Although dominant by local standards, the combined 22.71 percent share of Commerce and UMB was, somewhat ironically, a key factor in NBH’s decision to enter this market with the Bank Midwest purchase.
“In a lot of other markets, the top two banks might account for 35 to 40 percent of market share, or more, and that’s a tough market to break into,” Metzger said. “With the top two here in the low 20s, if we can enter this area with 6 to 7 percent share, we feel we can be relevant in the market.” In fact, NBH has fared even better than that regard: Its Bank Midwest properties, combined with Hillcrest, give it an 8.14 percent share.
Sensing some of the same opportunities, Arkansas-based Arvest bank, controlled by the family of Wal-Mart founder Sam Walton, broke into the Kansas City market in 2009, although with a lower profile. It’s initial acquisition of Harrington Bank, then Solutions Bank, have given it a share of 0.87 percent—among the top 30 in a market packed with 155 banks last year.
Even with the competitive challenges, “Kansas City is a very important market for us,” said Mark Larrabee, CEO of regional operations. But those same factors are working to the advantage of customers here, he noted. “It means more competition for deposits, so on average, rates are higher here,” Larrabee said. “And for loans, rates are lower and more competitive.”
He pointed out an analysis by one bank in recent years that determined Kansas City had the least homogenous banking environment among 135 markets surveyed nationally. “So there’s always somebody willing to pay more in a deposit rate or charge less on a loan,” he said, for those customers who keep looking around.
Giant Strides
Those at the top of the banking food chain in Kansas City have amassed the greatest dollar volumes in asset growth, but in terms of percentages, it’s tough to match the growth of Metcalf Bank over the past decade. Metcalf has benefitted from an acquisition burst by Jefferson CIty-based Central Bancompany before joining that lineup in 2008. That had swelled its asset base from $190 million in 2000 to $1.16 billion in 2010.
In doing so, the bank has more than tripled its .59 percent market share from 2000, good for 27th-largest, to 1.84 percent of deposits in the market today, ninth in the region. That also explains how a bank originally named for its location on Johnson County’s commercial aorta is based in Lee’s Summit.
“The company has lot of available capital, and we’ve made a conscious effort to make acquisitions and get to the point where we had the resources here to be able to expand our business model,” said CEO Tom Fitzsimmons. Those moves, he said, gave the bank sites in Missouri and Kansas, including the lucrative Johnson County market.
That growth can be attributed to the bank’s ability to see over the horizon, although few could have predicted the extent of changes that would be imposed by the Dodd-Frank act passed last year.
“We saw this coming,” Fitzsimmons said. “We knew, in this market, that for us to get attention and resources to be competitive, we had to get to at least $1 billion in assets. That allows you to attract good talent, it gives you the resources to earn what you have to, to cover the costs of this compliance.”
The bank, he says, has five people working just on compliance with the regulatory burden. “It’s more difficult for smaller banks to afford that kind of resource,” Fitzsimmons said.
Down the Road
In recent years, the number of banks nationwide has been in decline, but Kansas City has eight more institutions in the market today than the 147 it had in 2000. That’s about to change with consolidation, particularly at the bottom, bankers say. Only 22 banks today command more than 1 percent share of the deposits in this market, and more than 100 have less than half that level.
The owners of many banks in that range may have waited too long to sell, Larrabee says. “Obviously, the market for failed banks has gotten a lot more competitive,” he said, “but sellers of healthy banks perhaps have not realized the market change in the value for their franchises, which makes it tougher to negotiate deals.”
They may not have a choice on whether to sell, given changes in the banking environment, professionals say. “A lot of the smaller, family-owned banks that we’re visiting with are, quite frankly, getting tired,” said Fitzsimmons. “Compliance is one issue, but the ability to make fair return is another.”
Stinson’s Lochmann nails the current state of U.S. banking with this insightful gem: “We used to have Too Big to Fail,” he said. “Now, we have Too Small to Survive.”
Size Really Does Matter
In the end, does it matter whether Kansas City has 155 banks, 100 or even 50? Yes, bankers say, because capital greases the gears in the U.S. economy, and banks are gatekeepers for a lot of it. An inefficient banking system is less capable of wringing risk out of billions of financial transactions that take place every year, and acts like sand in those gears, with potentially disastrous long-term consequences.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, drove that point home in a recent speech in Washington, when he called for federal action to break up large financial institutions.
“I am convinced that the existence of too-big-to-fail financial institutions poses the greatest risk to the U.S. economy,” Hoenig said. “They must be broken up. We must not allow organizations operating under the safety net to pursue high-risk activities and we cannot let large organizations put our financial system at risk.”
Dodd-Frank, he said, won’t fulfill its promise, despite the sweep of its regulatory change: “In my view, it is even worse than before the crisis,” he said. “Protected institutions must be limited in their risk activities because there is no end to their appetite for risk and no perceived end to the public purse that protects them.”
Because of that, he said, “we must break up the largest banks, and could do so by expanding the Volcker rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
“The substantial incentives that large organizations have to take on more risk, with the government expected to pick up the losses should they incur, unfailingly lead to undue risks throughout the balance sheet,” Hoenig said. 