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."

The new banks contend they just are being flexible.

Millennium Bank, a $65 million-asset start-up in Reston, Va., attributes much of its growth to accommodating rate-shopping customers. When potential customers tell the bank that they could get a better deal elsewhere, Millennium often adjusts to gain the business.

Millennium's chairman and chief executive officer Carroll C. Markley said this type of decision-making separates it from multibillion-asset community banks. He contends these companies are so large that they run more like big national banks than community banks.

"A large institution like that has to be more centralized, and have pretty firm pricing policies," said Mr. Markley, whose bank opened in April 1999. "No one in the organization can make decisions outside the norm."

Mary Ann Bamber disagrees.

Ms. Bamber, the retail chief at $12.7 billion-asset Associated Banc-Corp. in Green Bay, Wis., has seen new competitors pop up in Milwaukee and Minneapolis along with a couple in her bank's hometown. She said Associated tries to put much of its decision-making in the hands of regional managers, but they often refuse to match rates that she calls "irrational."

"Some of their CD rates can be as high as 100 basis points above the market," said Ms. Bamber, Associated's director of sales and distribution. "They're obviously out gathering deposits, but what's that doing to their spread?"

Sometimes large community banks smile when these rate shoppers head for the exit.

"A lot of times, they're less profitable customers who require a high level of service and provide little reward for us on the financial end," said Mr. Meuleman of Amcore. "There's also some credits that are questionable and we're not unhappy to see those leave."

In any case, start-up banks cannot afford to offer high deposit and low loan rates forever, said Richard A. Soukup, a consultant who in the past eight years has advised a dozen Chicago-area banks on their start up.

"They're not charitable organizations," said Mr. Soukup, a partner at Grant Thornton LLP in Chicago. "They're basically spending their marketing money through the use of rates rather than advertising on TV. Ultimately they're just doing something to grab the attention of the community and build some market share. Then the rates will fall back in line."

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