De novo applicants lean on each other to get through tough process
The first time Dan Yates, the CEO of Endeavor Bank in San Diego, started a bank he found it helpful to build a network of community bankers he could turn to for advice. Now, 18 years later, he is running his second de novo and still making time to offer guidance to other bank organizers.
As de novo activity gains momentum, bank organizers are creating informal support groups to help each other stay focused and navigate through a challenging approval process. Three new banks have opened so far this year; 15 other groups have applied with regulators.
While bankers say regulators have become receptive to new banks, it remains a complicated, paper-intensive process, making those who have successfully opened banks a popular resource for other hopefuls.
“Management teams are generally very willing to share experiences and talk about stumbling blocks in their organizing processes,” said Jonathan Hightower, a lawyer at Bryan Cave Leighton Paisner, who noted that the pre-crisis class of de novos also leaned on each other for direction. “Being able to understand those [challenges] and work around them is key.”
Yates said he receives monthly calls from groups interested in new bank formation. Several bank organizers also said they have received help from Beacon Community Bank in South Carolina, which opened in January. Calls to Beacon for this article were not returned.
“I'm excited to invest in these relationships,” Yates said. “Now I can see in the future there will be bankers I can call upon down the road and support them as needed throughout the journey.”
There is typically more camaraderie among community banks compared to larger financial institutions, industry observers said. Small bank leaders are more apt to discuss business challenges or partner with one another.
“Most competition is against larger banks,” Yates said. Small banks "tend to stick together more than you might suspect.”
“It’s kind of like banks that have been around for a while all have comparable peer groups and they get together and talk," said Donald Musso, president and CEO of FinPro, which is working on several de novo efforts. "It makes sense for startup banks to talk to other startup banks and other similarly sized groups in their region."
Some banks that are working with FinPro have discussed loan participations, fintech partnerships, and consolidating back-office tasks, Musso said. He said he expects more partnerships and collaborations to take place as more de novos open.
“There are a few up and running, and a few that will get their licenses and insurance in the next 12 months,” Musso said. “We expect this trend to accelerate.”
Community bank CEOs have been helpful during the planning stages of the proposed Scottsdale Community Bank, said George Weisz, who would serve as the Arizona de novo's chairman. Yates offered to speak on the phone with Scottsdale Community’s proposed board about growing pains that Endeavor, which opened in January, experienced early in the process.
Scottsdale Community has received preliminary approval from state regulators to raise initial capital as it searches for a president and secures an office location.
“Everyone is offering to tell you their story — and it’s all very positive,” Weisz said.
Matthew Pollock, the proposed president and CEO of Watermark Bank in Oklahoma City, which applied with the Federal Deposit Insurance Corp. in May, has also spoken with a handful of other de novo groups. He said some of those conversations have developed into longer-term relationships.
“It’s been fun to get to know some of these folks,” Pollock said. “Everyone is doing [de novos] a little differently. … They know how hard of a process it is to start a company because they’ve been through it. The more I can learn from folks who have done it, or are in the process, is good for us.”
A hot topic has been recruiting organizers, directors and leaders, Yates said.
Organizers often ask Yates how Endeavor developed its business plan and completed its application. He then typically fields questions about regulators' feedback and raising capital. Endeavor raised nearly $27 million from more than 450 investors.
Endeavor eventually discovered processes that could have helped it save time.
For instance, Yates said Endeavor’s organizers wasted time negotiating office leases. There is specific language that the FDIC requires de novos to use in the application that scares away many landlords. After one negotiation dragged on, and then fell through, Yates said his team learned how to address those concerns at the beginning of discussions.
“There's no shortage on lessons learned along the way,” Yates said.
“Unfortunately, by the time you learn the lesson, you're up and running your bank," Yates added. "If I could help someone with lessons learned, and maybe open a bank six months earlier, I’m happy to do that. ... The challenge of forming a bank when it hasn’t been done in a while is when something does come about, you either spend a lot of time trying to resolve it or you come up with a plan B."