Blast from the Past: De Novo Drought May End in Amish Country

De novo banking could find a spark in an unusual place: Amish country.

A group of organizers has raised $20 million and is seeking regulatory approval to create Bank of Bird-in-Hand, named for the town near Lancaster, Pa., where it will be based. If approved, the bank, which would also target Mennonite farmers and small businesses, would become the first de novo bank to open in the United States in more than two years.

The application may be a sign that the banking industry is ready for a few more new banks, says Brian Olasov, a managing director at McKenna Long & Aldridge who advises community banks on asset valuations. The $39 million-asset Start Community Bank in New Haven, Conn., which opened in December 2010, was the nation's last de novo.

"Inevitably there will be gaps in local market coverage" as fewer banks exist, Olasov says. "De novos can carve out a niche for unmet customer needs."

Bank of Bird-in-Hand's group has an specific niche; the "vast majority" of its target market is family owned farms with less than $500,000 in annual sales, the organizers said in an application to the Federal Deposit Insurance Corp. The group projects that farm loans will make up half of the proposed bank's loan portfolio.

Some FDIC officials predicted two years ago that applications for de novo banks would rise. "We are going to be looking for banks that are committed to developing a core deposit base and a reasonably well-diversified business plan and good management and good capital," Sheila Bair, the former FDIC chairman, told American Banker in a December 2010 interview.

A surge of applications did not happen, and not everyone is convinced that the next wave of de novos is nearing. Georgia has always had a large number of community banks, but new banks won't be approved in the state any time soon, says Joe Brannen, president and chief executive of the Georgia Bankers Association.

"State and federal regulators in Georgia have made it clear they aren't interested in entertaining new bank charter applications right now," Brannen says. "The first [think regulators] tell us they will want answered is why the new entrant thinks the institutions already in that market aren't serving the convenience and needs of the community," he says.

Farming communities east of Lancaster have few options for financial services, says Nick Bybel, legal counsel to the proposed bank's organizers. The two biggest banks, in terms of retail deposit market share, in the Lancaster area are Susquehanna Bancshares (SUSQ) and Fulton Financial (FULT). Each hold about a quarter of the market's deposits, according to June 2012 data from the FDIC.

The organizers "have reviewed recent de novo bank history and they've worked out a very conservative, prudent and thorough business plan," Bybel says.

Bank of Bird-in-Hand's organizers have experience with community banking. Elmer Stolzfus, the proposed chairman, founded HomeTowne Heritage Bank, a Lancaster bank that sold to National Penn Bancshares (NPBC) in Boyertown, Pa., in December 2003 for $38 million. Several other proposed directors, including Levi Esh of Ronks, Pa., were HomeTowne Heritage directors. William O'Brien, who would become the proposed bank's chief operations officer and chief lending officer, was a senior vice president at the $8.4 billion-asset National Penn.

The bank's president and chief executive would be Brent Peters, a former executive vice president and director of Harleysville National Bank, which was bought by First Niagara Financial Group (FNFG) in 2010. Peters joined Harleysville when it bought East Penn Bank, an Emmaus, Pa., bank that he had founded.

Peters and Stolzfus were unavailable to comment, said Bybel, who also declined to project when the organizers could receive regulatory approval.

Bank of Bird-in-Hand projects that its estimated legal lending limit will be about $2 million, though it says it will make loans no larger than $1.7 million. Its headquarters and only retail branch would be in an "older stone house" that once was a doctors' office and a residence.

In a departure from the typical bank business plan, there are no immediate plans to offer online or mobile banking, though those services could be added later, Bybel says.