- Associated Press - Sunday, January 4, 2015

SIOUX FALLS, S.D. (AP) - Some small banks across South Dakota said they’re in trouble because of complex regulatory burdens, competition from other lenders and the difficulty of attracting new employees.

Independent Community Bankers of South Dakota president Greg McCurry said that in recent meetings with bank executives, at least two said they believe their banks won’t be around in five years, in part because they don’t have succession plans in place. Other banks are exiting mortgage lending because of regulatory burdens and difficulties with appraisals.

Community banks are most threatened by other lenders such as credit unions and agricultural suppliers that offer financing and enjoy tax or licensing advantages over banks, according to a September report from the Federal Reserve System and the Conference of State Bank Supervisors.

“The only way I know to really head them off is to not let your borrower talk to them,” said Jeff Davis, president of Bryant State Bank.

Compliance costs have more than doubled in the past few years for community banks in South Dakota, according to the September report.

“When you talk about getting out of home lending, that’s a very common theme, which I think is extremely sad because who knows that property, that community better? That bank,” said Troy Vander Stouwe, a board member of the South Dakota community banking group.

Davis said his bank in Bryant, with $30 million in assets, got out of home mortgage lending about three years ago because it didn’t have staff and expertise to deal with increasing regulations.

Home mortgage lending in rural areas has also suffered because of appraisal issues, bankers said. A lack of comparable sales for rural homes makes it difficult for banks to meet requirements necessary to spin off the loans on the secondary market, which is often a strategy they employ.

In a rural South Dakota town “there might be one house that’s sold all year, so the rules aren’t conducive to a community bank being able to make that loan,” McCurry said.

A state task force is working on figuring out how to train more rural appraisers, he said.

The costs associated with consumer data breaches at retailers have also hit community banks hard.

A national advocacy group said independent banks had to re-issue nearly 7.5 million debit or credit cards at a cost of more than $90 million because of a breach at Home Depot. The cost of re-issuing compromised cards has a larger effect on strapped smaller banks, McCurry said.

Community banks nationally are pushing to reduce regulations.

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