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De novo activity fell in 2019 despite FDIC plea
The decrease in de novo activity came despite an open plea from FDIC Chairwoman Jelena McWilliams in December 2018 for more effort to open new banks.
“With 14 million American adults without a bank account, we want to see more banks, not fewer,” she wrote in an American Banker op-ed, noting the disappearance of small banks in particular. “Today, 627 counties are only served by community banking offices, 122 counties have only one banking office, and 33 counties have no banking offices at all.”
A November 2019 report by another regulator, the Federal Reserve, reinforced McWilliams’s concerns, highlighting 44 counties — the vast majority rural — that had been “deeply affected” by the closure of more than half of their bank branches between 2012 and 2017.
For its part, the Bank of St. George said it would become, upon opening, the “only locally-headquartered bank” in a community the Census Bureau cited among the nation’s fastest-growing. The bank is Utah’s first de novo since 2007.
And the executives launching it are veterans of the area. That’s a formula that worked well for another of 2019’s de novos, Great Falls, Virginia-based Trustar Bank. CEO Shaza Andersen rolled out Trustar in July after running WashingtonFirst Bank from 2004 until it was acquired by Sandy Spring Bank in 2018.
Similarly, the Bank of St. George’s CEO, Bruce Jensen, and its president and chief credit officer, West Martin, started and managed Town & Country Bank in St. George from 2008 until it merged with People’s Intermountain Bank in 2017.
Regulatory approval doesn’t guarantee smooth sailing for a de novo. Three of the 15 proposed banks the FDIC approved in 2018 — Community Bank of the Carolinas, Spirit Community Bank and Tarpon Coast Bank — did not open, according to American Banker. Similarly, Silver River Community Bank in Ocala, Fla., which the FDIC approved in 2019, will not open, the agency said.
In other cases, executive turnover can throw a proposed bank into uncertainty. The FDIC conditionally approved Washington-based MOXY Bank in January 2019. But in August, MOXY’s CEO, Casey Mauldin, left to become chief lending officer at another de novo in the region, NXG Bank. MOXY’s application was still progressing, Mauldin said at the time, but it has just weeks to open under its conditional approval, American Banker reported.
McWilliams’s comments came in confluence with a public comment period and a nationwide outreach initiative to spur de novo activity. But capital requirements, which are higher than they were before the 2007-08 financial crisis, remain a primary hurdle for proposed banks, as competition for investor funds is fierce.
Dan Hudson, CEO of NuBank, which helps groups form banks, said some organizers are deluded into thinking that simply filing to open a bank will bring in investors. Or that a bank can open with a select handful of investors.
“This is not a ‘build it and they will come’ value proposition,” Hudson told American Banker in September. “You need an army to launch a de novo today.”
The number of local banks continues to dwindle. Experts say it won’t stop anytime soon.
Trustar Bank CEO and founder Shaza Andersen was grateful and energized when the Great Falls-based bank reached $100 million in assets in just a few months — it took her previous bank WashingtonFirst about a year to reach that milestone.
She chalked it up to a strong desire by customers for a smaller bank that offers a more personal touch. But in the D.C. area, an ongoing wave of consolidation means there are fewer such choices for customers, and almost no new banks. Andersen spearheaded the only successful new start so far since FVCBank opened in 2007, more than 12 years ago.
“The more that we can give our customers choices, the better they are, and the more informed about decisions they are making for their businesses,” she said, adding that while she expects consolidation to continue, she hopes to see more people open new banks. “I hope we are able to see more bank openings that could give them choices.“
“We don’t want monopolies out there. We don’t want one bank to control everything,” Andersen added.
But the number of locally headquartered banks continues to dwindle. In 1999, there were 70 banks based in Greater Washington. By 2017, when I first reported on the trend, it was down to just 36. Now that number has fallen to 29, and is guaranteed to further shrink as current deals, such as WesBanco’s (NASDAQ: WSBC) pending purchase of Bowie-based Old Line Bank (NASDAG: OLBK), set to close Friday, and Sandy Spring’s announced acquisition of Revere Bank, are finalized.
The trend mirrors a larger national trend of declining banks, as measured by the number of banks that receive insurance through the Federal Deposit Insurance Corporation. In 1990 there were 12,343 such banks. There are just 4,630 in 2019 to date, according to the FDIC. The consolidation of banks in some cases has sped up, according to experts I spoke to — and they see no end in sight.
