Community Bankers Trust Corporation Business Reports

Demand for banking services is closely tied to economic activity and the level of interest rates. The profitability of individual banks depends on marketing skills, efficient operations, and good risk management. Large economies of scale exist in some segments of the industry, which has encouraged industry consolidation. Smaller banks can compete successfully in segments where customer service or knowledge of the local market is more important. Many banks and thrifts aggressively offered adjustable rate and subprime mortgages during the housing boom of the early 2000s only to find themselves saddled with loan defaults and extensive losses when the housing bubble burst. Deep exposure to subprime mortgages and mortgage-backed securities caused bank failures, government takeovers, and involuntary mergers. Although the financial climate has improved, slow demand for loans and increased government regulation may result in a long recovery period for the banking industry. The growth of international trade has encouraged some US banks to expand to foreign markets, and has also led foreign banks to enter the US market. Some of the biggest US banks, notably Citibank and JPMorgan Chase, have large foreign operations. The top 10 foreign-owned banks operating in the US hold nearly $12 trillion in combined US assets. Foreign banks are concentrated in New York, Illinois, and California, according to The Economist Intelligence Unit.