While changing technology will dramatically alter the nature of banking, small banks that have become part of the fabric of their communities will continue to thrive, according to the president and chief executive of First Maryland Bancorp of Baltimore.

"The key to their (community banks) success is what they've done in the past," Frank P. Bramble told a gathering of about 250 of the state's business leaders this week in Baltimore. "They have to remain a pillar of their communities."

Mr. Bramble, who prior to running the $9.1 billion-asset company was chief executive of Maryland National Bank before its sale to NationsBank in 1993, said he sees a future consisting of a handful of large national banks, a group of regional banks, and a horde of small community banks.

These small banks, however, won't have it easy, he said. Already, evidence suggests that there is a "tipping of the advantage to large banks over small," he said.

As examples, he pointed out that for the first time in years the profitability of large banks exceeds that of the small, due primarily to better loan quality and also to their having greater capital resources for fee-income-generating activity. These include trust, credit cards, and mortgage services, all of which First Maryland intends to expand, he said.

These capital-intensive services may be too expensive for most small banks, he said.

What's more, the low cost-ratio advantage that small banks enjoyed over their larger brethren in the past is no longer so clear, he said. Cost reduction has been a priority for many large banks in recent years, and these efforts are beginning to pay off, he said.

To compete in this changing environment while maintaining their traditionally low cost ratios, small banks should consider alliances with third-party service providers or perhaps band together to share services, he said.

While Mr. Bramble cautioned that the "greatest risk" that small banks face is to ignore the advent of technology, traditional community banking practices should serve them well, at least for the foreseeable future, he said.

"If Bill Gates (president of Microsoft Inc.) puts a couple of billion dollars into the industry, he will have an impact, no question," Mr. Bramble said. "But it won't be next week. What we have to talk about is how to protect and enhance our franchise."

Mr. Bramble said he bought a copy of Microsoft's personal banking software, called Quicken, to see for himself what all the talk is about. He remains convinced that the "physical presence" of the bank will be more important to customers than the ease that such software brings, he said.

"Some say that going into the next century banking will be a dying industry," he said in his speech, which was sponsored by the Maryland Association of CPAs at the Camden Club at Oriole Park at Camden Yards. "But this is a service that banks have been in for a long time. If we can figure out how to operate in this changing business in the future, banks will be secure."

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