There is no better example of the breakneck speed of some of these acquisitions than the West Virginia-born and now Vienna-based United Bankshares Inc., which has had nearly as many acquisitions as I have had birthdays. United just announced it is acquiring South Carolina-based Carolina Financial, which had already announced its intention to acquire Carolina Trust Bank in a deal that hasn’t even closed yet, forming a veritable Russian nesting doll of financial transactions.
Regulatory costs have long been a factor that contributed to consolidation, but now, there is also increased pressure to invest in technology that makes it more difficult for smaller banks, said Sandy Spring CEO Dan Schrider.
“They hit a point where what they know there will be significant up-front investments,” Schrider said. “That’s when you start looking at strategic alternatives. Do I partner with someone who already has those things in place and then capitalize on that scale?”
He agreed the long-term trend will continue to be fewer banks, even in Greater Washington. While the region has had more attempts to start new banks than most regions in recent years — think VisionBank, Moxy Bank, Founders Bank and the aforementioned Trustar Bank — it has managed to produce only one. That’s because the startup capital needed to start a new bank is much higher than in decades past, Schrider said.
Meanwhile the D.C. market continues to be strong enough to attract banks that are looking to expand, making smaller community banks in the region a tempting acquisition target.
“Often this market is the best market they will have in their own franchise,” Schrider said. “They are coming here because this is stronger than any market that they may have in their existing footprint.”
The trend hasn’t been stifled by the fact that banks are selling for less than they have been in recent years, said Lew Sosnowik, a former banking analyst at Koonce Securities Inc. Banks are still consolidating in order to achieve larger economies of scale and lower costs in an age where low interest rates means there is less room for error, and profit.
Continued low interest rates — and the potential they could go even lower — make it harder to give shareholders the growth and the value they want, Sosnowik said. Those rates also mean even less incentive to start a new bank.
One recent example is Bethesda-based EagleBank, which has started offering a dividend, something that underscores that rapid organic growth is no longer in the cards, he said.
“Banking is going to be dominated by ever fewer and ever larger entities. And that’s where you are going. There’s no way for a small bank to compete, especially in an in an era of giants,” Sosnowik said.
GREAT FALLS, Va.–(BUSINESS WIRE)–Shaza Andersen, founder and Chief Executive Officer of Trustar Bank in Great Falls VA, was recently selected to join the FDIC’s Advisory Committee on Community Banking. The committee, which meets several times per year, provides advice and recommendations to the FDIC on a broad range of community bank policy and regulatory matters. The group of 17 banking professionals from across the country were carefully chosen for their expertise on these matters.
One of four new members, Ms. Andersen is looking forward to serving as a resource for the FDIC and providing input on topics of interest for community banks.“I’m thrilled to join the Committee and hope to add some value to the discussions on community bank policy and regulatory matters,” said Ms. Andersen.
Ms. Andersen is a long-time contributor and leader in the local banking community, formerly serving as Vice Chair of the Board of Sandy Spring Bank as well as founder and Chief Executive Officer of WashingtonFirst Bank, before completing its sale to Sandy Spring Bancorp in 2018. In addition, Ms. Andersen founded the WashingtonFirst Youth Foundation (WFYF), a local not-for-profit organization dedicated to enriching the physical, social, and mental well-being of children in the Washington, DC, Metropolitan area. The WFYF is one of several organizations Ms. Andersen donates her time to. Additionally, she has utilized her talents and expertise serving on multiple committees and boards.
A favored and sought-after authority on banking and capital market issues, Ms. Andersen has appeared on CNBC and Fox News, and been featured in Forbes Magazine, the Washington Business Journal, and Washingtonian Magazine. Ms. Andersen has been recognized as a prominent leader and businesswoman in the Washington, DC area through numerous awards and recognitions such as Top 25 Women to Watch, Top 100 Powerful Women, and Most Admired CEO, to name a few.
About the Bank – Trustar Bank is a full-service bank offering comprehensive banking products and services to small- and medium-sized businesses and consumers. It is the first bank to be chartered and opened in Virginia in over a decade. For more information, please visit the Trustar Bank webpage at https://www.trustarbank.com/.
Residents welcoming first new community banks since the recession
In some states, residents are finally getting what they’ve been missing since the financial crisis: a brand new bank.
