De Novo Bank Chartering Trends

(Data updated quarterly as Call Reports are filed or other information available. Click on any image to enlarge.)

De Novo Bank Chartering Trends are sourced from the F.D.I.C. with tables or graphics created by BankingStrategist.com.

Data is as of Q4 2023 from FDIC Call Reports and de novo activity reports.

   DE NOVO BANK REPLENISHMENT RATE 
  
   Latest 4 Quarters Ending Q4 2023:         4.8% 
   Since 1990:         21.3% 
   (# de novo banks opened as percent of merged, liquidated and failed banks) 
    

STATE OF DE NOVO BANKING


De Novo Bank Replenishment Rate:	4.8% ~5 new banks for every 100 merged, liquidated or failed banks.

Approved Applications L12M:	5

De Novo Banks Opened L12M:	2

Approved Pending Opening:	2

Approved But Will Not Open:	1

Applications Under Review:	18

De Novo Bank Geographic Markets:	~80% of de novos in counties with populations > 500,000. Larger population counties and growth markets (FL and southeast, west).

De Novo Bank Capital Requirements:	~$32 million 2X requirements prior to Great Recession.

De novo banks opening since 1990 totaled over 2,900. The following charts show the important role that de novo banking played prior to the Great Recession and how de novo banking activity collapsed post crisis.

Historically, de novo banking was an important component of the banking industry rejuvenation. From 2000 to the Great Recession, there were over 1,300 new banks chartered and opened, or 132 on average each year. Replenishing the pool of banks lost to mergers, liquidations and failures at a rate of over 30%.

Today, de novo banking is the exception. Only 83 new banks were chartered and opened since 2010, or approximately 6 on average each year. Replenishing only 3% of acquired, liquidated or failed banks.

This trend is probably irreversible.

KEY SOURCES OF INFORMATION AND ACTIVITY ON DE NOVO BANKING

FDIC Decisions on De Novo Bank Applications for Deposit Insurance

   DE NOVO BANKING FAILING TO REPLENISH INDUSTRY LOSS OF BANKS TO MERGER OR FAILURE. 
  

For the LTM, the De Novo Bank Replenishment Rate was 4.8%. That is, approximately 8 new banks opened to replace 100 banks that either merged, liquidated or failed.

De Novo Bank Replenishment Rate: De novo banking has played an important role in the banking system. As the banking industry consolidated through mergers and acquisitions, liquidations and bank failures, de novo banking replenished the industry with new, competitive players. The concept of “De Novo Bank Replenishment Rate” is shown in this graph.

The metric is calculated by dividing the number of de novo banks that opened each year by the total number of banks that merged, liquidated or failed for that year.

From 1990 through 2008, the De Novo Bank Replenishment Rate was 32%, i.e., for every 100 banks that merged, liquidated or failed, 32 new banks were formed. De novo banks replaced a meaningful portion of the banks that were merged, liquidated or failed.

Following the Great Recession and financial crisis, this rate dropped to a only 3.5%, i.e., for every 100 banks that merged, liquidated or failed, less than 4 new banks have been formed.

TRENDS IN DE NOVO BANK APPLICATIONS AND OPENINGS

**Trends in FDIC De Novo Bank Openings Since 1990:** De novo bank openings saw a significant change prior to the Great Recession and after the Great Recession. The number of de novo banks that opened dropped from an average of 153 per year for the nineteen years from 1990 to 2008 to only 8 for the11 years from 2009 to 2023.

**Trends in FDIC De Novo Bank Applications Since 2000:** De novo bank applications saw a significant change prior to the Great Recession and after the Great Recession. FDIC actions dropped from 1,387 for the nine years from 2000 to 2008 to only 107 for the +10 years from 2009 into 2023.

TRENDS IN DE NOVO BANKING ACTIVITY ON STATE LEVEL

**De Novo Banks by State:** Historically, de novo banking occurred in larger population centers, markets expected to experience strong economic growth and in states where there has been significant banking industry consolidation due to mergers and acquisitions.

**Trends in FDIC De Novo Bank Applications for Leading States Since 2000:** The same trend occurs by the leading states for de novo activity before (Green) and after (Red) the Great Recession. Defining characteristics of states with de novo activity: growing populations, strong local economies and history of bank merger and acquisition activity.

DE NOVO BANK FAILURES

De Novo Bank Failures: Of the ~1400 de novo banks that opened since 2000, 10%, or145 de novo banks have failed. From 2009 to 2011 during the Great Recession, the De Novo Bank Failure Rate exceeded 2.5 percent, while the industry bank Failure rate was 2% or less. In 2009, the industry Bank Failure Rate was 1.7% compared to 2.5% for de novo banks; in 2010, 2.0% for the industry compared to 3.0% for de novo banks; and, in 2011, 1.2% for the banking industry compared to 2.9% for de novo banks.

In Georgia, one-third of de novo banks failed. Nevada, Arizona, Illinois and Florida each had A 15% or higher de novo bank fails.

These unusually high failure rates led to the FDIC action that doubled the required capital levels.

