The FDIC has opened its doors to new de novo bank applications, but those in the know aren’t expecting a flood of new bank applications like you might have seen in the good ol’ days.

A little more than 1,000 new community banks were chartered between 2000 and 2008, and 634 of those institutions were still operating and holding $214 billion in total loans and leases as of September 2015, the agency said in research it published last summer.

De novo formation virtually ground to a halt during the Great Recession, and between 2011 and mid-2016, the FDIC received just 10 applications for deposit insurance for de novo banks. Last year, the agency received eight applications for deposit insurance for de novo institutions, of which two were approved and six were still pending at the year’s end, the FDIC said.

Over the past year, the regulator has released guidance for organizers seeking deposit insurance for de novo institutions and held several outreach events for professionals who are curious about forming a de novo bank. The FDIC also scaled back the de novo period, during which a new institution is subject to greater regulatory scrutiny, from seven years to three.

“I think the biggest thing [the FDIC] did was acknowledge the fact that they were dragging the process on for an inordinate amount of time to get approval for de novos,” said Donald J. Musso, president and CEO of the New Jersey-based consulting firm FinPro. “And time is money. We were burning through at-risk startup capital unnecessarily.”

Musso’s consultancy worked on a recent deal to establish Primary Bank in New Hampshire, which formed in the summer of 2015. He also said he’s currently working on three other de novo applications and knows of three additional applications that have been filed or will be imminently.

While the FDIC had not announced those changes when Bill Stone and his associates began putting together their application for Primary Bank, he said he was pleasantly surprised by his meetings with regulators.

“I must say that they were very supportive and very cooperative in helping us through the application process,” Stone told Banker & Tradesman. “There were a couple of meetings with the FDIC and the New Hampshire banking department prior to submitting our application. We submitted that in late October of 2014 and we had approval in about a four month period of time.”

Barriers To Entry

But don’t expect to see a flood of de novo banks in the years to come. For all the FDIC’s good will toward de novo applications, the banking industry simply isn’t as profitable as it used to be.

“If somebody came to me and said they wanted to form a de novo, I would be very cautious,” said Richard Schaberg, head of the financial institutions practice group in the United States at Hogan Lovells. “I still think there are a lot of headwinds that make the business model of a de novo very difficult and that in turn makes it difficult for the regulators to find themselves with a provable application.”

Schaberg wouldn’t ignore a phone call from an interested individual, of course, but he does want people to be aware that it’s an uphill battle. Once upon a time, it was much easier to establish a de novo in a community where major, national players had gobbled up all the hometown banks. Customers today expect a much more robust platform of products and services, and that requires greater investment in a bank’s technological infrastructure. And that’s to say nothing of the cost of compliance, either.

Whereas 20 years ago you could form a de novo bank with somewhere around $6 million to $10 million in capital, today you need closer to $20 million or $30 million in capital, Musso said.

To establish Primary Bank, Stone and his colleagues raised $30 million in capital from 421 investors, after their initial seed capital of $3 million. He said that broad investor base, drawn largely from professionals and business leaders in Southern New Hampshire, was an intentional choice, underlining the grassroots ethos of Primary Bank.

The market and the business model are key, too. Stone said Primary Bank was formed largely in response to the cries of small business owners in Southern New Hampshire, who felt they lacked a hometown alternative to big banks. While Primary has a full suite of deposit products for both businesses and consumers, it lends only on the commercial side.

Scaling up with a plain vanilla banking model would be much more difficult, Schaberg said.

And while the Greater Boston area is blessed with an abundance of banks in a variety of shapes and sizes, that’s not the case everywhere. Musso points to Charleston, South Carolina, Long Island, New York, and even New York City as markets that could benefit from a new community bank.

“At the end of the day, nobody can really tell you today what the right number of banks is in the United States,” he said. “It differs from market to market.”