As banking industry changes community banks are being squeezed

The mega bank is seen as the trend of the future while smaller banks are gobbled up through acquisitions or mergers

Special to the HeraldApril 15, 2013 

MANATEE -- Mega banks are getting bigger, branches are closing or consolidating, housing repossessions are dropping and -- despite layoffs and closings -- banking industry jobs are growing.

Those are some of the key findings released in a new report on banking trends by banking analyst Bauer Financial.

The results were confirmed by local bankers and state analysts who said the industry continues to be significantly impacted by developing technology and government regulations and pushes to increase efficiency.

"The banking industry continues to consolidate," said Greg McBride, senior financial analyst with Bankrate.com in North Palm Beach. "With new regulations and compliance costs, bank margins have been squeezed. The anecdote is merging and downsizing."

The largest bank in the United States -- JPMorgan Chase -- has kept its top spot and grown 13 percent larger in assets from $1.647 trillion in March 2010 to $1.897 trillion today, Bauer reported.

Wells Fargo is No. 1 in the number of employees with 227,759 employees. Bank of America, with its extensive layoffs, dropped from No. 2 to No. 4. Overall jobs in the banking industry, however, increased by more than 80,000 since 2010, Bauer said.

Local numbers show a small drop of 100 jobs in the financial activities category in Manatee/Sarasota from February 2012 to February 2013. But statewide for that same period, Florida had gained 4,500 jobs.

Business appears to be booming for both residential and commercial loans and with the economy and housing market improving, banks are seeing fewer repossessions, Bauer reported. In 2010, seven banks reported having more than $1 billion in repossessions, but by the end of 2012, only four had more than $1 billion.

In the meantime, commercial real estate loans are going up with 21 banks having more than 90 percent of commercial loans.

Sam Davis, president of American Momentum Bank, said his bank, which operates in Texas and Florida, has seen significant increases in both residential and commercial business. "Our loans and application process is up 30 percent over last year for commercial property," he said. "Our residential applications are up 300 percent over last year."

Davis said the industry is starting to fill jobs that were left vacant from layoffs over the past few years.

"People feel so much better about the economy now. This paints a pretty positive picture for the financial services industry," he said.

Technology advances with online bill paying and mobile banking are having a big impact on the way banks deliver services, experts say. Customers don't visit branches as often because people do so much more of their day-to-day banking without them, said a Bankrate.com report, noting that common transactions like depositing checks had dropped significantly at branches.

Self service and technology is the name of the game, Bankrate.com predicted, with bank branches in the future looking more like airport check-ins.

"Why stand in line inside a bank or at a drive through when you can sit at home and click a key?" Davis said. "Brick and mortar branches aren't in as much demand anymore."

As part of the need to increase efficiency, local bank analyst Frank Knautz said banks are trimming branches and replacing them with kiosks and ATMs.

"This generation of bank customers want to live off their mobile devices," he said. "From a mega bank perspective, the cost reduction of service delivery is significant."

During the economic boom, McBride said banks overbuilt branches, but he thinks they still have a place in banking's future. "They are still the sales floor where banks can interact with customers in the most direct way." he said.

Some think the mega bank will continue to be the trend of the future while smaller banks are gobbled up through acquisitions or mergers.

Analyst Mike Woody says community banks are "basically being squeezed structurally because of several systemic problems, their charters and loan policies."

There is little money available for community banks to raise funds and they often have little asset diversification.

"Big banks, with the help of regulators, are doing their best to drive community banks out of business," Woody said. They are facing the same plight as the family drugstore, he said.

In 15 years, he predicted the community banking industry will be reduced to "small boutique banks" with limited hours and limited offerings.

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