Dive Brief:
- An Oregon law set to take effect in June is intended to incentivize new bank formation in the state.
- House Bill 4052, unanimously approved by Oregon lawmakers in March, offers up to $1 million per year in state tax credits for three years for Oregon-chartered banks that begin operations between 2027 and 2033, the Oregon Bankers Association said in a Tuesday news release.
- The state hasn’t chartered a new bank since 2007, and its community bank pool is “shrinking pretty dramatically,” Scott Bruun, CEO of the Oregon Bankers Association, said in an interview. Based on trends, “we're 10 years away from losing the community banking model in Oregon all together.”
Dive Insight:
Oregon has about a dozen state-chartered banks today, down from 50 roughly 25 years ago, Bruun said. In February, Mountlake Terrace, Washington-based FS Bancorp said it would acquire West Linn, Oregon-based Pacific West in a roughly $34.6 million deal.
And despite de novo activity more recently taking off in other states such as Florida or Georgia, as well as regulators’ openness to new bank charters, “there is zero prospect of a new bank starting in Oregon. There's no conversations,” Bruun said.
“We are a new banking desert,” he said.
Bruun chalked up some of it to the state’s high business tax rate and property taxes. The other challenge, he said, is unique to banks: Banks have to pay federal taxes, but credit unions don’t. And credit unions are also exempt from Oregon’s business income tax and corporate activity tax, he said.
“That cost of capital differential in Oregon between credit unions and community banks, I think, is greater than any other state in the country,” he said. About 50 credit unions operate in Oregon, he said.
Bank trade groups argue the tax-exempt nature of credit unions allows them to offer a higher purchase price than banks, leaving acquisitive banks at a disadvantage. Last year, Salem, Oregon-based Maps Credit Union acquired Oregon City-based Lewis & Clark Bank.
Bruun, wondering last year what could be done to stimulate new bank formation, found Ohio passed a similar law in 2020, offering a tax credit for three years. Ohio, which hadn’t had de novo activity since 2008, has seen the formation of six new banks since then, he said.
About 34 banks take deposits in Oregon, Bruun said, including large lenders JPMorgan Chase, Bank of America, Wells Fargo and U.S. Bank. The biggest state bank is $66 billion-asset Columbia Bank, which is headquartered in Tacoma, Washington, despite its Oregon charter, he said.
Still, “it's a big state with a lot of rural areas,” and “there's a definite need” for community banks, Bruun said.
The Oregon Bankers Association intends to promote the incentive nationally.
“Now we just have to connect the bank talent here in Oregon with the investors,” Bruun said. “Is this a super secret sauce? I don't know. I sure hope so. What I know is that conversations will happen that haven't previously happened.”
Paul Davis, founder of Bank Slate Consulting, said the incentive is a positive signal from the state. “It helps at the margin,” and could prod an organizing group that’s on the fence, he said.
Still, “there are just so many other factors that an organizing group has to consider,” Davis said, including the bigger challenge of gathering $20 million to $30 million in capital to satisfy Federal Deposit Insurance Corp. requirements.
