Massive job cuts at the nation's largest banks have riveted the industry's attention. But, with little notice, community banks have actually been adding workers.

The number of full-time workers at banks with less than $1 billion in assets last years rose 2.8%, to 625,082, according to an analysis by Ferguson & Co., a Dallas consulting firm. In the past four years, the number of jobs at these institutions has increased 6%.

The expansion is in sharp contrast to the shrinkage taking place at the nation's biggest banking companies. At banks with more than $1 billion in assets, the number of full - time equivalent jobs shrank 3.4% last year, to 910,060. During the past four years, the job loss at these institutions was 3.9%.

"The break is somewhere around $3 billion in assets,"said David M. Partridge, a consultant with Towers Perrin, Los Angeles who has studied the trend. "Institutions above that size have been downsizing; companies under it have holding steady or adding employees."

Performance Gap

The divergent job trends reflect the difference in performance between major banks and their smaller counterparts.

Over the past decade, profits of larger institutions were eroded by waves of credit quality problems. That, in turn put heat on the banks to cut costs, especially for personnel.

By contrast, community banks as a group fared reasonably well and did not feel the same degree of pressure to trim overhead.

"If you are performing well and have adequate capital, you are not likely to be cutting jobs," said William C. Ferguson, president of Ferguson & Co.

All that is changing, however.

Challenges Ahead

Higher deposit insurance premiums, stepped up competition from major banks and nonbank financial service companies, and a tougher regulatory climate are likely to produce a more difficult operating environment for community banks in the years ahead. That will force many of them to focus on costs with the same fervor showed by their larger cousins.

What's more, while community banks a group are expected to survive the industry shake-out, their overall numbers are likely to decline as a result of mergers. Such consolidation will trim the industry's employment base.

Andersen Consulting predicts that 10% to 20% of jobs in banking will disappear in the 1990s, many at smaller institutions.

"Community banks will not continue to be spared," warned Joel Friedman, Andersen's managing partner in San Francisco. "Their cost structure will be increasingly burdensome, competition will be more ferocious, and capital will no longer be plentiful."

Although they have generally succeeded in avoiding big lay-offs, community bankers say they are feeling growing pressure to trim payrolls.

Bank of Utah, Ogden, with $156 million in assets, has built its job roster 24% in the past 30 months after expansion into insurance and mortgage banking.

But president and chief operating officer Roy C. Nelson, who is also president of the Western Independent Bankers, said he is under the gun to keep the work force lean. "If you are not constantly examining your full-time equivalents, you are not doing your job," he said.

Hiring Slows in California

Of course, many community banks have already started cutting staff. In Southern California, where the economy is slumping, "people have stopped hiring and trying to eliminate positions," reported James P. Staes, president and chief executive of Home Bank, Signal Hill.

The $400 million-asset Home cut full-time staff 18.4% in the first half of 1992, primarily by outsourcing back-office operations and not hiring replacements for employees who quit.

When California's recession caused Home's earnings to plunge, "we felt we could operate a bit thinner and ask existing staff to work harder," Mr. Staes said.

Policy of Attrition

Job cuts at smaller banks usually take different forms than cuts at major institutions. whole sale firings in which entire divisions ar restructured or eliminated are rarer because community banks usually have just a few business lines. Work force reductions by attrition are more common.

What's more, the need to provide close attention to customers limits the ability of community banks to cut staff.

"The community bank market is very labor intensive," said Elden G. Barmore, president and chief executive of Rio Salado Bank, Tempe, Ariz. "Service is the bottom line."

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