While it is no secret that banks are declining at a rapid rate, some states are losing institutions at a much faster pace than others.

Some reasons apply nationwide, including failures after the financial crisis, traditional mergers and a dearth of de novo activity. But a closer look at individual states provides a deeper understanding of the specific catalysts at work.

American Banker looked at several states — Arizona, Nevada, Florida and North Carolina — that have lost more than a third of their banks since the end of 2010. Those losses are much higher than the national average of 24% over that time, based on data from the Federal Deposit Insurance Corp.

Arizona and Nevada
States in the Southwest were hit particularly hard by the implosion of the housing market prior to the financial crisis. The ensuing increase in regulation just added to the misery for those who survived the initial hit.

“The crisis created unnecessary and overreaching regulation,” said Mike Thorell, president and CEO of the $200 million-asset Pinnacle Bank in Phoenix, characterizing those events as a “domino effect” for banks in his state.

The number of banks based in Arizona is down nearly 60% from late 2010, to just 17 institutions at Dec. 31. Deposit market share is top-heavy and dominated by big out-of-state banks; Bank of America, Wells Fargo and JPMorgan Chase held nearly 70% of Arizona deposits at June 30, based on FDIC data.

Six banks have failed in the state since 2010, and another nine have been bought, based on data from Keefe, Bruyette & Woods and S&P Global Market Intelligence. Charter consolidations have reduced the number of banks even more.

The story is similar in neighboring Nevada, where the total number of banks has declined 41% over the last six years, also totaling 17 at Dec. 31. The results include two failures and three traditional sales.

“We had a very deep community bank market prior to the recession,” said Terry Shirey, president and CEO of Nevada State Bank in Las Vegas. “Our community banking sector was hit very hard, really bore the brunt of” the financial crisis.

Zions Bancorp. in Salt Lake City consolidated seven bank charters, including Nevada State, in 2015 as part of a broader efficiency initiative. Shirey has been at the bank since 2008.

Opportunities to make money off commercial real estate — a big component of banking in Nevada — have dried up in recent years due to waning demand, Shirey said. That has, however, forced banks to focus on other areas, while making the overall system healthier and more sustainable, he said.

Bankers also pointed to a well-documented lack of de novo activity.

“It just hasn’t been a good environment for a new bank,” Shirey said, pointing to regulation and historically low interest rates. “A lot of the same challenges exist throughout the country.”

At least Florida can say it has one new bank in the works.

Winter Park National Bank filed an application last year to open just north of Orlando. The application is still pending.

Still, the opening of one bank would do little to stem the bleeding in a state that has lost nearly 40% of its banks over the past six years. Housing woes and the financial crisis played a role early in the process, leading to many of the state’s failures over that period.

Florida has bounced back in recent years, in terms of its economy and population growth, fueling more consolidation. In many cases, out-of-state banks are looking to enter the state or enhance their existing operations. Overall, 76 banks have agreed to sell since late 2010.

The state still has a large number of banks remaining, with 149 institutions open at Dec. 31.

“Over the last couple years, there has been a resurgence of M&A in the market,” said Paula Johannsen, managing director at Monroe Financial Partners. Acquirers are “seeking growth opportunities that were different than their home bases.”

Notable deals in recent years include C1 Financial’s sale to Bank of the Ozarks in Little Rock, Ark.; CNLBancshares purchase by Valley National Bancorp in Wayne, N.J.; and TIAA’s pending acquisition of EverBank Financial.

The Miami area has also been popular. Iberiabank in Lafayette, La., has agreed to buy Sabadell United Bank and Home BancShares in Conway, Ark., has agreed to acquire Stonegate Bank.

Johannsen downplayed regulation’s role, noting that compliance burdens aren’t new to bankers.

Still, some bankers contend that regulatory burden has been a factor.

“Regulation’s at the heart of” the issue, said Jay Pelham, president of TotalBank in Miami, pointing to a correlation between increased regulation under the Dodd-Frank Act and a reduction in the number of banks still in business.

North Carolina
Private equity has played a large role in consolidation across North Carolina, which has lost 38% of its banks since late 2010. The state, which had 62 banks at Dec. 31, suffered five failures over that time, along with 37 traditional deals.

Outside money from firms such as Carlyle Group, Stone Point Capital and Aquiline Capital Partners pumped millions of dollars into a handful of banks in the state with the goal of scooping up struggling institutions. In other instances, the funds rescued flailing banks such as CommunityOne Bancorp.

That strategy allowed banks such as BNC Bancorp, Yadkin Financial and others to build large franchises. Yadkin, for instance, packed on nearly $7 billion in assets through six bank acquisitions between 2010 and 2015. BNC also bought six banks in Virginia and the Carolinas.

“All of those companies were in a position to begin rolling up other banks — and they all did,” said Lee Burrows, CEO at Banks Street Partners in Atlanta.

Many of those banks have become sellers.

Yadkin was recently sold to the $30 billion-asset F.N.B. Corp. in Pittsburgh, and BNC agreed in January to sell itself to Pinnacle Financial in Nashville, Tenn.

Still, Burrows estimated that 90% of the deals in North Carolina in recent years have involved in-state buyers purchasing competitors.

“You’ve got several great pockets of the economy” in cities such as Charlotte and Raleigh, Burrows said. “North Carolina has always been a great banking state with a very diverse economy.”

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