Residential real estate loans are not as friendly to community banks as they once were. So how will community banks replace them with other assets?

In the past car loans were given out by banks and held on their books. This process provided one of the best spreads and fee income sources available to a bank.

Many banks used to own small loan companies, but these companies died out when large banks began offering increased lines of credit to small-business owners. A multitude of these credit lines are currently being withdrawn. As a result this is the fastest-growing part of the banking market.

Recent research shows that 14% of Americans who have bank accounts should, in fact, not have them. A simple solution for this type of customer would be a prepaid MasterCard or Visa debit card.

Fee income has become increasingly important for community banks' survival. For example, many banks today that maintain high returns on assets and equity are involved with refund anticipation loans for customers that use tax preparation services.

The mortgage business is coming back with fewer competitors. Conduits for jumbo mortgages are gone, and banks that put them on the balance sheet will find them price-insensitive.

The community banks of the future will need to diversify their asset base and reduce their reliance on brokered certificates of deposit. The majority of their deposits will be demand deposits, and the asset side of their balance sheets will show a mixture of auto, commercial and industrial, commercial and residential real estate loans, along with jumbo mortgages and perhaps even credit cards.

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