Capital requirements, regulatory excesses deter investors.
By Bill Poquette
Capitalized at a cool $31 million, The Bank of Austin was approved by the Texas Banking Commissioner on May 9, noting it was the state’s first de novo charter since 2009. Subject to being granted FDIC deposit insurance, the bank is expected to open this summer. Assuming that occurs, The Bank of Austin will be the second de novo to launch in 2017, after Southern California’s Blue Gate Bank in January – with capital of $30 million.
Is $30 million the new norm to capitalize a de novo bank? These two banks are in very robust markets; arguably, the tab might not be so steep in other parts of the country. But the capital levels of new banks over the past 10 years suggest a trend rising toward the California and Texas price tags. United Republic Bank in Omaha was capitalized at $12 million when it opened in 2006. After a virtual moratorium until 2013, Bank of Bird-in-Hand in Pennsylvania came to life with $16 million of investors’ cash. Organizers of Primary Bank in Bedford, N.H., raised $25 million prior to launch in 2015.
If the steep cost hasn’t been enough to discourage potential organizers, even with deep pockets, low interest rates and regulatory burden have been aggravating factors.
“Investors have options,” said Kenneth L. Burgess Jr., chairman of FirstCapital Bank of Texas in Midland, testifying for the American Bankers Association in March before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. “If the impediments to starting a new bank are too great, they will invest elsewhere,” added Burgess, who is also chairman-elect of the ABA.
So why have the de novos mentioned here succeeded in surmounting daunting obstacles?
“What made our situation unique was that our investors have not only decades of banking experience, but a passion for this type of work,” said Blue Gate’s director of banking, J. Chris Walsh, in an interview with BankNews Media earlier this year.
The organizers behind The Bank of Austin are the same that created The Bank of San Antonio in 2007 with $25 million in capital and assets, according to the Austin Business Journal.
“A huge opportunity exists for a new community bank with emphasis on local decision makers who understand opportunities and challenges that are unique to Austin‐based small to mid-sized business and professional customers,” said J. Bruce Bugg Jr., chairman of The Bank of Austin.
“We had the capital, a conservative business plan, local board leadership and an experienced management team,” says Mike Harmison, president and CEO on the website of Lakeside Bank in Lake Charles, La. This was the only new charter approved in 2010 and the strong economy of Southwest Louisiana helped convince regulators “that we had what was needed to succeed,” Harmison adds.
Two new banks opening in 2016 is better than any year since 2009. That’s not enough, however. In his congressional testimony, the ABA’s Ken Burgess nailed what it will take to woo potential organizers and investors:
“It’s time to think differently,” he said, “to encourage new banks by requiring less capital, reducing regulatory burden, permitting greater flexibility in business plans and lifting funding restrictions.”
Bill Poquette is editor-in-chief of BankNews.