Community bankers are much less nervous about mutual funds and brokerage firms than they were five years ago.
In 2001, about two years after passage of the landmark Gramm-Leach-Bliley legislation, 68% of community bank CEOs told Grant Thornton LLP that they saw brokerage firms as competitors, and 55% said mutual funds were a threat. Those numbers fell to 35% and 24% in this year's survey by the accounting firm.
Eighteen percent said they see insurance firms as competition, versus 30% five years ago.
David E. Hayes, the president and CEO of the $133 million-asset Security Bank in Dyersburg, Tenn., said community bankers have grown less concerned about nonbank financial companies because they now offer many of the same products and services those companies do.
Moreover, he said community banks have an advantage over brokerage houses because they already have relationships with customers.
"Our biggest competitor is a huge community bank," he said.
About three-quarters (74%) of the CEOs called other community banks legitimate competitors, 69% said credit unions, and 58% regional or large banks. Grant Thornton was to release the survey results today.
Grant Thornton has been conducting its survey of community bank executives for 13 years. In the fall it mailed nearly 4,600 surveys and received responses from 334 bank presidents or CEOs. Sixty-nine percent of the banks that responded have assets of $100 million to $500 million, 19% have $500 million to $1 billion, and the rest have more than $1 billion.
Generally, bankers' outlook for their industry and the economy is grimmer than it has been in previous surveys.
Last year 70% said community banks' future looked good. This year only 39% said so. Also, just 36% of the bankers said the future looked good for the national economy, versus 68% last year.
Many of the CEOs said their banks need to cross-sell more aggressively, offer new fee-based products and services - particularly investment services aimed at baby boomers - and bring in more commercial customers.
In 2001, 41% of bankers surveyed thought it was important to add broker-dealer services and 31% said they would add nontraditional banker services such as insurance and brokerage by the end of the year. Now 45% of the banks offer mutual funds and 53% offer brokerage services.
In last year's survey only 39% of bankers said that offering insurance, brokerage or mutual funds was important to their success. This year 61% said they plan to offer brokerage services, 50% said they would offer mutual funds in the next three years, and 64% said they would offer health savings accounts in the next three years.
Making money on these services is beside the point, said J. Lamar Roberts, the president and CEO of the $105 million-asset First National Bank of Pasco in Dade City, Fla. Many small banks are offering them so that their customers do not go elsewhere.
"We have an investment center," Mr. Roberts said, but "it is more of service to our customer than a profit center."
While 88% of bankers surveyed said it is important to develop new sources of revenue, only 26% said that they were confident they could do so. Nearly all said it was important to retain deposits and land new business customers, but only about half said that they were confident they could.
Even so, 75% of them plan to offer cash managements services in the next three years and 62% say they would probably offer business credit cards in the next three years. Currently, 59% offer cash management and 53% offer corporate credit cards, the report said.
John Ziegelbauer, a managing partner with Grant Thornton's national financial institutions practice, said that if banks hope to make more loans to businesses and get deposits from them, they need to be one-stop shops.
"A business is going to want to do banking with someone who is going to make it easy and cost-effective," he said. "Offering services to do it all in one place can make a bank more attractive."
None of the private companies surveyed said they would consider going public in the next three years, while 53% of the public bank executives said they would consider it. That says a lot about what bankers are facing, Mr. Ziegelbauer said.
"Nobody is thinking about going public in the next three years," he said. "It is all these compliance costs. I'm sure there will be banks going public. But no one responded that way in this survey."