For Washington D.C., it’s been a long time coming — 20 years.
“Especially in the DC market, there’s very few, I think maybe one or two community banks in DC proper,” says Keith Walters, chief technology officer at MOXY Bank, a mobile-first, minority-owned bank set to open before the end of the year. “The rest are branches of larger banks that through their own branch consolidation have left a void in those communities.”
The industry has been shrinking for more than a decade and many community banks have gradually disappeared. But conditions are ripe for a comeback. Though challenges lie ahead, the newest entrants believe there’s a place for them and customers to serve who aren’t getting their needs for loans, checking or savings accounts met elsewhere.
Long road to recovery
Community banks were devastated by the recession of a decade ago. Georgia was hit particularly hard, says Chris Cole, executive vice president and senior regulatory counsel for the Independent Community Bankers of America (ICBA). Data from the Federal Deposit Insurance Corp. shows that one in four banks that failed between 2008 and 2009 were based in the Peach State.
“It’s not surprising that state took so long for there to be a recovery and now we’re starting to see de novo (newly chartered) banking,” Cole says. “It just took a lot of time to sort out all the small banks that failed, but the fact that you’re now seeing that shows that the worst is over now and we’re on the up and up now.”
Georgia’s Tandem Bank received FDIC approval back in May. When it opens, it will join Virginia’s Trustar Bank, American Bank & Trust in North Carolina and others making history as the first community banks to appear in their states in at least a decade.
Many of the newest institutions and community banks with pending approval are located along the East Coast, Cole says. Several new banks are in areas experiencing significant growth, like Washington, D.C., and Florida.
Regulators want new banks
Banks like Tandem enter the market at a time when regulators are more open to approving new charters. FDIC Chairman Jelena McWilliams noted the importance of new banks in an op-ed published last December. She also highlighted how low the level of new bank formation has been compared with where it was before the financial crisis.
All the regulators have expressed interest in seeing more de novo banking activity, says Cole from the ICBA. “I think they all recognize that the whole financial services industry needs new entrants and that this exemplifies how healthy the system is.”
Though there’s work to be done in simplifying the process of applying for a new bank charter, Cole says, this is a good time for banks to enter because the economy’s still strong.
Consolidation continues, but it’s starting to slow. And in parts of the country that are growing faster, Cole says, it’s cheaper to start a bank than it is to buy an existing one.
Ready to serve an underserved population
Not all consumers today have a wide variety of banks and products to choose from. In some communities, failures and acquisitions have left families without access to adequate financial services and support.
“Our customers and friends wanted us back,” says Shaza Andersen, chief executive officer for the new Trustar Bank and founder of a community bank acquired last year. “They missed the level of service and the relationships that had been formed through WashingtonFirst, and that in combination with the lack of any new community banks being formed, we saw a need in the market for an alternative.”
The newest banks and those awaiting approval aren’t just showing up to the party empty-handed, however. They have a niche, Cole says, and solutions tailored to solve the problems of their target audience.
MOXY Bank, for example, will serve households across the income spectrum, including unbanked and under-banked families. When it opens, the DC-based institution will offer OnDemand, a low-cost, subscription-based program with no hidden fees or overdraft charges. Services will include early access to direct deposits, a financial wellness and literacy program and a virtual branch for account holders looking to chat with a personal digital banker.
What community banks bring to the table
Community banks may not offer the best savings or CD rates in the nation, but they provide nearly half of the nation’s small business loans.
They also continue to stand out by valuing relationships and offering quality customer service.
“In my opinion, banking is still a people business,” says Lynn David, a community banking consultant. “I know there’s more and more going toward technology, and the fact that you can open an account online without ever having to set foot in a bank. But to me, the long-term relationship still is extremely personal.”
Savvy consumers looking for advanced features and functionalities may be happier with one of the new community banks than with an institution that’s been around for a while. Older community banks often feel limited by legacy platforms that are costly to replace and limit flexibility and customization. That’s a problem the newest banks don’t face.
“Many of them are finding that it is cheaper to be starting new and working with a cloud service provider, for instance, as opposed to being a bank that’s trying to migrate their legacy contracts and their core service data over to a cloud service,” Cole says.
Cole adds that the newest banks will have to raise a lot of capital, however, if they’re hoping to compete with bigger banks with much larger budgets. Hiring the right staff is also key, David says.
