Where are all the new banks?

Are new banks making a comeback in the U.S.? Federal regulators seem to think so.

If they are right, it would mark a significant departure from the sharp decline in startup banks that followed the 2008 recession.

The Federal Deposit Insurance Corp. has approved only four applications for new banks – known as de novos among industry professionals – since 2011. The first of these, Bank of Bird-in-Hand, opened in 2013 in Leacock Township, Lancaster County. Two others are in southern California, while another is in New Hampshire.

From 2000 to 2008, by contrast, more than 1,000 new banks opened across the country, according to a statement FDIC Chairman Martin Gruenberg gave to legislators in July.

The totals do not include applications filed for the purposes of acquiring other institutions, which is how Advantage Bank, one of central Pennsylvania’s newest planned financial institution, hopes to start doing business next year.

But new banks appear to be heading toward an upswing, with five applications currently pending with the FDIC. Economic factors, including the possibility of higher interest rates and loosened regulations, are creating the potential for a de novo-friendly environment.

The FDIC has also taken steps in recent years to encourage prospective startup owners to file applications.

In April, it lessened some of the regulatory burden: returning to a three-year de novo period – during which banks are subject to higher capital maintenance requirements and more frequent examinations – down from a seven-year period that was implemented in 2009. It also has put together guides and training to reduce confusion surrounding the application process.

Choosing a market

Southern California is home to two of the four post-recession startups, as well as three of the five banks that filed applications with the FDIC this year.

The reason: economic and population growth in the already wealthy region.

If economic conditions continue down the path of high interest rates and FDIC support, could Pennsylvania see more new banks in the coming years?

The region’s string of mergers in recent years could put it in a good position to host more activity.

When larger, out-of-market institutions acquire smaller community banks, they create the potential for gaps in service for small businesses, according to the FDIC. This disruption then opens the door for new institutions to fill those voids.

That was essentially how Bank of Bird-in-Hand found its niche, said Alan Dakey, the bank’s CEO. After several other small financial institutions left Lancaster County, the bank filled a need for small-business loans, especially among Amish and other agricultural communities.

Advantage, although not a traditional de novo, is also looking to work with smaller business customers. Most of its loans will be for less than $5 million.

Mergers can also create a pool of displaced or unsatisfied professionals who might be willing to jump onboard with a startup – a fact that Bank of Bird-in-Hand and Advantage have leveraged.

Dakey has seen an increase in demand for new banks as the post-recession economy continues to approve – although, he said, starting a de novo still is not for the faint of heart.

But Bank of Bird-in-Hand has found a niche that works, he said. It had profitable months by the end of 2015, and has remained profitable through all of 2016.

“Bank of Bird-in-Hand has had great reception in the community,” Dakey said. “Our growth has been very strong. We reached profitability much sooner than originally projected.”

De novo applications approved since 2011

  • Blue Gate Bank: Cosa Mesa, Calif. Order issued Oct. 3, 2016.
  • Core Commercial Bank: Newport Beach, Calif. Order issued Dec. 29, 2015.
  • Primary Bank: Bedford, N.H. March 9, 2015.
  • Bank of Bird-in-Hand: Bird-in-Hand, Pa. Nov. 27, 2013.

De novo applications received in 2016 and pending

  • Endeavor Bank: San Diego, Calif. Received Aug. 12.
  • International Bank of Commerce: Oklahoma City, Okla. Received Jan. 15.
  • Pacific Metro Bank: Johns Creek, Ga. Received Oct. 28.
  • SoCal Bank: Santa Ana, Calif. Received July 11.
  • Tennessee Bank and Trust: Nashville, Tenn. Received Oct. 3.

Read: FDIC Chairman Martin Gruenberg’s July 13 statement to the U.S House of Representative’s Committee on Oversight and Government Reform

Jennifer Wentz
Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com.

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