Bank Reforestation

By Eckstrom, Brian | ABA Banking Journal, February 1998 | Go to article overview

Bank Reforestation


Eckstrom, Brian, ABA Banking Journal


"When I was growing up here, there were nine hometown banks," states Larry McGoldrick as he surveys the banking landscape of Meriden, a central Connecticut city of 60,000.

"Now, there are none," he says.

That will soon change, however. McGoldrick is CEO and lead' organizer of Castle Bank and Trust (in formation). Approximately half the minimum $5.4 million in capital has been raised and McGoldrick hopes to open the bank's doors in mid-July.

He likes the bank's chances for success. "The timing is good for us," he says. "The pendulum has swung too far for big banks." His chances are heightened by the fact that over 67% of the market area's banking deposits are controlled by the out-of-state banking giants First Union and Fleet Financial.

A more striking example of out-of-state control of deposits is the Maricopa County area in Arizona, which includes fast-growing Phoenix and surrounding communities. Over 90% of the market's nearly $30 billion banking deposits are controlled by four big banks: Wells Fargo, Bank One, Norwest, and Bank of America. This out-of-state concentration has led to a resurgence of de novo banks in the area.

Welcome to the reforestation of the banking industry.

After hitting an all-time low in 1993, when only 59 new banks were formed, the number has risen steadily to more than 150 last year. While banking experts believe this trend will continue, by no means do they think the 1998 total will reach the record achieved in 1984 when 393 de novos were formed.

The key factors influencing the recent rejuvenation of de novos are rather straightforward: supply and demand. There is a supply of qualified bankers with strong community ties, thick rolodexes, and entrepreneurial spirit, and there is a demand from customers, particularly small business owners, who desire a more local attitude and knowledge than what the large out-of-state banks are providing. Couple these factors with a strong stock market, particularly for bank stocks, and you have the availability of capital to finance start-ups. This last factor is clearly obvious in the case of Raleigh, N.C.-based Capital Bank, which began operations in June 1997 after raising a whopping $27.2 million. That amount was twice as much as any new North Carolina bank had raised, and CEO/President James Beck speculates it's the most ever for a bank headquartered in the Southeast. The bank, the first de novo in Wake County in more than nine years, is serving the fast-growing cities of Raleigh, Durham, and Chapel Hill. The area is home to the state capital, high technology companies, and three large universities. Many believe this growth will continue and that the Raleigh metropolitan statistical area will surpass Charlotte, a city commonly referred to as Wall Street South because of its two giant banks, First Union and NationsBank. Beck, in his mid 40s, thought he would be in his 50s before he had the opportunity to start a bank from scratch with a meaningful personal equity stake. At the beginning of the decade he was responsible for opening the North Carolina affiliate of Alabama-based Southtrust, where he was able to grow the footings to more than $200 million in a weaker economic environment with no local ownership and less capital than he has now.

Employees, now competitors

Like so many of the de novos now cropping up, Capital Bank is headquartered across the street from its CEO's former employer. This is also true of Grand Rapids, Mich.-based Mercantile Bank Corp., which opened in December after raising more than $10 million with the help of brokerage firm Roney & Company. After an impressive and long stint as president of First Michigan-Grand Rapids, Gerald Johnson, Jr., and other executives from the big bank are now competing against their former employer and its new owner, Huntington Bancshares.

Also competing against a former employer in location as well as in product focus is Michigan Heritage Bancorp, Novi, Mich. …

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