De Novos Put New Fire to Rivals' Feet
Woker, Craig, American Banker
Illinois-based Amcore Financial Inc. goes head to head with competitors ranging from national operators such as Bank One Corp. to tiny one-branch start-ups.
But it is not the giants that the $4.4 billion-asset banking company in Rockford, Ill., fears most. It is the upstarts that offer cutthroat loan and deposit rates to build business.
"The small banks, especially the start-ups, are desperate to increase market share and grab customers," said Robert J. Meuleman, Amcore's chairman and chief executive officer. "They usually don't have public stockholders, so they take the position that even if they're hurt in the short term, they're building business. With de novos, there's a time line that they don't have to worry about profitability."
Call it start-up backlash.
Many large established community banks say they face an increasingly frustrating time competing against aggressive start-ups. While they have always faced some challenge from the smaller, nimbler rivals, the competition has grown stiffer in recent years because so many new banks have been started.
Nationwide, 958 new banks and thrifts opened their doors from 1995 through 1999 -- double the 477 that opened in the first half of the '90s, according to the Federal Deposit Insurance Corp.
Big, multibillion-asset community banks say this trend has them in a pinch. They are caught between competing with the small banks, which can offer more tailored service, and large nationals such as San Francisco-based Wells Fargo & Co. and Firstar Corp. of Milwaukee, which have more products.
They usually prefer to play David against a big bank than Goliath against a smaller one.
"We match up pretty well against banks like Wells or Firstar even though we're smaller than them," said David A. Lee, vice chairman of regional banking at $6.3 billion-asset Community First Bankshares in Fargo, N.D. "The small banks that are privately owned and independent don't have the same objectives that publicly traded companies like us do."
Mr. Lee said he has seen small community banks advertise above-market rates on money markets and CDs or offer "lowball" loan rates simply to grow -- with little regard for profits. He said his company could not afford this option, because shareholders would protest. "The small banks can be very nimble at setting rates," Mr. Lee said. "There's some accounts we have to let go. It's hard to keep matching their numbers because they just keep driving them up. …