The latest class of proposed banks is discovering that the charter application process is fraught with challenges. Withdrawals and refilings have been on the rise since 2018, including two de novos that refiled their applications in July and another that withdrew its application in August.
Banks can refile or withdraw for a variety of reasons, but capital raises have been particularly difficult for new banks lately, according to bankers and analysts.
"It's been very hard for a traditional de novo bank to really get traction, especially from professional investors," said Joseph Fenech, a bank analyst with Hovde Group, in an interview. With established banks having similar returns to de novos and being much less risky, investors are shying away from new banks, Fenech said.
Hollywood, Fla.-based Coastal Community Bank ran into issues with raising capital and resubmitted its application with a lower capital amount, according to Joseph Dorsey, CEO of the proposed bank, in an interview. The bank originally planned to open three branches, but dropped that to two. "We were finding it challenging to find people to invest in our bank," Dorsey said.
The bank reduced its capital requirement and refiled with the Federal Deposit Insurance Corp. on July 5. Dorsey said that the bank will follow a traditional community banking model and may take longer to see results. "We're not the shiny new penny," said Dorsey, who added that banks with unusual business models, like cannabis banks, typically find it easier to come across initial funding.
Another Florida bank, Port Charlotte-based Tarpon Coast Bank, withdrew its application with the state regulator because it was unable to raise the required capital amount, according to the bank's lawyer, Richard Pearlman. The bank could not withdraw its application with the FDIC since it had been approved, said Pearlman, but the agency has the bank's status listed as "will not open" on its website.
New York City-based Piermont Bank pulled its application with the Office of the Comptroller of the Currency and chose instead to file its application with the New York Department of Financial Services. Piermont opened for business July 1.
Piermont kept its application mostly the same when switching regulators, but its opening date was expedited, CEO Wendy Cai-Lee said in an interview. The shorter time frame caused the bank to open with less capital than originally intended, but Cai-Lee said it still opened with $40 million in capital. New investors have expressed interest since the bank opened its doors, Cai-Lee said.
Not all withdrawn or refiled applications are due to capital issues. San Francisco-based Varo Bank NA had to refile its application with the FDIC in July due to timing issues between its two regulators, the FDIC and the OCC. Varo originally filed applications with both agencies at the same time and had to refile with the FDIC after receiving approval from the OCC.
Some other withdrawn banks have found new ways of opening banks in their areas. McLean, Va.-based VisionBank announced Aug. 6 that it was withdrawing its application, and its management team will join North Garden, Va.-based Old Dominion National Bank instead. Two of four North Carolina withdrawals ended up entering the state other ways, and some banks claim they are still looking for different ways of banking or raising additional capital.
"I'm not sure you will ever find a standard application," said Cai-Lee. "Calling capital raising 'easy'... no one will. It's just not possible these days."