BusinessTN

Community banks are among the last vestiges of a business society that relied more on face recognition than account numbers. And therein lies their strength, according to the leaders of community banks across the state.

“When a community bank is bought out by a regional [bank], the new bank promotes personal relationships, but really, they tend to want relationships only with the large customers,” says Tim Herndon, president of InSouth Bank, with branches in Shelby, Haywood and Tipton counties. “We, as community bankers, truly develop relationships with and know all of our customers. We tend to, as community bankers, stick by those customers when times aren’t as good.”

Pinnacle Financial Partners is a Nashville-based community bank that just celebrated its fourth anniversary.Pinnacle President Terry Turner says one of the most satisfying perks of his job is the ability to give clients quick answers to their requests.

It is a nerve-wracking experience for small businesses that are dealing with decision-makers they don’t know, who are in another city,” Turner says. “We go out and meet with clients. and they ask, ‘When can I get a decision on this?’ and we can say, ‘Well, you just did.’”

In a speech to the Independent Community Bankers Association last March, Federal Reserve Chairman Alan Greenspan outlined increasingly prominent differences between community and regional banks.

At community banks, he noted, residential mortgage, credit card and customer installment loan portfolios declined over the past several years. Community banks are experiencing extensive competitive pressure for new originations of mortgage loans from mortgage bankers, nationwide lenders and the Internet.

Turner says one of the more significant trends he observes is the rapid rate at which big regional banks are acquiring community banks.

“At the other end of the equation, community banks are being started rapidly,” Turner says. “When we started in the year 2000, there were 34 financial institutions in the Nashville MSA. But in June 2004, there were 43. So there was actually a net growth of financial institutions here.”

Jerry Greene, executive vice president of First Community Bank, headquartered in Rogersville, says he believes the growth of community banks is driven partly by a desire for bankers themselves to return to personal relationships.

“One thing I see happening in a lot of places is senior to mid-level people in banking opting out to go to community banking,” Greene says. “Personally, I left AmSouth to do this about three years ago. I wanted to be part of an organization that I felt like had more control locally and could meet the needs of the local market. I also wanted the opportunity to be in an entrepreneurial environment, which community banking is.”

Greene says First Community Bank has been a traditional bank model, with loans and deposits the thrust of their business. But now, they’re “very close” to a deal to offer a full range of investment products—mutual funds, stocks, bonds and annuities. The new portion of their business is expected to be fully operational sometime before March.

With the availability of technology, Greene says community banks can offer the same services as larger financial institutions.

“In our own portfolio, we’ve just revamped our products,” Greene says. “Technology has been a big reason community banks are competitive with larger banks. We can do the same bill pay and online banking that the bigger banks can do.”

The difference is the personal touch. Wib Evans, chief operating officer of FirstBank in Camden, says technology has “equalized the playing field” with regional banks, but knowing customers helps counter some of the problems associated with technology, particularly fraud.

“With the growth of technology, attempts at fraud are on the rise—attempts to defraud businesses and banks,” Evans says. “Since community bankers know their customers, they’re more likely to know if the person in front of them is the one on the account.”

Turner says with the growing number of banks in the state, another important trend is for banks to focus on a specialty niche.

“By that, I mean, if you think about our franchise for a second, we’re focused on owner-managed businesses and affluent consumers,” Turner says.

Other banks around the state focus on indirect automobile financing, the wealthy, or insurance agencies, exclusively.

Gaylon Lawrence, owner of Tennessee Bank and Trust, one of the state’s newest community banks (established August 2004), says community banks tend to be the financial institutions of choice for small businesses.

“It’s hard to be everything to everyone,” Lawrence says. “Our big niche would probably be small businesses, small business owners, entrepreneurs— generally people we believe are looking for financing to run and operate businesses. They want to get to know and deal with a banker for a long, long time.”

Lawrence says the niche market is often driven by the bank’s location. He points to his own bank’s location in Williamson County, a Middle Tennessee area considered affluent.

As we move into Murfreesboro and the West End of Nashville, we’ll be able to operate differently in those markets, and that’s one of the benefits of community banking,” Lawrence says. “We don’t intend to say we’re only going to be this kind of bank. We’ll tend to make the type of bank fit the location we’re in.”

InSouth’s Herndon says location is a key driver of how branches operate in their system.

“We think of ourselves as both a community banking group and a metropolitan group,” Herndon says. “In Brownsville, Covington, Atoka and Millington, we are less likely to have a niche. We focus more toward small business lending, construction lending and private banking in the metropolitan markets, Memphis and Nashville.”

Turner says most community banks also have a fairly narrow geographic focus.

The vast majority either start in small communities, or if they’re starting in a large urban market, they typically go to the outlying counties first and kind of nibble around the edges.”

With more community banks springing up, headed by good, experienced bankers, the most notable trend is toward competitiveness.

We all work a little better and a little smarter,” Greene says. “There was a time when community bankers could sit back and customers would come in. That day has passed, and we have a lot of competition from credit unions and the regional banks.”