Independent Banker - February 2024 - 65

Pictured at right: Community Unity Bank's
bankers, who possess plenty of experience
and connections. The relationships they built
in their community allowed them to bring over
their prior clients to the bank.
say, 'Yeah, you should start a bank.'
It's another if they write checks. "
The group went back to the
regulators with what Costello calls
a " bigger, stronger growth business
plan " to leverage the additional capital
and finally opened in January 2022.
The Fed began hiking rates a
couple months later, making it more
difficult for Texas Traditions Bank to
raise capital.
" Each individual investor's
commitment seemed to be just a
little bit less than we thought it might
have been, " Roth says. " They got
conservative because they were just
uncertain about what the economy
might bring and wanted to have
liquidity. A bank that takes 10 years to
become mature is not a liquid asset. "
The rate increases weren't the only
source of unease in the investment
community in 2022 and 2023 as
What's inhibiting bank formations?
" The creation of de novo banking is just not nearly as robust as
it should be, " says Chris Cole, ICBA EVP and senior regulatory
counsel. " The main reason is that the application process is just too
challenging, and the FDIC is requiring capital that's way too high for
new applicants, " Cole says. " That's why we've been pushing for this
idea of phasing in capital requirements. "
Indeed, David Roth, CFO of Texas Traditions Bank in Katy, Texas,
says his institution had a minimum capital raise of $35 million. The
capital requirements for de novos were much lower when he began
consulting with organizing entities more than 15 years ago. " We were
looking at numbers like $10 million at a minimum, " he says.
Regulation like the new Community Reinvestment Act rule can
also be discouraging. " As regulations increase in size and scope, the
attractiveness of getting into banking decreases, " Cole says.
Lastly, there are profit challenges. " Right now, our banks are all
managing margin compression, " Cole says. He's optimistic that
profitability will improve once banks can reprice their loans as fast as
they're repricing their deposits, however. " I think when that happens,
you'll see some slight pickup in [deposit] insurance applications. "
$28.7 million-asset Community Unity
Bank (CUB) in Birmingham, Mich.,
was raising capital. Toward the end of
the raise, the industry was rocked by
the failures of Silicon Valley Bank and
Signature Bank.
" You would think that would
have kind of been a hindrance, but
actually ... the failures were really
less of an issue for us because we had
none of the issues that those banks
had, " says cofounder, EVP and chief
credit officer Maria Dubiel. " We were
starting from scratch. "
Unique time to be a de novo
Arriving on the banking scene amid
a Fed fight with inflation has had
interesting ramifications. Todd
Hovland, cofounder and president
of $209 million-asset EntreBank in
Bloomington, Minn., says it was " kind
of a blessing in disguise " to open a
business bank in March 2022 as rates
were starting to inch up.
" Our first loan was at 4% and within
two months, we were at 5% or 6%, "
Hovland says. " So we don't have a lot
of long-term, low-rate debt on our
books, which is very fortunate. "
On the flip side, competition for
deposits among banks has grown
fierce. However, CUB has maintained
independentbanker.org // 65
Photo courtesy of Community Unity Bank
http://www.independentbanker.org
Independent Banker - February 2024

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