The Right Time for De novo Banks

Tim Keadle

Audit Partner

June 30, 2016

Take a look back to a decade ago. Do you remember how much the community banking industry was booming and thriving? We definitely do! A successful real estate market led to de novo banks receiving charters left and right. However, in 2008 when the “Great Recession” hit, everything changed and since that time, only one new bank charter has been granted.

Recently, however, market conditions have started to improve and with the FDIC’s release of a new guidance on charter applications, there have been signs that an increase in de novo bank activity may again be on the horizon!

Now the question is: Will regulatory or market demands allow for any new bank charters? Senior FDIC officials have answered with a few public comments.

  • There will be no delays in the approval of de novo applications.
  • There will be consideration of all new applications that are deemed consistent with FDIC policies.
  • When acquisition pricing reached around 1.25 times book value, there was a renewed interest in the formation of de novo banks.
  • Additional de novo banks are expected to arrive in the coming years.

In April of this year, FDIC Chairman Martin Gruenberg announced that the “FDIC will reduce the period of heightened supervisory monitoring for newly chartered community banks to help address the drought in de novo charters that has occurred since 2011.” And in order to provide further information on the de novo application and approval process, Gruenberg said that the FDIC will “host future outreach meetings.” In addition, “the agency is in the process of developing a handbook that will guide prospective bank start-ups through the review process.

Based on the FDIC’s recent public comments, it is clear that de novo banks are in fact set to make a comeback! Nevertheless, this generation’s focus on franchise value is what will distinguish these new banks from what many of us remember of the de novo institutions of ten years ago.

For more information on how PKM can help your de novo bank, or even if you are just in the consideration stage, contact Tim Keadle.