Financial Update (April-June 1996)

Community Banks Remain
Viable in Era of Mergers

Waymon Hickman, a board member of the Federal Reserve Bank of Atlanta, is president, chief executive officer, and director of First Farmers and Merchants Corp., a community bank in Columbia, Tenn.

Q
What is the future of the dual banking system in the United States? Will state-chartered banks continue to have value in an era of nationwide interstate banking and branching?

A
I think the dual banking system is alive and healthy and will continue to be. I know in the state of Tennessee we had, at year-end, 249 bank charters, and of that number about 70 are national banks and the remainder are state banks. That tells you the dual banking system,
Waymon Hickman
Board member of the Federal Reserve Bank of Atlanta
certainly in our state, is continuing to be viable. The larger banks are national banks, but the majority of new bank charters have been for state banks. So I see no reason for the dual banking system to end because of consolidation.


Q
How can small banks maintain their businesses when they have to operate side-by-side with the large banks?


A
I think there are three ways that community banks can continue to operate side-by-side with the large banks: Stay financially sound, be cost competitive, and offer those services that the consumers now are demanding. If you do those three things, I think you can compete with the large banks. We are. We compete with 14 other banks, and only two of our major competitors are locally owned.


Q
Well, your bank is a long-established bank in the community. Do you think the new community banks that become chartered have the same ability to compete with the large banks?

A
I think they're going to have to find their niche. We've been in banking since 1909 and now have $500 million in assets. Even though I consider us a community bank, in our peer group we're one of the larger community banks. But I think the newly chartered banks are going to have to find their niche and realize they can't provide everything for all of their population. They can't do it. They don't have access to the capital markets, and most of them do not have the technology that they need to compete. It's not going to be easy for them. I wouldn't want to start a new bank today.


Q
Do you expect to see the number of community banks increase or decrease in the coming years?

A
I think they're going to decrease for two reasons. Even though there are a lot of newly chartered banks, I think we're going to continue seeing regional banks buy good community banks. Also you're going to see community banks like ours acquiring other community banks. We closed on two on April 1. So you're going to see the combination of consolidation of community banks within their own ranks and regional banks purchasing other good community banks.


If we get to the point where we do not take care of the community, the customer loyalty we have now will erode and leave us, and the banking industry will have nothing but the payments system left.
Q
Do you support the efforts to repeal Glass-Steagall and allow banks to expand the services they offer?
A
I certainly do. We've seen the financial assets controlled by banks in the last 10 years decrease, and the reason is the nonbank intrusion upon our turf. Brokerage firms usually have FDIC-insured CDs, IRAs, all those services that normally are offered by the banks. And if you go down to the local insurance agency here for automobile insurance, before they do anything about your insurance they say, "We also want to finance your automobile for you." So I think that if we're going to have nonbank institutions in the banking business, banks are going to have to be able to compete with them on a wider range of services.


Q
There are some community bankers who don't support the efforts to repeal Glass-Steagall. What can be done to secure passage of the reforms?

A
I think there needs to be a consolidation among the trade associations that represent banks. I know this is not going to go over too well with a lot of people. But when we go to the halls of the legislature we have three or four trade groups at odds. I think that's been one of the limiting factors in getting the legislation needed by banks. In Tennessee, we combined the thrift trade association with the Tennessee Bankers Association. There's just one voice now speaking for the entire financial industry in our state, and it's worked so well. I think we need to do that in the other states and at the national level. You go and talk to your congressmen and senators about added bank powers and they say, "Well, the other group was here last week, and they have a different idea on this." I think that when we consolidate we can come to a consensus and probably get the relief we need from a lot of the regulatory problems affecting our industry and also the added bank powers that we need.


Q
How can small banks keep as up-to-date with technology as the large banks and attract the intellectual capital that large banks can afford?

A
I don't think your small banks are ever going to be able to tap the capital markets that the large banks can. It's just not going to happen that way. But hardware and software prices have come down now so that most of us can afford to do many of the things that the larger banks can do. In 1994, we spent $1.8 million upgrading the technology in this bank. We had a committee, but we relied on a technology company to be our adviser through all of this. The largest bank in Alaska came down two months ago to look over what we've done. Many years ago, a Nashville bank came down and wanted to talk to us about our experience with credit cards. Of course, everybody's got a credit card now. But it's not unheard of for the smaller banks to be on the cutting edge of technology and offer services, if they're committed to do so.


Q
Historically, banks have been very involved in the community. With all the competitive pressures, can that continue?

A
It has to continue. It has to. I've always said if you take care of the community, the community will take care of you. And over every door in every office—and we have 15 of them—it says "Dedicated to community service." And we believe that's more than just verbiage over the door. We feel like we have to live that each day, and as long as we continue to do that we will continue to be competitive in the marketplace. If we get to the point where we do not take care of the community, the customer loyalty we have now will erode and leave us, and the banking industry will have nothing but the payments system left. I think customer loyalty has been one of the major, maybe the No. 1, assumptions of banking in this country. If we start taking it for granted we're going to get in trouble. I think we have to work on the customer loyalty feature of banking in order for us to continue to be a viable player in the financial industry.

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