New players on the regional bank scene are picking up the slack from others that have failed, been sold or consolidated.
By Dennis Boone
At first blush, one might think we’re hip deep in a banking crisis. Over the past 10 years, within the Kansas City Metropolitan Statistical Area, these are just a few of the changes to the banking infrastructure:
To be sure, small banks bore the brunt of that change which might be expected: Among the 149 banks operating in the region a decade ago, 105 had deposit market shares of less than 1 percent. And those banks accounted for 61 of the 68 that faded away.
Among the biggest changes over that decade were the sale of Gold Bank, which held a 5.14 percent market share in 2006; and the failures of First National Bank of Kansas, with a 2.88 percent share; Hillcrest Bank at 2.7 percent, and World Savings Bank at 2.49 percent.
Fresh capital—both financial and human—filled the void in the market in some impressive ways. In 2006, Gold Bank, for example, merged into M&I Bank, which itself would be absorbed by BMO Harris just four years later, and that institution accounts for $600 million in market deposits. Hillcrest Bank was part of the deal by which NBH Holdings, a new entity in 2010, acquired much of what previously was Bank Midwest and still operates under that brand, with $2.24 billion in deposits.
So, yes, there has been change. But no, it hasn’t been all bad, by any stretch.
Losing 7.5 percent of a market’s banks over the course of a decade is less than the statewide figure for Kansas, but 7.5 percent is still 7.5 percent, said Chuck Stones, president of the Kansas Bankers Association. One factor helping the regional stability is the powerful market position of Johnson County.
“That has always been a very competitive marketplace, and several years ago, was looked at as kind of a pot of gold at the end of the rainbow for a lot of rural Kansas banks,” Stones said. “They moved a branch in for diversi-fication, and that worked for some, but not for others.”
What we’re likely seeing now, he said, is that banks have been able to stake out niche markets and fill service voids.
It’s possible, Stones cautioned, to read too much into the deposit market share figures. Stones noted that during the financial crisis of 2008-09, many banks were beating the bushes to improve liquidity, and increasing their deposits was a key for that. You can see how their priorities have shifted since, Stones said, as their deposit shares fluctuate—it reflects a lack of emphasis on bringing in additional depositors.
“Deposits themselves don’t do a lot for a bank,” he said. “You have to have a plan to make money off of them. Deposits are kind of a fickle thing, because they depend a lot on a bank’s internal strategies.”
His counterpart, Max Cook of the Missouri Bankers Association, noted that churn among banks—as with almost any industry—is in the nature of the beast. His biggest concern is that something other than pure market forces has driven the loss of smaller banks in the state. “The smallest banks in the region, and across the country, are struggling to deal with the burden of over-regulation,” Cook said. “And with margins as thin as they are because of this low interest-rate environment we’re in, and that added expense, it’s just really tough in many cases for smaller institutions to make it work.”
Shifting capital to other organizations in itself won’t always replace what can be lost, especially at the community-bank level, he said.
“If a small bank is absorbed into a very large organization that is headquartered someplace else, the bank’s connection to the community isn’t always as tight as it once was,” he said. “It’s like seeing a major company in Kansas City merge with someone else—all the dollars given to charitable events can dry up, the manpower to support them can dry up, and you can lose support for important causes in the community.”
CORRECTION: The print version of this story incorrectly stated the nature of the transaction involving Gold Bank, which was sold to M&I Bank in 2006.