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Local market leaders Wells Fargo and Bank of America have grown even bigger. Wachovia, the No. 4 player in the region just two weeks ago, has collapsed, and appears likely to be acquired by Wells Fargo. U.S. Bank, the third-largest in the region, has boosted its local market share 40 percent in the last year. And $2 trillion giant JPMorgan Chase has lumbered into town by buying Washington Mutual.
Four national banks are now on track to control two-thirds of the region's deposits, and their ever-increasing size gives their corporate parents more power to cut costs, expand services and buy up competitors.
The shake-up puts new pressure on the region's smaller banks and credit unions, which, compared with the industry giants, generally have fewer branches, smaller budgets for advertising and online banking, and a narrower range of services.
But the upheaval on Wall Street has shaken consumers' faith in big financial institutions, and experts say smaller players have the chance to win new customers by capitalizing on their strengths: trust, face-to-face service and a connection to the community.
"There's a tremendous dislocation of customers," said Anat Bird, a former Wells Fargo executive and bank-industry consultant in Granite Bay. "I think community banks of all sizes will have a great opportunity to capture customers that are fleeing from the bigger guys."
Over the last two decades, consolidation has cut the nation's total number of banks roughly in half, to 8,500 today.
The same trend is clear in the four-county Sacramento region, according to a Bee analysis of data from the Federal Deposit Insurance Corp.
In the past five years, six locally owned banks have been acquired by larger banks based outside the region. During the same period, four new local banks opened, but they're substantially smaller than the ones that disappeared.
As a result, locally owned banks' share of the region's $30 billion in deposits has dropped substantially. Five years ago, local banks accounted for 23 percent of all bank branches and 14 percent of the region's deposits. Today, they operate 12 percent of area branches and hold 8.4 percent of deposits.
At the same time, though, the total number of banks with branches in the region has actually increased, from 40 to 51.
For the most part, that's because many community banks based outside the region -- like Umpqua and PremierWest, both headquartered in Oregon -- have expanded into the Sacramento area.
The FDIC figures don't include credit unions, which have a strong presence in the region, led by Golden 1, the largest credit union in the state.
At Folsom Lake Bank, which opened in early 2007 and has just one branch, Chief Financial Officer Jack Olson said deposits have been growing ahead of schedule.
"Customers are looking for safety," he said. "All the large institutions are having issues related to asset problems. We don't have any of that."
Minneapolis-based U.S. Bank, one of the smaller national banks with $128 billion in deposits across the country, has ramped up advertising and employee training that focus on delivering a message of strength and stability -- as well as service -- to customers.
"We're trying to promote ourselves as the little big bank," said Kent Stone, the bank's Sacramento-based executive vice president of consumer support services.
Lani Hayward, executive vice president of creative strategies at Portland, Ore.-based Umpqua Bank, which has about $6.5 billion in total deposits, said the credit crunch hasn't changed her bank's strategy much. The focus remains on offering the banking experience of a small community bank combined with some of the benefits of a larger bank, like higher lending limits, she said.
Regardless of a bank or credit union's size, deposit accounts are covered up to $250,000 by the federal government.
Small banks as a rule have avoided the home-mortgage troubles that sunk Wachovia and Washington Mutual. A few local banks, though, do have sizable past-due debts on their books from loans to real-estate developers.
Placerville's El Dorado Savings Bank, the largest local thrift with $1.3 billion in total deposits, is carrying virtually no bad loans, according to FDIC data. Chief Executive Officer Tom Meuser, who has headed the bank for 20 years, said the bank's low-risk strategy meant that it did not make as much money as it could have during the real estate boom that peaked in 2006.
But now, El Dorado Savings' conservative reputation is driving growth: The rate of new deposits at the bank is up 50 percent over last year, Meuser said.
Teresa Halleck, chief executive of Golden 1, said new customers have been surging into her credit union's offices too, -- particularly those in the neighborhood of a branch of Washington Mutual, which was sold to JPMorgan Chase on Sept. 26.
"We have had people walking down the street, bringing in large deposits and moving their relationship" from the fallen Seattle-based thrift, she said.
Bill Doyle, a financial services expert at Forrester Research in Cambridge, Mass., said smaller banks and credit unions across the country score better than large firms on key measures of loyalty and trust.
More than half of small bank and credit union customers feel their institution has their best interest at heart, Doyle said, while less than a quarter of Citi and Chase customers feel that way.
Another strike against big banks is that most Americans say they aren't sold on the one-stop-shopping for financial services -- checking, investments, loans, insurance and so on -- that more and more big banks offer, Doyle said.
"People like to shop around" to different firms for the best deals. That's good news for smaller banks and credit unions that specialize in a limited range of services, he said.
Still, size has advantages.
On her way into the El Dorado Savings Bank branch on Elk Grove Boulevard in Elk Grove, Shari Stief said she is so pleased with the bank's service and low employee turnover that she'd love to keep more of her accounts there.
But for her used children's clothing, toy and furniture business, Stief needs a bank with many branches. So she has opted to keep her business accounts -- and, for the sake of convenience, her personal accounts as well -- at Wells Fargo, even though she's sometimes irritated by the big bank's fees and impersonality.
At El Dorado Savings, she has accounts only for her church and golf groups.
"If there were more branches (of El Dorado Savings), there would be no choice" to make, she said. "It would be this bank."
Branches are an important tool banks use to attract new customers, and in the last five years they've mushroomed around the region, growing in number by a third, to 443 today. Most of the increase has come from the top five banks, which have grown by acquiring other firms and opening new locations, particularly in supermarkets.
Curiously, that burst of new bank branches has taken place alongside the emergence of online banking.
The fraction of U.S. households doing at least some of their banking online has grown from about 20 percent in 2002 to just under 50 percent today, according to Forrester Research. Over the long run, that trend will probably favor bigger banks, said Ed Nelling, a professor of finance at Drexel University in Philadelphia.
"As technology evolves over time, people will get more comfortable with an anonymous working relationship with banking," he said.
At the Bank of America branch on Elk Grove Boulevard, Daniel Morrow, who runs a small lawn-sprinkler contracting business, said he's quite happy with the service. His banking needs are straightforward, he said, and he likes being able to find a branch close to any job he takes in the region.
"Why should I leave a bank I've been with for 15 years?" he asked. "I've never had a complaint."
Doyle of Forrester Research said surveys show that customers, as a rule, are slow to abandon their bank, even if it is acquired by another firm. For that reason, he said, the surest way for a bank to build its customer base is to buy another bank.
"Inertia is probably the strongest force in financial services today," he said.
"That's what these guys are counting on when they acquire a Wachovia. They know that those customers are going to stick."
To see more of The Sacramento Bee, or to subscribe to the newspaper, go to http://www.sacbee.com/. Copyright (c) 2008, The Sacramento Bee, Calif. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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