Nevada bank deposits slip steeply in ’12

South Dakota may be small, with just one-quarter of a percent of the U.S. population, but the state known for Mount Rushmore and The Badlands is also a favorite destination for the banking industry in general and a former Nevada institution in particular.

The state now holds 3.5 percent of all bank deposits this year, up from 1 percent a year ago, data collected by the Federal Deposit Insurance Corp. show.

Deposits more than tripled, from $84.9 billion to $315 billon, the largest state increase according to SNL Financial LC's review of the FDIC data. The state benefits from holding the charters of the nations' No. 2 and No. 4 banks, Wells Fargo & Co. and Citigroup Inc.

"They have been able to attract some of the leading financial institutions for many reasons," said Michael Natzic, senior vice president and branch manager of the community banking group at Crowell Weedon & Co. in Big Bear Lake, Calif.

The state's 271.04 percent jump in deposits was because of Citigroup, which consolidated its charter from Nevada - another state known for its many bank charters - into South Dakota in July 2011. It was a move that cut Nevada's deposits in by 56.4 percent, to $113 billion from $259 billion, the steepest decline of any state, according to SNL Financial, a Charlottesville, Va.-based financial data provider. Along with the deposits, hundreds of jobs migrated to Sioux Falls.

That doesn't mean all capital is fleeing the state, however.

"Nevada is still an attractive state for banks," Nevada Bankers Association President and CEO Bill Uffelman said. "The problem is the economy."

Uffelman said that for the most part, Nevada was attractive because of low tax rates. The state does have a 2 percent payroll tax for banks.

"(That's) higher than other businesses in this state," he said. "But we've learned to live with it."

The migration of financial institutions to the Midwest began in 1981 after the South Dakota Legislature lifted its usury cap, which brought Citigroup to Sioux Falls.

Many states have a usury law, which limits the interest rate that a company may charge. Most of these laws capped rates at around 18 percent.

However, some states, such as South Dakota and Nevada, do not have a usury law and thus no limit on interest rates. Uffelman said that's what attracted Citibank and other traditional financial institutions to Nevada.

So what would be the advantage of choosing South Dakota over Nevada?

Doug Hajek, a partner with Davenport, Evans, Hurwitz & Smith, a Sioux Falls law practice, said South Dakota has a well-established history of supporting the financial services industry. The catalyst for growth, Hajek said, occurred in 1980, when the state lifted its usury cap, setting the stage for Citibank to move its credit card operations along with 500 jobs.

"It gave us a good foothold in the financial services business," Hajek said. "We've created an infrastructure of talent and technology. It has just kind of expanded over the years."

Hajek said the financial services industry has created thousands of jobs and paid millions in taxes. He attributed South Dakota's growth to its "stable economy."

In Las Vegas, Bank of America Corp. is the largest financial institution, with 24.6 percent market share and $9.23 billion in local deposits. Wells Fargo & Co. was next with 22.1 percent of the market and $8.25 billion in deposits, followed by Citigroup Inc. with 10.6 percent and $3.96 billion.

Beal Bank USA with 8.4 percent of the Las Vegas market and $3.15 billion in deposits, and Nevada State Bank at 6.6 percent and $2.47 billion in deposits round out the top five.

"What we are seeing is more and more market share coming back to banks in terms of deposits," Natzic said. "With more confidence in the industry, deposits start to flow back into banks. We just are not seeing that transpire on the lending side."

Natzic said on the lending side there was "still some healing to do" from the recession. He said the industry is better off than it was two years ago, but it's dealing with a new regulatory environment.

Across the country, deposits were up 8.5 percent to $8.947 trillion for the fiscal year ended June 30, beating out 2011's gain of 7.5 percent, SNL said.

Minnesota and North Carolina followed South Dakota with deposit gains of 33.5 percent and 20.2 percent. Massachusetts, Utah, Delaware, North Dakota and Texas also reported double-digit deposit gains.

New Mexico, Mississippi and South Carolina were the only other states apart from Nevada to report a decline, albeit a modest loss of less than 1 percent. The modest changes reported by the FDIC come from banks moving their deposits.

The increase in deposits has cut into profits for banks in Nevada and nationwide. Uffelman said that because of the deposit growth, "everybody is flush with cash and can't do anything with it because of interest rates" at historic lows.

Operating bank branches, advances in technology and increased regulatory costs have added to the financial burden, dragging down the profitability of a number of banking companies.

To boost their profitability, banks are shedding branches, according to SNL.

For the third year in a row, banks trimmed their U.S. footprint. The industry cut 867 branches during the fiscal year ended June 30, bringing the total to 97,337, compared with 316 closures in fiscal 2011 and 1,030 in fiscal 2010.

Bank of America closed the most branches, shuttering some 200, SNL said. J.P. Morgan Chase & Co. continued its expansion, opening 171 branches, the SNL survey showed.

Bank of America, Wells Fargo, JPMorgan Chase and Citigroup held onto the top four spots for total domestic deposits at U.S. banks and thrifts. JPMorgan and Wells Fargo had deposit growth of more than 12 percent; Citigroup's deposits climbed by almost 24 percent.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.