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Personal Touch Drives Growth in Community Banks

By Jane Nicholson

BOONE — Community banks are thriving across North Carolina because they offer something few mega banks can match — personal service.

“There is no doubt that there is a large segment of the population who want to deal with people when they bank,” said Harry M. Davis, professor of finance, banking and insurance at Appalachian State University.

“The success of small town banks boils down to relationships,” Davis said. “For a real segment of the population, the personal relationship is important. They literally want to go in and talk to someone they know about a loan, an account or any problems they may have. That clearly is an advantage for the community financial institution.”

Hal Lingerfelt, N.C. Commissioner of Banks, agrees. “The name brand banks remain successful, but many people find merit in knowing their banker and in their banker knowing them. With the automation that’s available today, small banks can be as competitive as the larger banks, but it’s the personal service that makes the difference.”

North Carolina chartered nine community financial institutions in 2000, and has averaged around seven new community banks a year for the past four years. It’s a trend Davis expects will continue for the next five or six years.

“Applications for new community banks are coming in from across the state,” Lingerfelt said. Those include applications from prospective banks in Morehead City, Caldwell County and along the I-85 corridor.

“It’s a good time for new banks. With the growing economy and the state’s low unemployment rate, all of them have done quite well.” Lingerfelt said bank assets are growing about $1 billion a month in North Carolina.

At some point the community banks will grow into mid-tier banking operations through growth and mergers, but if present trends continue, there will be other community banks ready to take their place. Community banks are being chartered as fast or faster than the mergers are occurring, Lingerfelt said. In fact, during the past 20 years, there have been 39 bank mergers in the state and 35 new state banks chartered.

Ironically, bank mergers have contributed to the growth in community banks. “Displaced bankers, those who have lost their jobs to mergers or acquisitions, are driving the trend (in start ups),” Davis said. “Some are choosing not to relocate when the merger occurs. Instead, they leave the larger bank environment to start a new bank. Knowing that the smaller bank will become part of a community is a factor that is important to many bankers.”

Lingerfelt agrees. “There is a pool of very talented and qualified people available after a merger,” he said. “A lot of people who are offered early retirement make excellent community bankers.”