New Banks in America: A Vanishing Breed?

If all goes as planned, Premier Bank will open for business early next year in Doylestown, Pa.

Not long ago, the opening of a brand-new community bank like Premier would hardly have been noteworthy -- hundreds of them cropped up each year in the early to mid-1980s.

But that has all changed, largely because of the sluggish economy and the related woes afflicting the banking industry.

Market Cools

Today, being able to capitalize a new bank is the exception, not the rule, and fewer people are bothering to try. The number of newly chartered banks in 1991 is not likely to outpace the number of failed banks. Until the late 1980s, new banks traditionally exceeded failures each year by a wide margin.

"These days, there aren't any real hot markets for new banks," said Don Inscoe, associate director of banking statistics at the Federal Deposit Insurance Corp.

Indeed, the number of new banks this year is likely to be the lowest in more than 20 years.

"Of the startups we've seen attempted in the last year, half have not been able to get money," said Edward Furash, a banking industry consultant in Washington. In the past, he added, three-quarters or more of startup banks were able to get financing.

In the case of Premier, the founders plan to offer the type of personalized service that customers in the borough of Doylestown -- population 12,000 -- once enjoyed, said John Soffronoff, Premier's president.

"We feel the small-business person and professional have been largely abandoned by the larger regional banks" that have swallowed up smaller community banks in the area, added Mr. Soffronoff, formerly a regional vice president at Merchants Bank in nearby Easton, Pa.

Indeed, some observers think the current wave of consolidation in the banking industry will lead to a resurgence in new bank charters.

Scary Time

"Theoretically, capital is not so scarce that it will not spring up to take advantage of opportunities," said David Cates, chairman of Ferguson & Co. in Washington. "At the same time, capital can get scared just like everything else, and right now is a very scary time to take advantage of this opportunity."

"I think you'll start seeing more charters, but not as many as in the heyday of the early to middle 1980s," said former FDIC chairman William Isaac, now head of the Secura Group in Washington.

What's more, Mr. Isaac doesn't expect to see any real pickup in new bank charters until the mid-1990s.

Apart from the tough economic climate, capital requirements are more stringent than they used to be.

Minimum Capital

"In the early to mid '80s, the Comptroller's office was handing out charters left and right," and a lot of those banks subsequently failed, Mr. Isaac said.

Now, instead of just $2 million to $3 million, it typically takes anywhere from $5 million to $10 million in startup capital for a bank.

The founders of Premier in Pennsylvania are "very, very close" to raising the requisite $5 million for their bank. They hope to reach their goal by Christmas at the latest, Mr. Soffronoff said.

Premier's directors and their immediate families put up $2.5 million; the rest is coming from local investors.

Dull Days in Georgia

While Premier's capital-raising efforts appear to be paying off, anecdotal evidence suggests that is not the norm.

In Georgia, once a hot market for new bank startups, hardly anyone is applying for new charters, and the few who want one can't seem to raise the necessary capital, said E. David "Jack" Dunn, commissioner of the Georgia department of banking and finance.

He called the climate for raising new-bank capital "certainly tougher than it's been in the last 10 years.

"Plenty of people have that type of money," he added, but local investors are skittish about the banking industry. "I think it just reflects what's going on nationally," Mr. Dunn said.

Size Makes a Difference

When it comes to raising capital from local investors, "our biggest problem is to distinguish ourselves from larger banks," said Mr. Soffronoff of Premier.

"When a big New York bank announces it's going to lose over $800 million and suspend its dividend, that affects not only banks that are open, but our ability to raise capital," Mr. Soffronoff added in a not-so-veiled reference to Citicorp, the nation's largest bank.

Low Initial Capital Defended

Others say regulators are much to blame for the difficulty in capitalizing the new institutions, known as de novo banks.

George Anderson, who helped organize eight banks in Pennsylvania and Delaware during the 1980s, said it was wrongheaded of regulators to boost the capital requirements of de novo banks.

"I was always an advocate of low initial capital," Mr. Anderson said. He contends that new banks can grow into their capital requirements and raise more funds later in a secondary offering, once they have a proven track record.

Mr. Anderson and his former wife, Phoebe, formed a consulting firm for startup banks in 1982, called P&G Anderson Inc.

A former banker, Mr. Anderson focused on organizational and capital raising efforts, while Mrs. Anderson -- once a lawyer for the Office of the Comptroller of the Currency -- worked on legal issues.

The Andersons disbanded the consulting practice last year, after their marriage broke up and business fell off, Mr. Anderson said.

His last capital-raising effort was on behalf of Easton City Bank in Easton, Pa.

Easton's charter was approved by state regulators in December 1989, but Easton's backers could not raise enough capital from outside investors to open the bank.

Meanwhile, founders of the Bank of Doylestown were having similar problems.

Long-Term Thinking Required

Last August, both groups got together and combined their efforts to create Premier, which will be a two-branch operation.

In addition to all the other problems of capitalizing a new bank, the initial efforts at Easton and Doylestown coincided with the Persian Gulf war.

"Investors need to think long term" when it comes to de novo banks, said Premier's Mr. Soffronoff, who was initially associated with the Easton group. Investor concerns about the war were so immediate that "we really couldn't break through that."

As for Mr. Anderson, he now runs an equipment lender, Excel Leasing Corp., in Laurel, Del.

"We borrow from banks and relend to businesses banks can't lend to," said Mr. Anderson, who formerly worked with Mellon Bank, Pittsburgh, and later with Equitable Trust Co., which is now part of MNC Financial Inc.'s Maryland National Bank.

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