“We have to have the technology needed to be a community bank and also to have tellers and lenders ready for face-to-face relationship banking.”
Bank of Bird-in-Hand, the nation’s newest de novo bank, jump-starts in Pennsylvania
By Beth Mattson-Teig
Situated in a community firmly rooted in tradition, Pennsylvania’s Bank of Bird-in-Hand is an unlikely trailblazer. But, as the first de novo bank to be chartered in three years, that is exactly what this new startup has become to the banking industry.
Bank of Bird-in-Hand received its charter in late November and officially opened for business in early December. The startup was organized by a group of local business men who wanted to bring the classic community bank model back to the city of Bird-in-Hand and its surrounding communities. “The economic growth of this area over the past 24 years has been pretty strong,” says William O’Brien, the community bank’s executive vice president, chief lending officer and chief operations officer. “It has reached a critical mass where they can certainly support a small community bank.”
Situated in eastern Lancaster County, the $20 million-asset community bank will serve a population of about 80,000 people within a five-mile radius. In fact, that customer base has already proven that it has the desire and the financial means to support a community bank. This is a bit of déjà vu for both customers and the community bank’s organizers. Seven of the eight members of Bank of Bird-in-Hand’s board of directors, including O’Brien, were either investors, board members or employees in the former HomeTowne Heritage Bank.
Founded in July 1999, HomeTowne Heritage Bank was a $142 million-asset community bank with three locations in Lancaster County when it was sold to National Penn Bank in 2003. National Penn Bank left the HomeTowne Heritage Bank name in place until about two years ago. “There was a desire to have a community bank, but losing the name seemed to be a trigger point when the HomeTowne Heritage sign went down and the National Penn sign went up,” O’Brien says.
Take a closer look at the community and it is easy to see why such a change might not sit well with local consumers. Bird-in-Hand is located in the heart of a large Amish community. O’Brien estimates that more than one-third of the local population, between 25,000 and 30,000 people, are Amish. The bank’s core customer base of small-business people, including local farmers, operate in a close-knit community where personal business relationships remain important. So it wasn’t long before a group of the bank’s would-be business customers, many of them Amish, put their heads together and started to plan for a new community bank.
A rigorous review
O’Brien was part of the original team that started HomeTowne Heritage in 1999, and he readily admits that the application process for Bank of Bird-in-Hand was a much different experience in the wake of the Wall Street financial crisis and recession. “Certainly, it was more rigorous and you had to have your policies and procedures done ahead of time for the regulators to analyze,” he says.
By far, the biggest difference is that the FDIC has extended the period in which it more closely monitors de novo banks, from three to seven years. For example, any time the Bank of Bird-in-Hand makes a change to its marketing or business plan, it will have to go back to the FDIC for its approval. Any changes, additions or deletions to the bank’s management team or board of directors also have to be preapproved by the agency.
The agency now also requires charter applicants to raise capital prior to opening their bank that would be sufficient to maintain the bank’s leverage ratio at a minimum of 8 percent for the full seven years based on the applicant’s pro forma financial statements.
It is a more difficult climate in which to create a bank startup, agrees Jeff Marsico, executive vice president of The Kafafian Group, a community bank consulting firm in Parsippany, N.J. “The FDIC is being cautious in granting charters. They are looking for no exotic business plans. They are looking for seasoned management, and they are looking for a lot of capital,” he says.
“We’re elated with the support that we have gotten from the community coming in and opening up accounts and bringing us their business.”
—Brent Peters, president, CEO and vice chairman
A key step that Bank of Bird-in-Hand’s organizers took early on to make the charter approval process move more smoothly was to bring on an industry veteran who had experience both starting and successfully running a bank. Brent Peters serves as president, CEO and vice chairman at the bank. Peters is the former founder, chairman, president and CEO of East Penn Bank in Emmaus, Pa., who was convinced to come out of retirement to help start Bank of Bird-in-Hand. “Brent knows a tremendous amount about banking, and we couldn’t have done it without him,” O’Brien says.
Community support is key
One of the biggest deterrents to new startups these days is not so much the rigorous regulatory process, but the challenge of raising capital and being able to deliver a good return to investors, notes Marsico. Community banks that have been in operation and are profitable are currently trading at about book value. So it can be a better deal for investors to buy an existing bank versus investing in a new bank due to the added start-up costs and time it takes to become profitable, he adds. In addition, regulators plan to closely monitor the capital levels of new bank startups for several more years.
Bank of Bird-in-Hand successfully raised $17 million, surpassing its original goal of $16 million. “What we benefited from is the fact that this community very much supported the idea that we were putting this bank here in Bird-in-Hand,” Peters says. When the time came, people were willing to write the checks and provide the necessary capital investment. The bank attracted about 200 investors, all of whom are individuals from the local community. The minimum investment amount was $50,000 and the average investor put in $100,000.
Although there has been speculation that Bank of Bird-in-Hand will be a niche bank aimed at serving the Amish community, its executives plan to serve the entire community, including a core base of farm and small-business customers. As a result, the community bank will provide banking products and services across a wide spectrum that caters to both Amish and non-Amish customers. Certainly, one end of the community is very conservative in its practices, while the other end of the community will require the latest products and services.
“We have to have the technology needed to be a community bank and also to have tellers and lenders ready for face-to-face relationship banking,” says O’Brien.
The community bank’s goal is to grow to $180 million in assets by the end of its de novo period in 2020. “We’re elated with the support that we have gotten from the community coming in and opening up accounts and bringing us their business,” Peters says. “We think the bank has tremendous potential, and our support seems to be coming from all the different segments.”
Beth Mattson-Teig is a writer in Minnesota.