Independent Banker - July 2017 - 34

e novo bank formation
since the
recession has
been almost nonexistent.
This is a
major change from
the two decades preceding
the recession,
when FDIC data show
there was an average of 172 de novo
charters each year.
Within the past year, however,
there have been signs of life. The
FDIC received six applications for
deposit insurance last year (though
one bank has since withdrawn its
application). This comes after the
FDIC took several steps to make
new bank formation more appealing,
including signifi cantly trimming
the number of years new banks are
subject to stringent de novo capital
requirements.
While the FDIC has provided some
relief to would-be startups, there are
still signifi cant challenges to starting
a bank from scratch-and these
hurdles are even more pronounced
today given the prolonged low interest
rate environment and challenging
economic conditions for community
banks in particular. While industry
watchers believe de novo formation
still has a place, they caution potential
applicants to be realistic about
their expectations today versus a
decade ago.
" At the time, the thinking was: Start
a bank, add water and it will grow.
But you need a lot more than water
nowadays, " says Bruce Jensen, chief
executive of Town & Country Bank
in St. George, Utah, which opened in
2008 and now has about $135 million
in assets.
Despite the additional challenges
of starting a new bank, some determined
bankers have started down the
de novo path-or plan to-knowing
full well that it will be harder than it
was a decade or so ago. These bankers
contend that de novo formation is
still a viable option in certain cases,
especially in underbanked pockets of
the country or in areas experiencing
steady population growth.
Southern initiative
David Dotherow, who is working to
open his third bank in Florida, says he
expects to see several more applications
in his state alone over the next
18 months. " I think there will be a
lot of interest in the next few years,
because there is a void of community
banks, " he says.
Winter Park National Bank, the
fi rst national bank application since
2009, sought approval to open late
last year. In April, it received preapproval
from the OCC and is putting
operational plans into motion as it
awaits the FDIC's nod. Dotherow
projects that the bank's single branch
will be open to the public by the end
of August. He's in the process of raising
the necessary capital he needs to
open: $30 million to $40 million.
Since his bank's application became
public, Dotherow says he's gotten
several calls from bankers seeking
his advice on starting a bank from
scratch. He counsels them to make
sure their reasons make sense and
that it won't be easy.
Heightened capital requirements,
for instance, can be a major sticking
point. To illustrate how capital expectations
have changed over the years,
Lori A. Maley, president and chief
executive of Bank of Bird-in-Hand,
a $200 million-asset bank in Birdin-Hand,
Pa., says her bank raised
$17 million of capital to open in 2013.
Ten years earlier, when she helped
open Berkshire Bank in Wyomissing,
Pa., the bank started with only
$8.3 million of capital.
The situation today is complicated
further by the fact that regulators
expect you to have all the necessary
capital upfront, explains Peter G.
Weinstock, a partner at Dallas law
fi rm Hunton & Williams LLP, who
has signifi cant experience advising de
novo banks.
It's also harder to attract investors
than it once was. In 2008, when
Town & Country Bank opened, many
banks were formed with shareholder
expectations of a nice return in
a relatively short period of time.
Healthy banks were selling at 2.5 to
three times tangible book value in
some cases, says Jensen.
" Now, a smaller community bank
might sell between one and two times
tangible book. The landscape has
changed signifi cantly, " he says.
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˛ιιωω! "
-DAVID DOTHEROW, WINTER PARK NATIONAL BANK
34 ICBA IndependentBanker July 2017
Independent Banker - July 2017

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