The American Banker reported last week (paid subscription required) that where wise men fear to tread, the Amish rush in.
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.
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.
No wise cracks about "two-in-bush" from me.
Ag lending has done well during the recent downturn, so that should be a favorable factor for the application. Naturally, anything that's doing well is subject to being crushed by bank examiners who live in mortal fear that today's gold will be tomorrow's lead. However, if you're picking a market niche and you can show the regulators that you've got the chops, they may not shoot you down solely on that basis. They've got plenty of other grounds to sink your application.
The linked article contains speculation that perhaps the filing of this application indicates that the oft-denied, supported-by-the-facts, theory that the FDIC has instituted a "de facto" moratorium on de novo charters (last one granted: 2010) is either false or is yesterday's news, and that this application may signal the dawning of a new day of de novo promise. If you believe that, we need to discuss your future investment in my proposed Bank Lawyer's Blog theme park on the asteroid Vesta.
There are some unique features about the proposed bank's business plan and community that separate it from the customary de novo proposal.
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.
The bank also isn't planning to offer Internet or mobile banking, which removes a potential sense of heartburn to the regulators. They had their fill of Internet-centric banks bursting into flames or spontaneously zombifying themselves in the past decade. On the other hand, it's not surprising that the Al Gore-invented "Internets," as well as mobile banking, are missing from the business plan, since the targeted customer base, the Amish, use neither the Internet nor cell phones.
And speaking of the Amish, before we all jump up and down with unrestrained glee over this portent of the opening of the de novo floodgates, let's not forget (as I'm sure the FDIC will not), that this is the same group of folks whose members have been accused of being involved in bootlegging unpasteurized milk and refusing to place warning triangle decals on their buggies. Not to mention renegade beard trimming.
No, the FDIC might determine that the entire potential customer base is seeded with too many potential Tony-Sopranos-in-suspenders-and-a-beard-like questionable characters to make it a safe bet for any FDIC-insured institution. That would be the safe play. I hope I'm wrong, of course. Any crack in the de novo dam would be welcome, even if it's delivered in a wild and crazy corner of the banking universe.