High Performing De Novo Banks and Thrifts: 

An Analysis of 20 Success Stories

Published: December 2007

Report #: 2007-1201

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Summary

The number of FDIC insured de novo banks and thrifts have been expanding each year since reaching a cyclical low in 2002. From January 1, 2002 through June 30, 2007 a total of 828 de novo banks and thrifts began operations. While 27 of these de novos have since closed, a net of 801 institutions remain in operation. In light of record bank and thrift industry profits through 2006, followed by declining profits in 2007, the question of how de novo banks and thrifts have fared relative to the overall industry is worthy of further analysis.

For this analysis, de novo banks and thrifts that started operations in 2002 and 2003 were analyzed to (1) assess the level of success (profitability) and (2) identify the reasons behind the success of those institutions that achieved noteworthy levels of profitability. During these two years, a total of 223 charters were issued and began operations. As of June 30, 2007, 20 of these institutions had closed. Of the remaining 203 de novos, 23 were chartered by a non-bank or large bank holding company and 31 were created by a multi-charter institution. Removing these two subsets of de novo charters yields a net of 149 pure de novos which are ranked and analyzed in this report.

To achieve a fair and universal ranking process, this analysis uses the same profit score methodology that was developed for 100 Most Profitable Banks of 2006: Winning Strategies and Execution Excellence, which was published in July 2007. The profit score is a profitability algorithm for calculating institutional profitability balances an institution’s return on equity and pre-tax return on assets (PROA). PROA eliminates anomalies caused by various state tax rates and an institution’s Subchapter S status. The profit score was calculated for 7,430 institutions and used to assign institutions into four quartiles. The 149 de novos were analyzed based on their quartile ranking among all 7,430 institutions. 20 de novos from 2002 and 2003 achieved a ranking in the 1st quartile. In addition to FDIC data, interviews with executives at 19 of the 20 1st quartile de novos were conducted to gather institution-specific responses regarding each institution’s business strategy, their core banking solution and other IT contributions.

The report’s findings are based on an analysis of these 20 most profitable de novo banks and thrifts that attained a level of profitability placing each institution in the 1st quartile. The analysis includes a discussion of the business strategies, key operating metrics, and core banking vendors used by these 20 de novos. The report contains 16 tables and five charts.

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