Old National Bancorp decided to take matters into its own hands after realizing its home state of Indiana had no minority depository institutions.
Evansville, Indiana-based Old National expects Generations Community Bank — a de novo minority depository institution (MDI) that it is organizing along with a group of bankers, community leaders and business professionals — to open in the summer of 2025. Old National will become a minority investor in Generations, and industry sources said they believe it would be the first bank to establish a de novo MDI.
The project started after the Office of the Comptroller of the Currency directed Old National to help MDIs, but the company found that Indiana did not have one, Chairman and CEO Jim Ryan said in a promotional video. Stephens Inc. analyst Terry McEvoy said Old National's size — it had $53.60 billion in assets as of Sept. 30, 2024 — makes it a regional bank, but it still has roots at the community level.
"Establishing an MDI plays into that community banking strategy," McEvoy said in an interview.
MDIs have 51% or more of their voting stock owned by minority individuals, or they have a majority of the board of directors who are minorities and serve a predominantly minority community, according to the Federal Deposit Insurance Corp.'s definitions.
The application for the proposed bank was filed in late 2024 with both the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corp.
The next step is a capital raise, which the executives plan to start in late January or early February with a goal to raise about $25 million, Rafael Sanchez, chief impact officer and Indianapolis market president at Old National subsidiary Old National Bank, said in an interview.
Other steps include finding a location and building the executive team, according to Al London, proposed president and CEO of Generations Community Bank, formerly area manager of JPMorgan Chase & Co.'s Indiana business banking team.
The MDI de novo effort predates and is fully separate from Old National's proposed merger with Bremer Financial Corp., which was announced on Nov. 25, 2024, and was worth about $1.40 billion at announcement. Sanchez said he has been working on the de novo for 2.5 years, while other employees worked on it for 1.5 years before that.
"This is something that we've had in the works for quite some time," Sanchez added. "Looking back, we kind of underestimated the amount of work that it takes to do a de novo bank. It's a lot harder, and just because you are a bank doesn't make it any easier."
Will other banks make similar moves?
Many MDIs were established to help bank under-served markets, and that goal can take precedence over generating large profits. In 2023, 87.8% of MDIs were profitable, whereas 94.8% of all banks were profitable, according to the FDIC. Regulators see partnerships with non-minority institutions as one way to assist MDIs.
Appeasing regulators is not the only reason that could motivate banks to help MDIs. The efforts can lead to public relations benefits for a bank's business and the communities it serves, according to McEvoy at Stephens.
"There's that balance between running a public company and maximizing your profits, but then there's balancing that with doing what's right for your communities and your customers," McEvoy said. "Banks will continue to evaluate both of those demands that are placed on them."
Paul Welch, head of private equity at Elizabeth Park Capital Management, is portfolio manager of the privately owned and run Mission Driven Bank Fund, which the FDIC launched in September 2021 to work with MDIs and community development financial institutions (CDFIs). Welch said two reasons a bank would organize an MDI de novo include helping underserved communities and gaining Community Reinvestment Act (CRA) credit.
"Between impact and just doing the right thing and two, financial CRA credit, potentially having access to lower cost deposits that minority depository institutions can get versus 'mainstream' [banks] — that's an FDIC term," Welch said in an interview. "Those are all in the options that we think make a lot sense for moves like Old National."
Welch said the fund, which makes investments and provides technical services, would consider working with any MDI, and that would include Generations Community Bank if it is approved. Welch expressed support for the idea of other banks making similar moves and establishing MDIs.
"We would be happy, and we wouldn't be surprised, if there were more kind of strategic opportunities or strategic actions like this," Welch added. "We do not know of those today, though."
McEvoy anticipates other banks will take similar or related actions.
"The combination of regulators and community advocacy groups will make sure that the underbanked communities are not overlooked, and whether that's done through branches, participation with existing MDIs or, in this case, launching their own MDI, will be a trend that I would expect going forward," McEvoy added.