DE NOVO BANKING ACTIVITY FOCUSES ON LARGER, GROWTH MARKETS

**De Novo Banking has primarily focused on the larger markets** where there is population growth or significant bank merger activity. Prior to the Great Recession, there were de novo banks forming in some of the smaller markets; that does not appear to be the case today. The above chart shows FDIC approved de novo banks over the past 20 years in dark red; the blue represents Community Banks and the green represents all other larger banks. The table below shows the decline in overall de novo formations since Great Recession and the lack of any activity in communities with less than 100,000 in population.

**De Novo Banks Opened Since 2017:** While de novo bank openings are down significantly from pre-recession levels, another characteristic is important.
Most new banks are opened in larger markets with population growth and faster growing local economies.

**De Novo Banks Opened by Size of County Since 2009**

**De Novo Banks Opened by Year by Size of County**

WHERE HAVE ALL THE DE NOVO BANKS GONE?

De Novo banks approved over the past two decades:

512 CONTINUE TO OPERATE: 34 percent of de novo banks continue as independent banks.
145 FAILED: 10 percent of de novo banks have failed. Bank Failure Rate of 0.4% per year.
749 MERGED: 50 percent of all de novo banks opened since 2000 have merged. Bank Merger Rate of 2.4% per year. A de novo bank merges, on average, after 9 years in existence.
86 DID NOT OPEN: 6 percent of FDIC approved de novo banks have decided not to open.
2 PENDING OPENING: <1 percent of FDIC approved de novo banks openings are pending.

REGULATORY REQUIREMENTS FOR DE NOVO BANK CAPITAL DOUBLE SINCE GREAT RECESSION.

Trends in Capitalization Requirements:

There is a significant increase in the required capital for de novo banks following the Great Recession. While the capitalization requirements are unique to each application, the trend reflects

doubling of the average capital requirement
from $15 million prior to the financial crisis to $32 million post-crisis.

The reasoning for the heightened capital requirements are to provide capital cushion to withstand recessionary economies and target business plans that have larger total asset goals - view is that there is a critical mass required for success (only larger De Novo banks can succeed and survive)!

DE NOVO BANKS - TIME FROM FDIC CONDITIONAL APPROVAL TO OPENING.

When the FDIC “approves” a de novo application, it is a conditional approval. That is, the FDIC conditions final opening upon the completion and FDIC review of several actions and steps that are imposed in the conditional approval. Historically, it has taken a de novo bank just over 100 days to successfully satisfy those conditions. The capital raise is critical step that opening is conditional upon. Looking at the current list of pending de novo banks, there are several entities that have moved well beyond that typical 100 days to opening. Other conditions may include approval of key management, adequate fidelity insurance, charter approved by the appropriate federal and state supervisory authorities, and a variety of commitments or milestones over the first three years of operation. Besides capital raise, what other conditions have extended this timeline for some new banks?

DE NOVO BANKS - LATEST 12 MONTH FDIC ACTIONS.

**L12M FDIC Bank Insurance Application Activity**

DE NOVO BANKS - NEW APPLICATIONS PENDING FDIC REVIEW.

There are eighteen (18) de novo bank applications pending review by the FDIC. California has four (4) pending; Utah has three (3) pending and Florida, New York and New Jersey have two (2) pending; Utah includes three (3) ILCs (Industrial Loan Corporations), which have been outstanding for more than a year or two.

DE NOVO BANKING OVER THE DECADES.

**De Novo Banks Over Past Three Decades**

**De Novo Bank Replenishment Rate over Past Three Decades**

DECADE OF 1990'S: DE NOVO BANKING BLOOMS LATE IN DECADE.

**Decade of 1990s: De Novo Bank Replenishment Rate**

DECADE OF 2000'S: DE NOVO BANKING BOOM CONTINUES - UNTIL IT DOES NOT.

**Decade of 2000s: De Novo Bank Replenishment Rate**

DECADE OF 2010'S: DE NOVO BANKING IS NO MORE.

**Decade of 2010s: De Novo Bank Replenishment Rate**

DECADE OF 2020'S: DE NOVO BANKS - FULL EXTINCTION? FINTECH ONLY?.

**Decade of 2020s: De Novo Bank Replenishment Rate**

HISTORY OF DE NOVO BANK CHARTERS OVER THE DECADES SINCE 1930s AND FDIC.

Age of Bank Charters by Date of FDIC Insurance.

50 percent of all commercial banks in existence today were chartered with FDIC insurance during the 1930’s.
All other decades averaged around 5 percent, except the decade of 2000’s.
The decade of 2000’s - decade of de novo bank chartering - is when 9 percent of all banks in existence today were chartered with FDIC insurance.

**Distribution of Bank Charters by Decade Since Creation of FDIC.**

**Distribution of Bank Charters by County Population and by Decade of FDIC Insurance.**

Age of Bank Charters by Date of FDIC Insurance and Distribution by County Population.

Some of the longest chartered commercial banks are located in some of the smaller population counties.
Many of the newer commercial banks in existence today were located in markets with populations greater than 500,000.