“You can’t just rely on the core processor that you select, you still have to have somebody in the day, who is a very, very knowledgeable technology person to help make the decisions that the core processor is going to ask you to make.”
Great Falls-based Trustar Bank will officially become the first new bank to open its doors in Greater Washington in more than a decade – with an opening scheduled for July 10, according to CEO and found Shaza Andersen.
The official opening comes after the bank received its final Federal Deposit Insurance Corporation approval, the last regulatory hurdle before it starts accepting deposits and offering loans. That makes it the first bank to receive the FDIC green light and open its doors for business since Fairfax-based FVCBank in November 2007.
“I am just thrilled. I have to say that it’s so exciting. I am so looking forward to service our community again,” said Andersen, who had previously founded, grew and sold WashingtonFirst Bank. ” I am looking forward to working with my team again. It’s a great feeling.”
Trustar most recently received approval from Virginia, which also made it the first bank since 2008 to get state consent. Meanwhile, other banks in organization are also working on their own approvals, including Tysons-based VisionBank, which hopes to open its doors in the coming months, D.C.-based Founders Bank started by Bank of Georgetown alums, and District-based Moxy Bank, which recently received its conditional approval from the District.
Andersen has also made some additional hires, including:
Steve Colliatie: A former senior vice president at WashingtonFirst Bank who has also worked at Monument Bank and Sandy Spring Bank. He will be executive vice president of lending.
Bruce Wilmarth: Former senior vice president of lending at Sandy Spring Bank and now the executive vice president of lending at Trustar.
Chris Broad: Former senior vice president of business development at Sandy Spring Bank, with the same role at Trustar.
Doug Haskett: Former chief financial officer at Presidential Bank and now senior vice president of finance at Trustar Bank.
Trustar Bank also plans to open up a commercial lending office at 1650 Tysons Blvd. in McLean, in addition to having signed a letter of intent for a second full branch at The Spectrum At Reston Town Center at 11846 Spectrum Center. Trustar recently closed on more than $50 million in new funding, above the high end of $35 million to $50 million it had originally intended.
The bank has also fleshed out its advisory board, recently adding Ryan Kerrigan, a star outside linebacker for Washington’s NFL team, and former Republican Congresswoman Barbara Comstock, who lost a 2018 bid for re-election in Virginia’s 10th District.
Richmond – The State Corporation Commission (SCC) has approved Trustar Bank as a state-chartered bank. The Northern Virginia startup bank is the first to be formed under Virginia state banking law since 2008.
Trustar Bank, located in Great Falls, Virginia, becomes the 54th state-chartered bank regulated by the SCC’s Bureau of Financial Institutions. Commissioner of Financial Institutions E. Joseph Face, Jr., says, “Virginia banks are the economic backbones of the communities they serve.” He added, “The formation of a new bank in Virginia is a testament to the strength of our banking sector and regulatory environment. Virginians should be encouraged to see new banks once again being formed in the Commonwealth.”
Under a dual regulatory system, banks have the option to be state-chartered or chartered by Federal banking authorities. Virginia state-chartered banks are subject to regular examinations by the bureau for safety and soundness, consumer protection and local economic growth.
State and federal regulators collaborate to best supervise banks. Federal regulators provide a framework to manage systemic banking issues. State regulators construct supervision based on their local knowledge, authority, and focus.
In evaluating the bank’s charter application received on February 19, 2019, the Commission considered the quality of the bank’s directorate and management team, the adequacy of the proposed capital structure, and whether the public interest would be served by the proposed banking facility.
The Commission’s approval order requires the bank to secure deposit insurance from the Federal Depository Insurance Corporation (FDIC) before opening for business. FDIC insurance covers all types of deposits received at an insured bank. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Trustar Bank has been granted a Virginia banking charter by the Virginia State Corporation Commission, the Great Falls-based bank said.
That means the last hurdle before the bank can officially open its doors is receiving Federal Deposit Insurance Corp. approval for deposit insurance, according to the bank, which is headed by former WashingtonFirst Bank CEO and founder Shaza Andersen.
“We are looking forward to opening our doors in late June or early July, and we are eager to serve this incredible community. The response from the market has been extraordinary, from surpassing our initial capital target to expressions of interest from potential customers eager to do business,” Andersen said in the press release.
