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California de novo aims to be state's 1st Native American bank in years

A new bank in California plans to be the first Native American minority-designated bank in the state since 2012.

Temecula, Calif.-based Legacy Bank filed its de novo application with the Federal Deposit Insurance Corp. on Oct. 31. According to the application, the bank is being organized by the Soboba Band of Luiseño Indians in Riverside County, California. The bank plans to be a minority-designated Native American financial institution.

The number of minority-designated institutions, or MDIs, in California has dropped since its peak in 2009 and 2010, with only 35 banks remaining at the end of the second quarter of 2019. However, total assets at minority-designated banks in California have risen, topping $100 billion in aggregate in the second quarter of 2019.

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The trend of increasing assets despite declining numbers of minority-designated banks is occurring nationwide. The total number of minority-designated institutions peaked in 2008 at 215, and by the middle of 2019, that number was down to 148.

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According to FDIC data, 2012 was the last year in which a Native American bank operated in California. In 2013, La Mesa, Calif.-based Borrego Springs Bank NA was purchased by Spokane, Wash.-based Sterling Financial Corp., which was not a minority-designated institution and was also later acquired.

Legacy Bank will be able to take advantage of the FDIC's minority-designated institutions program if approved. Benefits include assistance from the FDIC, training and educational opportunities and attempts by the FDIC to maintain the "minority character" of the institution if it fails or is acquired.

"We're still coming to understand what the benefits are," James Hicken, the CEO of the proposed bank, said in an interview. "It will give the bank a lot of opportunities going forward."

Hicken has been on the ground floor of a new bank in the past. He was president and CEO of Bank of Santa Clarita, a bank he helped establish in 2004, until 2012.

Legacy Bank will be a community bank that is 100% tribal-owned by the Soboba, Hicken said, and it will serve the whole community of Riverside County, not just the tribe. The bank will have a "specific focus" on business banking, but will also bank consumers, he said. The bank may also consider serving other tribal nations beyond the Soboba in the future.

As of Nov. 20, there were 18 Native American-designated institutions in the U.S., 10 of which were located in Oklahoma. Only one had over $1 billion in total assets, according to S&P Global Market Intelligence data.

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Due to the tribal ownership structure, the bank will not have an initial capital raise like a traditional de novo bank. The tribe is providing the capital, Hicken said.

Raising capital has proved difficult for some new banks nationwide, leading to application withdrawals and refilings. That has been the case in California as well, according to Beth Mills, senior vice president of communications with the California Bankers Association.

"Overall, we've heard that's one of the sticking points — raising the capital requirements," she said.

But not having stockholders will help the bank meet its mission, Hicken said.

"One of the big problems with community banks is that they ultimately get purchased by larger banks, looking to maximize shareholder value in the process," he said. "This is a bank that is being created with the intention of having a long-term vision."