Community Banks Wanted sign hanging from a clothes line

Wanted: New Community Banks

In spite of efforts to encourage more de novo bank applications, only seven new banks were chartered last year. In fact, to demonstrate how difficult the environment is… of the 70 banks that have been opened in the past ten years, over half no longer exist. Three merged into other (larger) banks in the past four months alone.

They, along with all other banks that are active and ten years old or less, are listed on page 7. In addition, page 2 has a list of 22 banks that are in various stages of the de novo process. Twenty-two may seem like a lot, and it is if you base it on the past ten years, but prior to 2009 the FDIC regularly fielded 100 or more applications each year.

Last August we reported that there were some very talented bankers with years of experience under their belts that were interested in starting up new community banks (JRN 35:32). The U.S. lost one-third of its banks since the end of 2008, and most of them were community banks. We welcomed their interest.

If seasoned bankers wanted to open new banks and regulators wanted more banks to be opened, what could possibly hold them up?

Well, FDIC approval is granted with conditions. For example, the  approval for Spirit Community Bank, Statesville, NC, signed in December, included 13 stipulations. The big one: a required minimum capitalization for the bank of $22 million. In Spirit’s case, the capital is to be raised via a stock offering (IPO) of 2,690,000 shares at $10 a piece.

If, however, after one year, the bank is unable to raise that capital, and an extension is not filed, the FDIC approval will automatically be void.

While some banks that opened last year had no trouble raising the required capital, that isn’t always the case. ***½ Spirit Community Bank, Charleston, SC needed $22 million for its January 2018 opening. Not only did it easily surpass that, it  raised another $34 million in May.

The tide has changed for bank stocks, though. Spirit Community Bank, for one, is reportedly having trouble with its IPO (and it isn’t even one of the higher levels required). Alas, so much for de novo mania.