News Column

Why your Treasure Valley bank choices are shrinking

August 20, 2014

By Zach Kyle, The Idaho Statesman



Aug. 20--See a chart of recent bank mergers

See how the number of banks has diminished

Little changed for the big dogs in the Treasure Valley banking industry last year, as Wells Fargo, U.S. Bank and KeyBank headed into 2014 with roughly the same 56 percent of the market share they held before.

For the rest of the market, the year was bedlam.

Nine of the 21 banks operating in the Valley last year either bought or were bought by competitors. The market has seen five mergers in the past 13 months, as well as a sixth deal that was the most high-dollar: Washington Federal buying out Bank of America'sIdaho holdings, which bumped the Seattle-based WaFed to No. 3 market share in the Valley, measured by deposits.

The Statesman spoke to four of the executives involved in the recent mergers. All say to expect more moving and shaking in Valley banking.

"We're definitely going to see more consolidation," WaFed Idaho Regional President Tom Van Hemelryck says.

EAT OR BE EATEN

Burley-based D.L. Evans Bank bought Idaho Banking Co. mostly for its four Treasure Valley locations, D.L. Evans CEO John Evans Jr. says. But Evans also says his bank, which passed the $1 billion mark in assets last year, needs to grow. That's because corporate expenses -- such as human resources, information technology and regulation compliance -- are more burdensome for small banks. Evans' bank has increased its compliance department from one employee to five since 2008, adding payroll that smaller banks couldn't afford.

"There's something like 16,000 pages of regulations," Evans says. "I don't see how a small bank with 10 or 15 employees can keep up with the regulation requirements."

Mergers sometimes lead to redundant branch locations that lead to closures, such as when Home Federal Bank and Syringa Bank locations in Downtown Boise closed after they were bought by Bank of the Cascades and Sunwest Bank, respectively.

But most of the consolidation happens in the corporate headquarters, where the staff handling payroll for one bank can usually handle the payroll for two, says Rob Perez, Idaho president of Northwest Bank. Northwest recently bought Regal Financial Bank in Seattle.

"It's about people," Perez says.

Idaho lost a state-chartered bank when another Seattle-area bank, Columbia Banking System, bought Intermountain Bancorp of Sandpoint and its subsidiaries, Intermountain Community Bank, Panhandle State Bank and Magic Valley Bank.

Curt Hecker, president and CEO of Intermountain, says increased regulation has limited banks' ability to offer distinctive products.

"The regulatory environment continues to homogenize the banking system so that trying to differentiate yourself with products or loan types becomes increasingly difficult," Hecker says.

TOO MANY BANKS?

Idaho's consolidations are part of a long-term national trend. The number of banking institutions in the U.S. shrank from 18,000 in 1985 to less than 7,000 in 2013 for the first time since at least the Great Depression, according to the Federal Deposit Insurance Corp. Almost all of the reduction comes from banks with less than $100 million in assets, according to the FDIC.

Banks with between $100 million and $10 billion have grown in number and in total assets as a result of consolidation, according to the FDIC.

Perez says the Valley's 18 banks are more than the market can support.

"If you have too many factories making widgets, usually we end up with fewer factories," Perez says. "In my opinion, that certainly applies to banking."

The past two years have seen more mergers than any other two-year stretch in the Valley. During the 1980s, 11 banks merged, including four in 1986.

Gavin Gee, director of the Idaho Department of Finance, says that the '80s also produced an increase of new bank charters. Idaho hasn't seen a new charter since Northwest Bank's predecessor, Western Capital Bank, formed in 2008.

Often, mergers involve out-of-state buyers snapping up in-state banks, Gee says. The in-state investors often turn around and use the sale proceeds to start new banks, Gee says. For example, the 1997 U.S. Bank purchase of West One Bank allowed the freshly flush investors to found five new state-chartered banks, Gee says.

"West One was so highly regarded throughout the state that investors believed that the merger created tremendous business opportunity," Gee says.

Zach Kyle: 377-6464,Twitter: @IDS_zachkyle

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(c)2014 The Idaho Statesman (Boise, Idaho)

Visit The Idaho Statesman (Boise, Idaho) at www.idahostatesman.com

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Source: Idaho Statesman (Boise)


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