Few De Novos Born in 2009

The year 2009 proved one of the most challenging for de novos in a generation, with just 20 new banks launched, a low not seen since the savings and loan crisis, according to data from SNL Financial.

Those that made it said upheaval in the industry left its mark in heightened regulatory scrutiny and difficult capital raises. Some added that investors, and at times regulators, questioned the wisdom of opening a new bank as the stock market crashed and failures soared.

"I think there was a general panic in the financial services industry during the time that we were filing our application," said Steve Stapp, CEO of Round Rock, Texas-based R Bank, which opened in June 2009. The bank's organizing group submitted its charter application to regulators in September 2008, a month that saw the undoing of several major financial institutions.

"It just kind of heightened some of the scrutiny that existing banks were going through and therefore heightened the scrutiny that we were given as a new applicant. … The whole industry was kind of coming apart at that time," Stapp told SNL.

Virginia produced the largest number of new banks in 2009, with four institutions launched across the commonwealth. Texas came in second, with three de novos for the year. Meanwhile, Georgia, which led the de novo market in 2008, fell out of favor in 2009: Not a single new bank has opened in the once-hot Georgia market since NOA Bank launched in November 2008.

Of those de novos that opened in 2009, most got their start in the first half of the year, with just three institutions launched in the last two quarters. Powhatan, Va.-based New Horizon Bank NA was the only de novo to open in the fourth quarter, launching Oct. 7, 2009, after raising $9.1 million in capital.

"Perseverance is what led us to opening the bank," New Horizon CEO James Keller told SNL. The bank's capital raise, which began in summer 2008, took more than a year to complete, though Keller said investors' moods seemed to lift early in 2009 as election-related anxieties faded and the stock market began to improve.

Even ardent supporters of would-be new banks sometimes found themselves unable to invest as much as expected. "A lot of people who had made commitments found that their net worths were severely impacted by the stock market crash," said David Blossey, CEO of Grandville, Mich.-based Grand River Bank, which opened in April 2009. The capital raise for Grand River Bank, a unit of Grand River Commerce Inc., also took a year to complete.

Blossey attributed the bank's success to the commitment of its organizers, adding that he believes Grand River's broad base of support in the local business community also may have helped to sway regulators to approve its application. "It was a very grassroots application, so I think the fact that it was community based and that the community supported the application with over $17 million in capital, I think that ultimately was the piece that made it successful," he told SNL.

Once open, new banks found that the woes impacting existing institutions had customers looking for new alternatives. "We've done exceedingly well," said Kenneth LaRoe, CEO of Eustis, Fla.-based First Green Bank, which opened in February 2009. "We finished out the year at almost $80 million in assets, and we're far ahead of budget on our income side, largely because we're one of the few banks out there that can loan money." LaRoe added that the new bank also benefited because customers knew the executives from their previous work in the community.

Stapp said it was that expectation of customer discontent in a chaotic time for the industry that led R Bank's organizers to push forward, despite delays in the de novo's organizational period. "We felt like if we got in the business at this point that we'd be able to take some of [the competitors'] customers away from them, because they weren't paying good enough attention to them," Stapp told SNL.

The plan seems to have worked: In its first six months, R Bank gathered $32 million in deposits, ahead of projections, and about $16 million in loans.

Still, the de novo bankers who spoke with SNL were divided on the outlook for new groups forming today. Some advised patience but persistence, while others suggested that it might be too difficult to form a bank in today's environment. All said any current bank organizers should expect heightened regulatory scrutiny to lead to delays.

"It's a much slower and much more tedious process than what it used to be, and I would say that anybody that was going out and doing this, I think they need to be sure and stretch their timeline out," Stapp told SNL.

Blossey said he would recommend more prep work before getting started. "I think it's possible to open a de novo, but I think you have to have a very good business plan, supported really well, and you would want to spend a lot of preliminary time talking to your regulators before you invested a lot of time and effort into that process," he said.

Maria Tor contributed to this article.