I don’t know what the future holds. You never say never about anything. I used to say we’d never sell the bank, but some people are paying such crazy prices for things. I was in a meeting recently with the president and CEO of a little bank down in Florida that Fifth Third just bought. I don’t know whether you saw what Fifth Third paid for it or not, but it was something like a 30% premium and over 30 times earnings. And I told him, “You tell that guy at Fifth Third if he wants to buy another bank, he can call me.”

Why did you wait so long to do an acquisition?

Well, we bought a mortgage company in 1997, and that turned out to be a bonanza until this year. Now it’s like an albatross around our neck [from an earnings-comparison perspective]. A year ago last [August], the mortgage company had earned about $300,000 after taxes. This year it earned about $20,000 after taxes, and the bank can’t make enough to offset that in this kind of environment. So it makes a pretty tough deal for us. We’re struggling with earnings right now, for the first time ever since I’ve been with the bank.

We have tried [to do] two or three [acquisitions]. We had one as far along as the feasibility study until we found it wasn’t what it was reported to be, and we backed away. Lawrence Kimbrough came along and bought it for First Charter. [Editor’s note: Kimbrough is chairman and CEO of Charlotte-based First Charter Corp.] He told me one night in a bar during some meeting a year or two later that it was the worst investment he ever made. That’s the big reason why we haven’t done it. There’s always a big difference between what we think they’re worth and what they think they’re worth.

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