ELLIJAY, Ga. -- Until eight months ago, this town amid lush woodlands was a peaceful place to live. Then Tracy R. Newton decided to start a bank.

His plan has rocked the community of nearly 1,500, pitting banker against banker and forcing businesspeople to choose sides.

"I have been criticized publicly and have been called names," said the 38-year-old Mr. Newton. 'It has been stressful on me and my family."

Mr. Newton is forming a locally owned, state-chartered bank called Gilmer County Bank.

He says the Bank of Ellijay, where he worked for 18 years, and First National Bank of Gilmer County- the town's other commercial bank. aren't serv- ing the public properly. In fact, he says, they are stifling customers by keeping interest rates on certificates of deposit at low levels.

But officials with the existing banks argue that Mr. Newton's group has fudged numbers to make it look as if there's a need for a new institution. They also accuse Mr. Newton of Using politically connected people to help him attain a state banking charter.

"I sometimes get the feeling that it is the Hatfields and the McCoys," said Robert M. Moler, a banking consultant retained by Mr. Newton, who previously was the former chief deputy commissioner with the state's banking department.

Keen Competition

It's rare to see established banks fight so ferociously to keep a new bank from opening. But in some markets - the Blue Ridge mountain town of Ellijay included - competition has become so stiff and market share so precious that bankers just won't go easy on the other guy.

The two sides are waiting for Edward D. Dunn, commissioner of the Georgia Department of Banking and Finance, to make his decision on whether to grant Mr. Newton a charter. In the meantime, neither side is willing to give in.

"It is more than an issue of principal," said Peter D. Miller, president and chief financial ofricer of the $2.2 billion-asset First National Bancorp, Gainesville, which is First National's parent company.

"The facts are very clear to me," he said, "that there should not be another banking organization in Gilmer County." The county includes Ellijay and Cherrylog.

Mr. Miller was so angry about the possibility of having another competitor that he made a rare request for a public hearing before the banking department.

He also hired a consulting firm-to conduct a market study on Ellijay at a cost of $7,500, Which was split with Dahlonega, Ga.-based Century South Banks Inc., the $441 million parent of Bank of Ellijay.

The hearing was held on April 13 in an Atlanta Holiday Inn conference room. Attorneys, bank presidents, consultants, and businesspeople for and against the new bank squared off before the state's assistant deputy commissioner. The hearing at times grew tense as lawyers peppered witnesses with questions.

Mr. Newton and Mr. Moler presented their case first, saying there had been a groundswell of support from townspeople who wanted a locally owned bank. They said 645 people intended to buy nearly $7 million worth of stock in the bank.

They also produced a survey suggesting promising growth trends for Ellijay and the county. The survey showed that housing permits were nudging upward, that businesses were preparing to expand, and that a new bank could grow at a 7% to 10% annual clip over a three-year period.

But the attorneys for the established banks contended that Mr. Moler's study was filled with "gross inaccuracies." They said that more than 33% of the housing permits were for pump houses, well houses, garages, and commercial buildings. They also refuted Mr. Moler's projections for business expansions and his estimated growth potential.

"They're dreaming," said Mr. Miller in an interview several weeks after the hearing. "Anything above that [3% growth rate] would be a dream. The extrapolation of those numbers is extremely optimistic."'

James A. Faulkner, president and chief executive of Century South, offered a similar view. He says that Ellijay has ample banking services with the two existing banks and an office of a thrift, Cherokee Federal Bank.

"Our whole position from this is that the demographics just don't justify a need for a fourth bank in the community," he said. "The growth rate in deposits have been practically nil."

Meanwhile, Mr. Newton and his team have been taking direct aim at the business practices of the established banks.

During the hearing, for example, an associate of Mr. Moler presented a study showing millions of dollars in deposits fleeing Gilmer County over a fiveyear period while several nearby counties showed dramatic growth. Mr. Newton maintained that the banks in Ellijay at times priced certificates of deposit 50 to 100 basis points below the competition.

The big banks say they base their rates on the need for loans, and the demand in Ellijay just isn't there. They also disagree that deposits are leaving the Gilmer County for other banks.

"They've offered no evidence to substantiate it," Mr. Miller said.

The established banks also alleged that Mr. Newton. is usin political contacts to drive the aF plication through the state. Fc starters, Mr. Moler worked il the banking department for 2 years. They also noted thai Mr Newton selected banker Thom as C. Gilliland, a former lay partner of the state's lieutenan' governor, as a board member Mr. Gilliland is president o nearby People's Bank of Fannit County.

Mr. Moler refuted the alle gations.

"We are not influence peddling," he said.

Mr. Newton and Mr. Mole said the controversy boils down to one word - Competition. They said Mr. Newton, whose family has lived in Ellijay for four generations, will steal customers away from both banks.

"He would have some customer loyalty," Century South's Mr. Faulkner acknowledged.

Vulnerability to Competition

Of the two larger banks, First National could be more vulnerable to competition. It had $46 million in assets as of yearend 1993 and earned a mediocre $230,000. The Bank of Ellijay had $105 million in assets and earned $1.5 million.

First National's Mr. Miller said he isn't afraid to compete. He notes he's never before filed a protest against an organizing bank. But if the state approves the application, First National Bancorp will file suit.

Mr. Newton doesn't like confrontations - but he's not running from this fight.

"I'm' kind of like a pit bull," he said. "I'm determined to go to the bitter end."

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