North Western Financial Review’s recent publication of December 31, 2014 state-by-state bank statistics for our region caused me to look back at the same information for year-end 1994. The changes over the past twenty years graphically illustrate something that everyone knows is happening: There are significantly fewer, but larger banks.
As of December 31, 1994, there were 120 banks operating in South Dakota, with total deposits of $11.4 billion. As of December 31, 2014, the number of banks had declined to 73, with total deposits of $2.2 trillion. Not surprisingly, the most dramatic decrease in charters occurred with banks under $100 million in deposits.
There are a number of reasons bank charters in South Dakota have decreased so significantly in number. To mention a few:
Interstate Banking. Nationwide branching has reduced the need for charters. For example, two large holding companies — Wells Fargo and U.S. Bank — have traditionally had multiple charters in South Dakota and other parts of the country. Many of these charters have been consolidated. Fortunately, Wells Fargo, NA — like Citibank, NA — chose South Dakota as the site of its main office.
Compliance Costs. Politicians and regulators tend to overestimate their ability to design structures that will accomplish only desired outcomes. As a result of this tendency, the compliance burden — which is enormous compared to 20 years ago — has added unnecessary cost and in many cases actually reduced the ability of banks to serve the needs of their communities. Some consolidation has occurred to spread the high cost of compliance over a larger customer base.
Succession Planning. A certain amount of consolidation of community banks occurs when owners do not have a new generation of family members to take over, or have not otherwise devised a strategy to retain local ownership and control. In these cases, selling the bank to another organization seems to be the preferred exit strategy.
At Davenport Evans, we help banks deal with a wide range of issues affecting banks — including those mentioned above. In every case, we attempt to identify our client’s goals and devise a solution. Please call us if you need assistance.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.