As medium-size banks fall prey to supperregional acquirers, community bankers increasingly see each other as worrisome competitors.
While community bankers remain fixated on credit unions - 78% view them as a competitive threat, according to a recent survey by Grant Thornton - their concern about other community banks has risen significantly over the past two years.
Of 752 respondents to the Grant Thornton poll at the beginning of this year, 60% said they viewed other community banks as rivals. The percentage was up from 41% in 1995 and only 24% the year before.
Meanwhile, the percentage citing credit unions has always been relatively high, going from 55% in 1994 to 66% last year and finally to 78% in the most recent poll.
The bankers regarding brokerage firms as significant competitors had fallen from 50% in 1994 to 46% last year, then climbed to 63% in the most recent survey.
"Most of the banks that would've been described as the main competitors no longer exist," said Jeffrey R. Springer, president of Citizens Bancorp in Laurel, Md. He said that with the recent disappearance of a number of regional institutions in the $3 billion- to $7 billion-asset range, "what's left is the community bank next door."
Analysts and community bankers said the greater attention to intra- industry competition stems from community banks' racing to fill voids left by acquirees. Mergers invariably result in the loss of some customers, prompting feeding frenzies for new customers among the surviving community banks.
With their shared focus on relationship banking and small-business expertise, community bankers are laboring to break out of the pack, and in the process are locking horns with one another.
"You have a marketplace that is much more competitive," said Diane M. Casey, national director of financial services at Grant Thornton. "The banks are getting much more into technology and expanding their reach, and obviously that challenges other community banks."
Community banks are also acting more aggressively in response to nonbank intrusions, she said. As a result, smaller banks have become more energized in protecting their customer base from nontraditional and traditional competitors alike.
Intensifying the level of competition is the recent resurgence of community bank start-ups. The number of start-up charters has more than doubled over the last year.
Bankers view credit unions as threats because of their exemptions from taxes and the Community Reinvestment Act, the expanding definitions of their membership "common bonds," and their new aggressiveness in small- business lending.
In all three years of the Grant Thornton survey, credit unions received the most votes from community bankers identifying their strongest competition, followed by brokerage and securities firms and other community banks.
After the top three in the most recent survey came mutual fund companies at 52%; regional/money-center banks, 41%; farm credit banks, 40%; and other nonbanks, 38%. New on the list in 1995 were software companies, listed by 10%.
"We never would've added software companies to the survey if it were not for Bill Gates," said Ms. Casey. The Microsoft Corp. chairman "threw down the gauntlet when he called banks dinosaurs."
Some community banks still enjoy the luxury of being the only bank in town.
First State Bank of Forsyth, Mont., competes with a Norwest Corp. branch, but that's about it, said Albert A. Martens, president. A credit union opened in its county about 18 months ago, but it is 30 miles away.
"Eventually there may be some competition from larger banks as we progress with interstate branching, but that's still a ways off yet," said Mr. Martens.
