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Many of these young banks are treading water, at best, waiting for the elusive rebound while coping with higher compliance costs.
April 13 -
In a world awash with cash waiting to be put to good use, dollars seep into every crack and pool in unusual places.
July 23 -
Atlantic Capital Bank in Atlanta is not a typical start-up.
June 4 -
First Virginia Community Bank in Fairfax has raised $6.7 million in capital from old and new investors and intends to use the proceeds to continue its rapid growth.
February 13
Banks formed during the run-up to the financial crisis are hitting important and, in some cases, unbelievable milestones.
Regulators approved charters for 291 banks from Jan. 1, 2007, to Dec. 31, 2008. Roughly 80% of those banks have lived to see their fifth anniversary, according to data from the Federal Deposit Insurance Corp.
Each bank opened for business at a curious time. On one hand, the newcomers weren't weighed down by overzealous lending. Still, they have endured years of tepid loan demand and a rush of new regulations.
About half of the banks created in 2007 and 2008
What about the banks that live on? Some have survived with clean balance sheets and an ability to pounce when the economy rebounds. Here are a handful of banks fitting that description.
Atlantic Capital Bank
Early 2007 was a heady time for banks in Georgia, especially with metro Atlanta's real estate market burning white hot. One bank formed at that time, Atlantic Capital Bank in Atlanta, opened with impeccable credentials.
A group of veteran bankers, including Sonny Deriso, a former vice chairman at Synovus Financial, founded the bank in June 2007
Then the crisis hit. So, Atlantic Capital hunkered down and waited for things to turn around. And it waited some more.
"The pool of qualified borrowers shrunk, and so there was less opportunity than we had hoped," says Doug Williams, the bank's president and chief executive. "The environment has been very different from what we had expected."
Atlantic Capital had the capital to grow, but conditions changed to a point where the bank's investors had to temper expectations. "It didn't really change the business plan … but it made us more defensive," Williams says.
Atlantic Capital became profitable by its third year, but not as profitable as Williams had projected. It posted a third-quarter profit of $4.4 million. Since it was never weighed down by bad loans, Atlantic Capital was able to develop its market. The company now needs the economy to rebound.
"As the demand picks up, we're very well-positioned to capture a significant share of it," Williams says. "It's been slower developing than anyone anticipated."
Atlantic Capital has resisted the urge to buy failed banks, even though Georgia leads the nation in the number of bank failures since 2008. Buying failed institutions "gives you a short-term earnings stream," Williams says. "It's not a long-term, sustainable business."
At some point, Atlantic Capital should become acquisitive. Small banks, faced with anemic loan demand, will have to sell to bigger competitors, Williams says. "A lot of banks will come to the conclusion that they really don't have growth opportunities on their own. They'll need to find a way to get some return for their shareholders. We think we'll be a desirable partner."
Williams, meanwhile, does not expect a return to the boom days of new bank charters in Georgia. Some industry observers have attributed the high number of failures in the state to the fact that it had so many new banks.
But the supply of banks created was far greater than the demand. Even though dozens of Georgia's banks have failed, Williams says there are still too many institutions in the state.
"We still have too much capacity," he says. "It will be a long time before we see another wave of de novos in Georgia."
CapitalMark Bank & Trust
The financial crisis allowed CapitalMark Bank & Trust in Chattanooga, Tenn., to experiment with a new business model.
Rather than flood a region with physical branches, CapitalMark serves any given city with one, and only one, office. Each of CapitalMark's clients is served by a single team, a "one-stop-shop" approach that Craig Holley, the bank's chairman, president and CEO, says is preferred by his clients.
The downturn weakened other banks in the eastern Tennessee and northern Georgia, giving CapitalMark the flexibility to pursue its strategy, Holley says.
"We weren't trying to be all things to all people," he says. "We really didn't have to make any adjustments when the economy turned."
Created in March 2007, CapitalMark has $761 million in assets, representing a more than tenfold increase since it opened. The key, Holley says, is an assiduous avoidance of real estate lending. "It's never been a focus," he says.
"We don't have a commercial real estate lender in the bank," he says. "Avoiding a concentration in real estate has served us well."
Instead, CapitalMark pushes commercial and industrial loans, which make up about 32% of its portfolio. Much of the growth comes from borrowers who have left larger banks. CapitalMark has not yet seen a significant amount of loan growth from a strong local economy.
"A good bit of [our loan pipeline] within our markets is where we're actually taking it away from someone else," Holley says. "We're starting to see a little growth, but a lot of it comes from competitors."
NOA Bank
The September 2008 collapse of Lehman Brothers didn't immediately spell the end of new bank charters. A group of Korean-American business owners formed NOA Bank in Duluth Ga., less than two months after the new York investment bank failed.
Still, the bank's creation signaled the end of an era in Georgia, when scores of banks were chartered. Though NOA was the last de novo chartered in Georgia, the bank's president and chief executive, Jay Kim, doesn't regret the timing.
"It was the best time to get in," he says. "Even though the market was not great … there were not many players around and the real estate market had already adjusted from the peak."
Assets at NOA, which focuses on Korean-American borrowers around Atlanta, have grown more than 440% since its founding, to $130 million at Sept. 30. Its credit quality is sterling; nonperforming assets make up 0.4% of total assets and it held only $500,000 of foreclosed properties at Sept. 30.
NOA posted a 2.2% return on assets at the end of the third quarter. Its return on equity was 15%.
Kim also brags about the bank's business lending; like other Korean-American banks, NOA is one of the top Small Business Administration lenders.
Kim also attributes NOA's health to taking heed of regulators' warnings about not overextending credit. "There were a lot of warning signs from the regulators, and we stayed very conservative," he says.
NOA has been able to make commercial real estate loans — one of only a few small banks in the Atlanta equipped to do so. Even though it now has a huge exposure to CRE — such loans accounted for 87% of total loans at Sept. 30 — it has been stringent when selecting borrowers.
"There are not many bankers still lending on such properties, so we get to pick and choose," Kim says. "We're very picky."
First Virginia Community Bank
Washington, D.C., has fared relatively well in recent years. That has proven beneficial to First Virginia Community Bank, which opened in November 2007.
The bank initially raised $23 million and has since held two other capital raises to
Pijor also founded James Monroe Bank of Arlington, Va., which was formed in 1998 and later sold to a predecessor of PNC Financial Services Group of Pittsburgh.
The recession still had Pijor second-guessing his timing for First Virginia. "There were days I wondered, Oh my gosh, what's going on with the world?" he says.
The economy didn't stymie First Virginia's business plan, he says. The Fairfax bank has put its capital to use. It assets totaled $335 million at Sept. 30, increasing 759% since First Virginia's creation.
"We didn't have legacy bad assets and we had relatively good capital," Pijor says. "We were able to grow by essentially stealing other people's business. If there was no new generation of loan growth, we were able to achieve growth targets by refinancing other people's loans."
It has not been an easy process. "When the market seizes up and borrowers don't borrow, it's tough to grow," Pijor says. "It made the process of running a de novo that much more difficult."
The questionable timing of its creation might have an upside, he says. With cash flows improving and collateral values rising, First Virginia seems poised to take advantage of a broader economic rebound. "We opened in the worst economy in 40 years," Pijor says.
"On the other hand, collateralized assets had already been weakened," he says. "We were lending into a discounted market. I think it yields a lot of upside potential. It might It might not be such a bad thing to open at the bottom of the market. You can only go up."