The Virginia approval makes Trustar the first bank since 2008 to get approval from the state and comes as other potential banks across the region work to open. They include Tysons-based VisionBank, which hope to open its doors in the coming months, and District-based Moxy Bank, which recently received its conditional approval from the District.
Trustar recently closed on more than $50 million in new funding, above the high end of the $35 million to $50 million it had originally intended. The bank also picked its headquarters and first branch location – 774A Walker Road in Great Falls – and signed a letter of intent for a second branch at The Spectrum At Reston Town Center at 11846 Spectrum Center.
The bank has also fleshed out its advisory board, recently adding Ryan Kerrigan, a star outside linebacker for Washington’s NFL team, and former Republican Congresswoman Barbara Comstock, who lost a 2018 bid for re-election in Virginia’s 10th District.
The still-in-organization Trustar Bank spearheaded by former WashingtonFirst Bank CEO Shaza Andersen is several steps closer to opening its doors after closing a big round of funding and choosing a headquarters site.
Andersen told me in an interview the bank raised more than $50 million in funding, above the high end of the $35 million to $50 million it had set out to raise more than five weeks ago. “The relatively quick turnaround spoke to the investors’ strong interest in the bank”, Andersen Said.
“We had such an enthusiasm in the marketplace,” she said. “A lot of it is because we have been there and done that. People trust us and they know we have done it before and hopefully we will do it again.”
The Fresh funding was not the only sign of progress for Trustar, which has signed a letter of intent to open its first location at 774A Walker Road in Great Falls, which Andersen anticipates opening by the end of June. Trustar will make a decision soon on a second location in Reston, which Andersen hopes to open sometime in the third quarter.
The Great Falls location will not look like a traditional branch but more of an office, which will house administrative staff and can be used to meet with clients and take deposits, she said. Its Reston location will be more of a traditional branch.
Andresen said Trustar has submitted its application to the Federal Deposit Insurance Corp., which needs to provide approval for the bank before it can begin operating. Meanwhile, Andersen is moving ahead with plans to hire additional staff next month.
The moves come as several groups across the region lay their own foundations for new banks. Tysons-based VisionBank hopes to open its doors in the coming months and has fleshed out its board recently. Meanwhile, District-based Moxy Bank recently received its conditional approval from the District. It has already received its FDIC approval.
Organizers with ties to WashingtonFirst Bankshares are planning a new bank in Northern Virginia.
The group, led by former WashingtonFirst CEO Shaza Andersen, plans to submit an application to the Federal Deposit Insurance Corp. in early March. The bank would be based in Fairfax County.
Trustar Bank could open as early as June, Andersen said in an interview. Organizers plan to raise $35 million to $50 million in initial capital.
The $2.1 billion-asset WashingtonFirst sold to Sandy Spring Bancorp in Olney, Md., last year. After several other community banks in the area were sold, Andersen decided the time was right to start a new bank.
“I started to realize there really is a community that needs us and there is a void,” Andersen said. “We know how to do it and we have the experience. It just felt like it was the right time to get back into it while the market is in need of community banks.”
Andersen recruited several former WashingtonFirst executives to join the effort, including Matthew Johnson, the bank’s former chief financial officer; Michael Amin, former senior vice president of operations; and Karen Laughlin, WashingtonFirst’s head of human resources. The executives would have similar roles at Trustar.
The group of 12 organizers has been working on Trustar for about a month, Andersen said.
“We have been able to move fast,” she said. “It was a great team. Once I decided I wanted to do this again and started making calls, everyone missed our group and wanted to get back together. It formed fairly quickly.”
Trustar plans to serve small and midsize businesses with $1 million to $50 million in revenue. The business plan will be similar to WashingtonFirst’s approach, Andersen said. Trustar will build branches over time, though they may be smaller than traditional locations, she added.
Before she orchestrated a WashingtonFirst reunion, Andersen said she met with state and federal regulators to discuss Trustar’s plans. Trustar then submitted a pre-filing application; it is waiting for comments from regulators.
Reception from local investors has been good so far, Andersen said. The bank has already received verbal commitments “for quite a bit of money,” she said.
“I’m really excited and am hoping everything happens fairly quickly,” Andersen said.
Three other groups are working on de novo banks around Washington,
“The difference between us and them is that we have done it before,” Andersen said.