Start Community Bank is on track to become just the second launch of the year unrelated to the acquisition of a failed bank. Yet even with something few aspiring de novos can claim — $25 million of initial capital — it has been a long, complicated process for the New Haven institution, one that underscores the broader issues at play in the industry.
"Most start-ups are painstakingly slow because the capital is the difficult hurdle to overcome," said John Carusone, the president of the Bank Analysis Center Inc. in Hartford.
"In this case, the present economic environment and the regulatory approval process has been the hurdle, because the capital has always been at the ready."
In fact, Start's capital came even before a plan for the bank; it was the result of a 2004 dispute between the city of New Haven and New Haven Savings Bank over the latter's plans to go public. New Haven Savings, which grew into the $8.7 billion-asset NewAlliance Bank, agreed to provide the seed money for a community development bank owned by an unaffiliated non-profit and aimed at serving the city's considerable number of low-income residents.
At the time, this plan mollified concerns that NewAlliance would one day be sold, leaving New Haven without a locally owned institution. And five years later, those worries appeared to be justified: NewAlliance announced in August that it had agreed to be acquired by the $20.4 billion-asset First Niagara Financial Group in Buffalo.
Start's advocates say its opening can't come soon enough, especially as New Haven's other local bank, Southern Connecticut Bancorp Inc., is about to be sold as well.
"The need will be even greater for having a locally governed, locally managed, locally domiciled community bank," said banking veteran William Placke, Start's chief executive.
If all goes as planned, Start will receive the necessary regulatory approvals to open by the end of October, Placke said.
The bank's start-up efforts were hampered by the abrupt departure of its first chief executive in 2007, and then the meltdown of the financial markets in 2008. More recently, regulators have expressed some concerns about its business plan, Placke said.
Like most community development banks, Start intends to become a certified community development financial institution, targeting underserved and under-banked residents primarily in low-income communities.
Yet regulators wanted to ensure that the bank understood the risks associated with some services. For example, it intends to ofcashing for customers who enroll as "members" of the bank, even without an account, Placke said.
He said regulators also wanted more detail on how Start planned to meet its deposit projections, so Placke said he obtained letters of commitment from about 40 nonprofit groups and businesses.
Carusone of the Bank Analysis Center said Start has the backing of the city's political and business leaders, and a priority should be to develop relationships with a variety of nonprofits. "It's wonderful to get singles and doubles, but you can hit home runs with large not-for-profits,"he said.
Excluding start-ups established to acquire failed banks, Start would become only the second de novo of 2010. And it would be the first community development bank to open since 2008, and one of only 100 or so CDFIs in the country, said Jeannine Jacokes, the chief executive and policy adviser for the Community Development Bankers Association.
Also, Jacokes said Start is one of a handful of community development banks owned by a nonprofit — which makes it unlikely the bank would ever be sold.
Start is owned by First Community Bancorp Inc., a bank holding company established by First City Fund Corp., a nonprofit funded by the city's settlement with NewAlliance. Its board includes municipal leaders, community activists and local business people.
"These kinds of communities, they're not as easy to serve as some others might be," Jacokes said. "So having somebody that gets the local circumstances … makes a huge difference."
NewAlliance's sale to First Niagara may benefit Start. For five years, NewAlliance has been making payments to First City Fund for Start's initial capital. Yet it would have to pay the balance upon merging with another institution — providing about $6 million for the nonprofit, and the bank. Also, Placke expects to pick up some NewAlliance customers who may not want to do business with an out-of-state bank.
For its part, First Niagara has said the former NewAlliance team will maintain authority for local lending decisions.
Meanwhile, Placke said he thinks Start will have a special role to fill as the city's only local bank.
"I feel an incredible sense of obligation to succeed, to be careful, to follow our plan, to do the right thing," he said. "Because we do have a lot to shoulder — people have high expectations."