UNC Kenan-Flagler Business School


Thriving in Tumultuous Times: Durham bank exceeds profitability projections in tough market


You might think Eddie Blount (’93 MBA) is out in left field for helping to start a bank as the Big Guys paced anxiously around their mortgage receipts. Actually, he’s closer to center field, in an office at KeySource Commercial Bank, overlooking the Durham Bulls Athletic Park.  

KeySource Bank received its charter in March 2007, after raising almost $19 million in start-up capital, $5 million more than the N.C. Banking Commission required the de novo bank to have in hand before opening its doors. Within 20 months, the bank reached $135 million in assets.  

“That’s way ahead of what we projected,” said Blount, executive vice president of KeySource. “The industry benchmark is to achieve profitability within 18 to 30 months. We exceeded that, even in a difficult interest-rate environment, even as a number of established banks swung from profitability to losses during this same period.”  

In 2006, Blount had logged 13 years in community banks in Durham when Don Draughon, KeySource’s president and CEO, asked for Blount’s help in putting together a board of directors and recruiting staff to launch a bank. KeySource patterned its business plan on a commercial bank in Raleigh that was the first in the state to focus exclusively on small and mid-sized businesses.

The 13 organizers tapped by Blount and Draughon put up seed money and later became the board of directors. KeySource opened for business and made commercial real estate loans as downtown buildings were being snapped up and rehabilitated.

 “We’re not trying to compete with big banks on their turf,” Blount said. “We’ve defined our own turf and filled a niche. And it’s a fairly profitable niche.”  

The bank has grown to a staff of 23, among them, Kenan-Flagler alumni Carolyn Davidson (’78 MBA), Roy Haga (’02 EMBA) and Christian Ricks (’07 BSBA).  

Part of KeySource’s success involves an online banking system that allows customers to scan their deposits and send them electronically, rather than have to rush to the bank to make a deposit before 2 p.m. Customers don’t have to take time away from work to stand in line, and the bank needn’t create a network of branch offices. Customers’ phone calls are answered by a receptionist, not an automated web, and customers who stop by the bank are offered cookies and a beverage. KeySource opens its large, state-of-the-art conference room overlooking the ballpark to customers and shareholders.  

“That differentiates us from other banks,” Blount said. “It’s as though they are part of a club; they have exclusive benefits.”  

The tough economy has created opportunities for KeySource. Many larger banks are shrinking their balance sheets to remain in compliance with regulatory guidelines, and some have done that by severing relationships with some customers.  

“It’s been a great opportunity for us, as a local bank with money to lend, to step in and fill the void,” Blount said.  Here’s what has worked for KeySource:

1. Grow business from within. When raising capital, Blount “targeted people we wanted to have as business customers,” he said. There also has been a high level of buy-in by local shareholders and directors.

2. Keep the entrepreneurial excitement alive. “We looked for people who wanted to be involved in starting something from scratch,” Blount said. Employees may work longer hours in a start-up but enjoy it more if the buzz stays alive. Decisions are made locally, not dictated by corporate headquarters, and employees feel they can influence decisions rather than just abide by them.

3. Keep an eye on the target, but adjust the target as needed. KeySource’s original plan called for wooing residential builders. As that market has changed, “we are being much more selective than we planned until that market recovers,” Blount said.

4. Find a niche and be the best in it. “Business people get tired of training a new banker every couple of years on who they are and how their business works,” Blount said. KeySource hires with continuity and competence in mind, then gives its clients superior service and the benefit of bankers who know what they’re doing.

5. Hire experience. Experienced bankers created a high level of competence that was hard for competitors to match. In addition, those who had been successful in banking for a number of years brought in their own customers as well as others from their circle of influence.