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Bank on a personal touch
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December 15, 1997: 1:10 p.m. ET
As one industry giant after another merges, small banks thrive across U.S.
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NEW YORK (CNNfn) - When a plastics company recently needed a line of credit from Community Bank of New York, bank President Jacob Berman hopped in a cab to New Jersey to talk with the owner.
While it might seem unusual for a bank executive to deliver such personalized service -- actually crossing state lines -- Berman said that's why small banks are thriving at a time of widespread mergers among industry giants.
"I went with a lending officer to Jersey City and extended a substantial line of credit (to the company) on the spot," Berman said, preferring to keep the company name confidential.
The list of monster banking mergers has been growing rapidly. Among the recent multi-billion-dollar marriages is First Union's $16.6 billion deal with CoreStates Financial Corp. and NationsBank Corp.'s $15.5 billion purchase of Barnett Banks.
But at the other end of the spectrum, small banks with assets under $1 billion are growing at the fastest pace since the recession of the early 1990s, said Kathleen Murphy of the American Bankers Association. Murphy is director of the Community Bankers Council, a group of small bank chief executives from every state.
"Small banks' assets are growing in record numbers," Murphy said. "They are picking up customers as a result of the (industry) consolidation because they provide a personal service."
As of July, there were 178 new small bank charters nationally, according to Murphy. More recent figures are not yet available, but she expects the number to rise substantially for the rest of the year. The number fell to under 100 in 1993, but reversed course in 1995, she said.
"New banks are being formed in places where there haven't been any in years," Murphy said, pointing to five new small banks that have opened recently in both West Virginia and Idaho.
All of the new banks in Idaho are on or ahead of their budget targets, said Barbara Strickfaden, executive director of the Idaho Banking Association. Of 28 banks in the state, 11 are small, she said.
"As larger banks continue to merge and get bigger, they can be more technical, so you can bank on a midnight on Sunday," Strickfaden said. "The community banks tend to be more traditional, with customer service that's person-to-person."
In many cases, business leaders will get together and decide to form a new bank to meet community needs, Murphy said.
Or, a small bank will target a certain audience, such as small business owners, women or minorities, said Bud Ward, national director of financial services at Ernst & Young.
"Some people like the personal touch of going in and talking to the bank president," Ward said.
The "personal touch" is especially important for people who don't fit into standard categories, Murphy said. An example would be someone who doesn't have the money for a down payment on a house. Some banks, such as Bank of Elmwood in Racine, Wis., offer a mortgage program with no down payment, she said.
Community Bank's Berman said his institution provides more service by maintaining larger staffs at the 15 branches in New York, Great Neck, and Queens. He is sometimes recognized when he walks into a branch office.
"If (Chairman) John Reed of Citicorp walked around one of his branches, I doubt he'd be recognized," Berman said.
It's also easier for small banks to compete than it was 10 years ago because of better technology, Berman said. Small banks can buy software that provide services similar to big banks, he said.
But clearly, small banks can't provide the level of some high-tech services, such as online banking, Ernst & Young 's Ward said.
"The question of service is in the eye of the beholder," Ward said. "The service I want might be very different from the service my 84-year-old mother wants."
Banking experts disagree about whether small banks are also cheaper. Robert Albertson, director of research at Goldman Sachs, said smaller banks are more expensive -- but people are willing to pay for better service. Ward, however, argued that smaller banks are cost-effective because they have lower overhead. And Murphy said it's impossible to generalize.
Meanwhile, big banks continue to thrive as much as the small ones, Ward said.
"The banking industry today is stronger than at any point in time since the Great Depression," he said. 
-- By staff writer Martine Costello
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