Bank owners say keeping multiple charters benefits communities, organizations

Consolidation is a growing trend in banking. The number of FDIC-chartered institutions has fallen to around 4,500 from nearly 12,400 in 1990 as bank owners seek the scale necessary to survive..As the number of charters continues to fall, some bank owners who acquire other charters are retaining the acquired charter, both to maintain the community feel of the acquired institution and to ensure more opportunities for employees to advance their careers.One example is 215 Holding Company. The Minneapolis-based holding company has six separate bank charters in Minnesota, Iowa and South Dakota, which Co-Owner Brian Short acknowledged wasn’t by design initially. Each subsidiary has different board members, but some top leaders are on multiple boards, including Short, Chief Banking Officer Greg Wolf, retired Twin Cities banker Mike Kelly and John Malone..“I am the anti-big guy,” Short said. “I hate big organizations. We are a customer service organization. That’s what a bank is.”Short started the Minneapolis-based holding company in 1987 when he acquired the First Bank of Luverne, Minn., a $57 million, two-branch bank. 215 Holding Co., then acquired a bank every couple of years:A failed savings and loan in 1990 in Fairmont, Minn., which Short converted into a national bank.Two small banks in 1994 in Grand Meadow and Brownsdale, Minn.A bank in Le Sueur, Minn., in 1995.A couple TCF branches in Austin and Pipestone, Minn.A branch in Cannon Falls, Minn., 20 years ago from Carl Pohlad..In 2010, Short acquired the failed White Rock Bank in Cannon Falls, which took 215 Holding Co., to more than $500 million in assets with nearly two-dozen branches statewide. Two years ago, 215 Holding Co., acquired Sioux City, Iowa-based Liberty National Bank, increasing the company’s consolidated assets to $1.6 billion. Short has kept most of those charters over time, but merged the Le Sueur charter into the Cannon Falls/White Rock charter for management reasons.Short said having multiple charters allows him to hire high-quality employees who know they can advance their careers at a small bank yet with the trappings of working at a company that promotes from within.“It’s worked out really well,” he said. “It does a number of things for us: First, it keeps us closer to the communities we serve when the guy who was president of our bank in Luverne knows that he needs to take care of the customers/potential customers in Luverne and Pipestone. And if he doesn’t, his bank will not succeed.”Short said the company centralizes services customers aren’t likely to closely identify with. A division of 215 Holding Co., FFM Shared Services, houses a centralized place for back-end operations such as IT, document production and core processing. The services customers especially value are kept in-branch.Short sees his company delivering quality customer service with great employees more effectively than his largest competitors. He prides 215 Holding Co., for having someone available for customers to talk to when technology breaks down. “I try to keep that small,” he said. “One of the biggest challenges that I face is having the right people in the right places to deliver that service, but I think that’s easier in smaller organizations.”Although 215 Holding Co., has considered consolidating its charters, Short isn’t convinced that doing so would save his company money or staffing. He estimates that consolidating his charters could take up to five years and cost millions of dollars. He also doesn’t find consolidating regulatory compliance functions a compelling reason to do away with charters.“Maybe I don’t want that,” Short said of consolidating regulatory compliance. “Maybe I would just as soon show the regulators small banks because they can focus on important things. Because what happens is, if you are a big organization, regulators tend to focus on the bigger parts of it instead of the smaller parts. I’d rather not do that.“The arguments in favor of (consolidating charters), when you look at it really hard, are fairly weak.”S.D.-based exampleAnother bank owner with multiple charters is Robert Farrar, who owns three charters through three holding companies: Capitol Bancorporation, which owns the $1.7 billion First National Bank of South Dakota in Ft. Pierre; Fulda Bancorporation, which owns the $460 million First National Bank in Oldham; and Beresford Bancorporation, which owns the Beresford, S.D.-based First Savings Bank, a thrift with just under $1.5 billion in assets..Robert’s father, former South Dakota Gov. Frank Farrar, at one time had 19 separate bank charters across the Midwest until the 1970s. Back then, acquiring a bank only meant a small charter in a tiny community. The advent of interstate branching in the early 1990s changed that equation as bank owners consolidated their charters.While acknowledging the efficiencies that having only one charter would bring, Farrar said his companies are not solely focused on finding those; instead they prioritize keeping the local feel of the banks while employing as many people as possible. Farrar’s companies employ a combined 700 to 800 employees.The boards of Farrar’s banks all have different members, except for Robert Farrar, who is on all three; Todd Douglas, who is on two; and Bill Fuchs, who is retired but on the boards of two bank charters.Farrar’s banks have branches in 10 states. While Frank Farrar cut his teeth in small towns, the companies are now more open to banking larger cities — Sioux Falls and Rapid City, the Quad Cities, Denver, Las Vegas and El Paso — while maintaining their focus on small communities. The banks have credit card operations in multiple states, so they rely on strong compliance staff who are aware of state regulations and support systems.Farrar sees geographic diversity as necessary to account for the cyclical nature of banking. All of his banks are domiciled in the state of South Dakota, which has preemption over other states. Branch presidents are attuned to local requirements. Each of Farrar’s charters make their own credit decisions.The charter of First Savings Bank was converted to a thrift from a national bank in 1986 to reap the benefits of a unitary thrift holding company. The company also acquired unitary thrift charters and made them branches, with the understanding that the charter had more power than a national bank.Owners in Illinois, Iowa also like