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CHICAGO – While the future looks “bright” for many community bankers, some are still worried about their biggest competitive threats and they’re not credit unions, according to one survey. Grant Thornton’s Twelfth Annual Survey of Community Bank Executives, released recently, surprisingly revealed that 76% of bankers viewed other community banks as a major source of competition. Still, credit unions, a perennial threat to community banks, are cited by more bankers as a source of competition this year (71%) compared to last year (64%). This year, more bankers also cited regional or mega-banks as competitive threats – 58% of bankers this year versus 45% last year. Now on par are non-financial companies such as Wal-Mart, 7-Eleven and Western Union and brokerage firms, with 27% of bankers identifying each as a competitor. Grant Thornton LLP, a member firm of Grant Thornton International, an accounting, tax and business advisory conglomerate, sent questionnaires to 4,625 CEOs and senior officers last November and 442 responded. The majority of bankers (53%) feel that the nation is “over-banked,” with an even larger number of them (69%) saying that their particular market is over-banked. When looking at the market served, 56% of urban bankers think their market has too many banks, compared to 77% of suburban bankers, according to the survey. Seven out of 10 community bankers say they have an optimistic outlook for the business of community banking in 2005 (8% optimistic, 62% somewhat optimistic). And, more than two-thirds (68%) share that sentiment about the general economic outlook in 2005 (8% optimistic, 60% somewhat optimistic). In addition to the banking survey, Grant Thornton LLP also conducted a separate survey of public bank audit committee chairmen – Grant Thornton’s Survey of Public Bank Audit Committee Chairmen. The inaugural survey was initiated to determine the experiences of public bank audit committee chairmen since the passage of the Sarbanes-Oxley Act and their general attitudes and opinions on the business of community banking. Grant Thornton mailed questionnaires to a national sample of 407 audit committee chairmen of public banks and 118 responded. What the survey found is that like the bank executives, audit committee chairmen have an optimistic outlook for 2005, with 75% reporting an optimistic (7%) or somewhat optimistic (68%) view of the state of the national economy. Even more, (77%) have an optimistic (17%) or somewhat optimistic (60%) outlook for the state of community banking. “It’s good to see that so many bankers and chairmen have such a positive outlook for 2005,” said John Ziegelbauer, managing partner of Grant Thornton’s U.S. financial institutions industry practice. “With this optimism, it’s not surprising that more than three in five bankers and chairmen also think that the country is moving in the right direction.” What are the issues bankers and chairmen view as important for community banks’ future success? According to the survey, retaining employees is once again a top priority with 93% of bankers saying it is important to their bank’s success, tying this year with the first-time survey option of retaining deposits. Regarding their confidence in retaining employees, about seven in 10 bankers say they do a good job retaining key employees, regardless of bank size. In contrast, bankers are not nearly as confident when it comes to retaining deposits, with only 62% saying that they are confident in their bank’s performance. Almost all audit committee chairmen and executives of community banks (more than nine in 10) say that attracting new business customers is important to their banks’ continuing success, however, at the same time, two-thirds of chairmen express confidence in their bank’s performance, while only 53% of executives do. Similar to banking CEOs and senior officers surveyed, 94% of chairmen also believe that retaining deposits is important to the success of their banks; and approximately three-quarters of them are confident in how their bank is addressing this challenge. “The differences and similarities in priorities is interesting,” said Ziegelbauer, “and could possibly be explained in that chairmen are primarily thinking on a strategic level, while bankers must also look after the daily operation of the bank. Whatever the drivers are behind business issues, on the topic of operational issues of concern, customer privacy appears to be an important issue for both groups.” In the operational arena, 92% of bankers are concerned about protecting their customers’ privacy and 81% of them are confident that their bank is doing a good job at doing so, according to the survey. Bankers think that issues of corporate governance are also important to their bank’s operational success, with 87% of them citing the importance of assuring the quality of their financial reporting and almost two-thirds (65%) saying that developing appropriate written business procedures is important. However, the confidence they have in those areas varies – 86% of bankers are confident in the quality of their financial reporting, but only 64% are confident in the development of appropriate written business procedures. Almost nine in 10 (86%) bankers say that complying with government regulations, such as the Gramm-Leach-Bliley Act of 1999, the Bank Secrecy Act and the USA Patriot Act, is important to success, while 73% are confident in their compliance. Assuring the quality of their bank’s financial reporting is identified as important to success by almost all of the chairmen (97%) and 84% of them are confident that they are doing a good job. This high number is more than likely due to the fact that as the audit committee chairman, it is their main responsibility to ensure the accuracy of their bank’s financial reports, the survey revealed. Other operational issues of concern for the chairmen were protecting customers’ privacy (90%), complying with government regulation (87%) and developing appropriate written business procedures (79%), with confidence levels at 77%, 79% and 72% respectively. Regarding competition, CEOs and senior officers have a different take compared to audit chairmen. “The difference may reflect the group’s perspective,” said Ziegelbauer. “The bankers battle their competitors on a daily basis, while the chairmen – as private businessmen – likely relish bank competition.” More than two-thirds (70%) of the respondents report assets of more than $100 million, with 22% reporting assets greater than $500 million. The executives defined the community they primarily serve as rural (45%); suburban (38%); and/or urban (17%). Almost one-third (30%) are publicly held; 57% are private corporations; and 13% have mutual charters. Almost eight in 10 (78%) of the respondents represent banks with more than $500 million in assets, with 8% reporting $5 to $10 billion in assets and 5% reporting more than $10 billion in assets. Half (51%) of the chairmen defined the community their bank primarily serves as suburban and 30% as urban. [email protected]

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