For de novos, staffing up is hard to do
The newest class of de novo banks is slowly making progress despite struggles hiring additional staff.
Seven banks opened last year in states such as Alabama, California, Florida and South Carolina. Watermark Bank debuted in Oklahoma City this year, and more groups are trying to raise the prerequisite capital to open.
Banks that have been opened for more than a year are chugging along despite higher interest rates and intense competition, industry observers said. Their ability to stay the course shows how much planning, research and oversight are involved in the application process today.
Most new banks are focusing on building out their teams, adding clients and promoting their brands, said Byron Richardson, a senior consultant at Bank Resources who works with de novo groups.
Recruiting employees has been one consistent challenge, bankers said. A tight labor market is mostly to blame, along with a dearth of younger bankers since the financial crisis. Some organizers have also noted the challenges of finding well-rounded bankers, which are very useful for small institutions.
While the $71 million-asset Beacon Community Bank in Charleston, S.C., is working to build brand awareness “one relationship at a time," President and CEO Brooks Melton said it has been difficult to hire the right people.
Growing is "all about local decision-making and relationships,” Melton said. “We have to have the latest technology in mobile banking and such, but it really is still a people business.”
Beacon, which lost nearly $3 million last year, finished 2018 with $42 million in loans. It typically takes de novo banks a few years to become profitable, industry observers said.
The bank plans to open a second branch in May. Melton said his team is lining up its third and fourth branches, which he expects to open over the next two years.
Dennis Murphy, CEO of the $36 million-asset Gulfside Bank in Sarasota, Fla., is also focused on rounding out his staff while fine-tuning processes and procedures. The bank has had a steady stream of new account openings since opening in November.
“I’m just humbled by the support that the shareholders and our local market have provided for us,” Murphy said. “It’s been very well received. It gives credence to fact that community banks are valued.”
The $142 million-asset CommerceOne Bank in Birmingham, Ala., is also in hiring mode, said CEO Kenneth Till. The bank, which opened in June and has been relying on business from its investors, will continue to mine that customer base as it seeks out new clients, he said.
Endeavor Bank in San Diego, which opened in early 2018, faced a different challenge after it opened in January 2018. It was ineligible to participate in a California small-business lending program until BauerFinancial agreed in August to assign ratings to de novos.
Endeavor has reached $87 million in assets by the end of the year, though it also lost about $5 million in 2018. Net loans increased by 19% in the fourth quarter, while deposits rose by 24%.
“We are very pleased with what we have accomplished and where things are,” said Steven Sefton, the bank's president. The bank's executives spend much of 2018 “testing the pipes” for any kinks or friction in the customer experience, he said.
Sefton said he expects Endeavor to have a steady growth trajectory over the next 12 months as it adds clients.
“I think we fill a unique space in our market," he said. "There are only two other community banks in San Diego and we're only one that is singularly focused on operating companies. ... We called it the hole in our market.”
Watermark Bank quietly opened at the end of January after raising $28 million. It recently put a sign on its building.
Matt Pollock, Watermark’s president and CEO, said a soft opening involving shareholders, friends and family let the bank make sure everything was working properly before opening to the general public.
Pollock, who took the idea of a soft opening from other de novos that opened last year, said he is pleased with the bank’s performance so far.
“I just thought it would be more chaotic from the systems standpoint," he said. "I thought we would have these big issues come up, but they just haven’t. I think the response we’ve had has exceeded expectations so far.”