The past year's wave of banking mergers is beginning to be felt - especially in New Jersey.

In recent months, First Union Corp. signs have replaced First Fidelity logos throughout the Garden State - and the big Charlotte, N.C. bank is poised to switch its 2.5 million customers in New Jersey and Pennsylvania to the First Union system by mid-July.

Meanwhile, an operations center in Mount Laurel has been closed, its 214 jobs moved to a building in Ridgefield Park as a result of the merger of Summit Bancorp. and UJB Financial Corp.

In southern New Jersey, executives of at least one small bank are complaining of price competition from out of state, said bank analyst Elizabeth A. Summers of Ryan, Beck & Co., West Orange, N.J.

New Jersey's five largest banks, accounting for 40% of the state's deposits, have been involved in mergers since June 19, 1995, when First Union triggered a nationwide M&A binge by announcing its deal with First Fidelity.

Today, First Union is battling for dominance in the affluent market with Summit Bancorp., based in Princeton, N.J. And PNC Bank Corp. of Pittsburgh, CoreStates Financial Corp. of Philadelphia, and Fleet Financial Group of Boston are making their presence felt through big acquisitions.

Market sources say they expect mergers to continue, but in the form of smaller deals and branch sales.

Indeed, New Jersey continued to be active in bank merger activity in May. In another slow month in the nationwide M&A market, two New Jersey deals accounting for $116.8 million in value - highest in the nation - were announced.

Summit said it would acquire Central Jersey Financial Corp., an East Brunswick thrift, for $90.2 million. Collective Bancorp, Egg Harbor City, announced a $26.6 million buyout of Continental Bancorp of Laurel Springs. These deals could typify transactions in the state in the near future.

"What we're seeing now is people trying to pick up smaller institutions to fill in their niches and branch locations," said Ronald H. Janis, a merger specialist with the law firm of Pitney, Hardin, Kipp & Szuch, in Morristown, N.J.

New Jersey's appeal to out-of-state acquirers rests with its affluent population and a healthy demand for small- and middle-market business loans and services.

Mr. Summers said a competition for customers has developed between First Union and Summit. "Last year, First Union had the lead. This year, Summit is ahead" with 12.6% of the state's deposits, to First Union's 11.7%.

First Union is making its bid by linking customer checking accounts to investment accounts, Ms. Summers said, noting that a similar product helped Merrill Lynch to seize market share from banks in the 1980s.

Summit, which is poised to offer a similar service to its customers, also has the inertia of typical bank customers working in its favor: "It's difficult to get people to move from one bank to another," Ms. Summers said.

Although the deals may have spurred the introduction of new products for depositors, consumer advocates are wary of the long-term impact of banking consolidation.

Neil J. Fogarty, president of the Consumers League of New Jersey, said past mergers have cost the state jobs, especially in the credit card business.

Mr. Fogarty added that he is "supicicious of consolidation," because it lets big mistakes happen when big banks siphon deposits from consumers and invest them in "grand schemes" that fail.

"When they start making multimillion-dollar loans, it's easy for banks to become insolvent," Mr. Fogarty said, recalling the third world debt, commercial real estate, and energy lending crises of the 1980s.

Representatives of First Union and Summit both said the need to retain small and midsize business clients in New Jersey were key elements in their decisions to find partners.

A spokesman for First Union in New Jersey said First Fidelity gained "capital markets capability" by aligning with its out-of-state partner. The idea, he said, is to offer corporate customers in New Jersey the investment banking services they otherwise might seek on Wall Street.

The prospect of pricing competition with big banks is daunting to some community bankers. However, they say mergers can create opportunities to exploit business niches too small for big banks to pursue.

"I can offer home equity loans for fixed terms for less than major banks," said a longtime critic of big mergers, Anthony S. Abbate, who is president of Interchange State Bank, Saddle Brook, N.J. "We are dealing as a community bank on relationship banking rather than transactional banking. What we're doing is building customer loyalty."

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