multiple chartersAnother bank owner with multiple charters is David Albin, owner of Longview Capital Corp., in Newman, Ill. As of April, Longview Capital employed nearly 200 people across its three Illinois charters: Bank of Gibson City; Longview Bank and Longview Community Bank.As of mid-April, the company was in the process of acquiring two in-state banks: Middletown State Bank north of Springfield, and Federated Bank, which is headquartered north of Paxton in the central part of the state. Albin expects both banks will keep their charters.Albin’s parents founded Longview Capital Corp., in 1978. They initially acquired banks with between $20 million and $30 million in assets thinking they could consistently review each charter more effectively than a single conglomerate. The family also sought to keep a local community focus at their banks.Albin acknowledges the challenges of keeping multiple charters. At one time, the family-owned company had five charters, each with monthly director and loan committee meetings, stretching the schedules of leaders with already busy schedules.Albin, who expects to always have at least two charters, sees the benefits in doing so. This way, strong employees can fill in at any of the bank subsidiaries for executives on leave. Also, local decision-making is maintained.O.Ohnward Bancshares in Maquoketa, Iowa, has three banks chartered in the state: Maquoketa State Bank, Ohnward Bank & Trust, Cascade, and First Central State Bank, Dewitt. Co-owner Al Tubbs acquired controlling interest in Maquoketa State Bank in 1966 along with his father, Edward Tubbs, and John Fagerland. One year later, they formed Ohnward Bancshares. In 1972, they acquired First Central State Bank.Today, $1.6 billion Ohnward Bancshares is locally owned by shareholders, most of whom live in Eastern Iowa. The majority of the company is held by individuals and families from the Tubbs and Fagerland families, and participants of an ESOP.Co-owner Brigham Tubbs, son of Al Tubbs, said the company could lose some of its community commitment if it was just one charter. The company, which once had five charters, is now down to three.The company provides HR, IT, tax, accounting and compliance services to their banks. The separate charters have joint committees, increasing the familiarity of the charters with each other. The banks tend to train and celebrate together, which unifies staffs across the enterprise. All are on the same core processing system.Brigham’s brother, Abe Tubbs, acknowledged that the company does see inefficiencies from the constant meetings and examinations caused by having multiple charters. Despite the inefficiencies, the multiple charters also provide Ohnward Bancshares with more career advancement opportunities. In one example, Leo McGarry, who had worked for First Central State Bank for more than 20 years, was promoted to president/CEO at Maquoketa State Bank in 2022 after its President/CEO Kevin Burns announced his retirement..When you give up a bank charter, it’s gone’The need for bank owners to consider their charter options has increased significantly over the past few decades. The number of commercial bank charters in the United States has fallen to approximately 4,500 from nearly 14,500 in 1980. The number of bank branches fell to just over 69,000 in 2024 from more than 83,000 in 2012.The sentiments of bank owners with multiple charters don’t necessarily reflect the views of industry consultants. Banks now more than ever collapse their charters, said Sean Payant, chief strategy officer at Lincoln, Neb.-based Haberfeld. He sees advantages and disadvantages to both approaches.“You don’t necessarily have to (consolidate charters), but also you have to remember, when you give up a bank charter, it’s gone,” Payant said. “And so, there are some advantages in having that in your possession. The challenge is, there’s just not enough economies of scale in that model.”With one charter, the previously separate charters can keep their division brands even as the company gains from overseeing a less-complex organization, Payant said. One of Haberfeld’s largest clients operated numerous charters years ago, but has since merged those into one to better manage oversight challenges. Despite collapsing the charters and operating under one core, Payant said each division has maintained its local identity. Each division has a president, CEO and marketing director.In some cases, a family-owned holding company will have each child own a charter, Payant added. One bank owner he is aware of has three separate charters in three different states, each in close geographic proximity. The holding company employees reported challenges in keeping the separate charters, as they must meet with each board during IT augmentation, for example, to ensure they are all on the same page.One reason banks could delay consolidating their charters is the expenses faced in terminating a core contract early. Although doing so usually brings a significant cost, that expense is likely not going to be foisted on the buyer, said Greyson Tuck, president of Memphis-based law firm Gerrish Smith Tuck P.C.“Ultimately the seller is going to pay for it,” he added.Companies that consolidate their charters eliminate redundancies, Tuck said. Having separate charters requires separate boards, raising expenses and time writing call reports. “It’s not only just the hard dollars, it’s the amount of time that’s spent doing duplicative actions that would not otherwise be necessary if you brought two banks into one,” Tuck added.Another benefit Tuck sees in consolidating charters is the possibility of using a “Doing Business As,” designation, which allows businesses to operate under a name different from its legal name. One example is Chicago-based Wintrust, which has more than 150 community bank subsidiaries across 15 separate charters.Despite some owners keeping multiple bank charters, Payant expects the overall number of charters will continue to fall as community bank acquirers manage economies of scale. Still, he sees opportunity for bank owners. “Community banking is still alive and well … The opportunities in it exist, but there are going to be thrivers and survivors, and I’d rather be a thriver than a survivor,” Payant said.“It’s really going to come down to how do you develop your organization or your bank as a niche, go-to place for the people who you serve, and understanding who your market is and what you’re good at.”