De Novo Banks Posting 1st Profit More Quickly
James Stevens, a partner in Troutman Pepper’s Financial Services Practice Group, was quoted in an October 19, 2020 S&P Global Market Intelligence article titled, " De Novo Banks Posting 1st Profit More Quickly."
The transition away from branches, especially marquee headquarters locations, have allowed de novos to put more of their limited start-up capital to more profitable uses, according to James Stevens, a partner at Troutman Pepper Hamilton Sanders LLP.
"People are no longer building Taj Mahals. Pre-2010, people were building very large buildings," Stevens said.
The start-up capital required to open a de novo bank has increased since the Great Recession, due in part to the required technology investment. Still, having more capital available enables a rapid growth profile. "Because [capital demands] have gone up, they're pushing growth," Stevens said. "They have the capacity to grow faster."
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While the low interest rate environment is weighing on net interest margins for all banks, well-run de novos can post profits without a favorable rate environment, both Lanter and Stevens said.
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Once interest rates return to historical norms, the pace at which de novos post their first profit could accelerate further, Stevens said.
"[Once] we have, at some point in the future, a rising net interest margin, that [profitability] trend will not only continue, but also perhaps they'll get profitable quicker," he said.