On May 12, 2017, the FDIC hosted bankers, regulators and industry professionals at the Kansas City Regional Office in its fifth in a series of De Novo Outreach Conferences across the nation.
The Conference, part of the FDIC’s Community Banking Initiatives, covered a number of issues regarding new bank charter applications in a series of panel discussions featuring FDIC staff, state and federal regulators and bankers who had been through the de novo application process in the mid-2000s.
The conference began with an application process panel, moderated by John Jilovec, FDIC deputy regional director, that featured Richard Allen from the FDIC; Louis Gittleman from the Western District Office of the Comptroller of the Currency; Debbie Hardman, Acting Commissioner of the Missouri Division of Finance, and Todd Offenbacker of the Federal Reserve Bank of Kansas City. The panel described the application process, including: the pre-filing meeting; submission of the application; background checks; field investigation interviews, and the approval processes. All of the panelists emphasized the importance of the pre-filing process.
One of the first questions asked from the audience was “how much capital is required by the regulators in a charter application?” The answer, repeated consistently throughout the day, was that the regulators had not set a target required minimum capital in excess of that set forth in current state and federal statutes and regulations. The FDIC referred to its Statement of Policy on Applications for Deposit Insurance, which requires the bank to meet a Tier 1 capital to assets leverage ratio of at least 8.0 percent throughout the first three years of operation. Although no specifics were given, the sense of attendees was that organizers would need to raise significantly more today than the $5 million to $10 million raised initially by many newly chartered banks pre-financial crisis. Likewise, an applicant’s growth projections and the specifics of its business plan also will influence the amount of capital required.
A session led by FDIC Case Managers Jay Justmann and Scott Casey, covered significant changes in the de novo application process, including the need for an applicant’s business plan to be much more detailed than those filed pre-crisis. The panelists stressed that the business plan should be unique to the proposed institution and contain a detailed SWOT analysis, a market assessment, a detailed financial management plan, realistic and supportable financial projections, prudent risk tolerance limits, processes to monitor the plan and be subject to realistic stress tests. The session discussed potential business plan weaknesses, including plans developed by third parties and not unique to the organizers, plans containing financial calculation errors or unsupported assumptions, and plans that contain unrealistic assessments of risk given economic and competitive conditions in the designated market. The speakers also noted that regulators would interview other banks and community leaders in the market and carefully examine local and regional economic conditions when assessing an application and verifying the plan’s viability.
A panel of three bankers (Bruce Downey, president of Gateway Bank, Mendota Heights, Minn.; Michael Pate, president and CEO of United Republic Bank, Omaha, Neb.; and Jim Wagner, CEO of Parkside Financial Bank and Trust, St. Louis), all of whom had been involved in a successful charter proposal, looked back on the process and described the challenges they faced and the lessons learned. All three cited the benefits of developing the business plan required in the application and stated they continue to use the business plan framework. Importantly, when asked if they would go through the process again today, all said yes.
Sessions at the outreach conference also emphasized the importance of having officers experienced in their roles and knowledgeable of the market area to be served by the bank, CRA compliance and regulatory compliance. It was also noted BSA/AML compliance expertise, IT infrastructure and the depth of compliance expertise would be carefully examined in the application process.
Director James LaPierre said FDIC staff in Kansas City would be prepared to meet with parties interested in starting a new bank. Doreen Eberley, director, Division of Risk Management Supervision, from the FDIC in Washington, emphasized the crucial role new charters play in addressing the financial needs of their local communities.
Scott Coleman is an attorney with Lindquist & Vennum and can be reached at [email protected]; Anton Moch is an attorney with Winthrop & Weinstine and can be reached at [email protected]. Both firms are in Minneapolis.