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Organizers withdraw de novo bank application, plan leadership changes

Organizers for a planned de novo outside of Atlanta have withdrawn their application and expect to resubmit the filing after making leadership changes to the bank.

Pacific Metro Bank, which planned to open a branch in Johns Creek, Ga., withdrew its application April 10, according to an email from LaJuan Williams-Young, who is a member of the FDIC's communications office. Williams-Young did not provide any other details.

Brightlane Partners LLC Managing Director Chris Johnson has been consulting the organizers of Pacific Metro and said they will resubmit the application after making "a necessary major change." The change is expected to include selecting a replacement for Jinsong Yang, who was the proposed chairman of the bank that aimed to focus on the Chinese-American population in the north metro Atlanta area.

Yang stepped away from the chairman position, but it's not entirely clear why he made the move.

Johnson said after conducting background checks, the FDIC expressed concern about Yang serving as chairman, and that led to the decision to find new leadership. Johnson said the FDIC's concerns with Yang's background were personal and confidential.

In an interview, Yang was adamant that the regulator did not express concern about his background and said those assertions were untrue. "I don't know how this rumor comes out," Yang said.

Yang said he decided to resign from the board and focus on other business interests. He added that the FDIC did raise some questions about the application, but he did not say what those questions were.

Yang is president of McKinley Construction LLC, a real estate development company, and McKinley Realty LLC, a property management company. He's the founder of both McKinley companies, and he said he's also pursuing other business projects.

Gerald Lewis, who was expected to become CEO of Pacific Metro, said he believes the bank was taking up a significant part of Yang's time and pulling him away from his other businesses. However, he said regulators had discovered some "biographical issues" about Yang, but Lewis didn't think those concerns were enough to prevent him from serving as chairman.

He added that the reduced role for Yang on the project negatively impacted the de novo.

"He was the visionary, and the original principal organizer," Lewis said. "When he went by the wayside, it kind of threw the organization effort into a tailspin."

Yang was also expected to become the majority shareholder in Pacific Metro. He said he now plans to take a smaller stake in the bank. Johnson said he doesn't anticipate any regulatory concerns if Yang owned less than 10%, which would be deemed a noncontrolling stake.

Johnson said he hopes to file another application in the next six months to a year.

Lewis said he's been involved in four approved bank de novo projects including NOA Bank, which was established in 2008 and is the most recent traditional de novo bank to open in Georgia. He said the regulatory approval process has become more rigorous since the financial crisis.

"If we think they looked at you closely then, you have no idea how closely they look at you now," he said.

At one time, helping organize de novo institutions was a much bigger business for advisers in the space, and before the crisis, Georgia was a hotbed for de novo activity with the Atlanta, Sandy Springs and Roswell metro area alone accounting for 74 bank and thrift startups. However, 39% of those institutions failed, according to S&P Global Market Intelligence data.

Throughout the U.S., de novo activity has slowed considerably. From 2000 to 2008, some 1,025 de novo banks and thrifts were established, but just 25 opened from 2009 through the first quarter of 2017, according to S&P Global Market Intelligence data. Of late, there has been a slight uptick in applications with the number of de novo banks in organization reaching six traditional banks when including Pacific Metro.

James Wheeler, an attorney based in the Atlanta office for FisherBroyles LLP, said regulators have sent a message to the marketplace that they are open to new institutions, and he's working with two groups that would like to start de novo banks. Wheeler said one of the biggest hurdles is putting together a seasoned management team that can meet regulatory approval. He said this is especially important since there hasn't been much de novo activity in recent years.

"Regulators aren't going to promote someone risky as their flagship here," he said in an interview.

Another hurdle is developing a business plan that will meet regulatory approval, Wheeler said. He added that a simple model is best.

"It's taking deposits and making loans," Wheeler said. "Once you get outside that box it gets less comfortable."

Pacific Metro aimed to offer traditional personal and business checking, savings and loan products along with Small Business Administration loans, according to the de novo application. The organizers also believed they could fill a void in the marketplace and meet the "unmet banking needs of the fast-growing Chinese-American population" in the area, according to the de novo application.

Georgia Bankers Association President and CEO Joe Brannen said the business plan of Pacific Metro differs from many other banks that have started up in Georgia. Normally, the de novo banks have business plans tied to the expanding real estate market in the state, he said.

"It's a demographic-focused bank rather than a more traditional de novo bank," Brannen said about Pacific Metro.

Pacific Metro planned to raise $12 million to $15 million in capital, and that total would be less than any other de novo that is currently in organization. Johnson said Pacific Metro planned to maintain a Tier 1 capital ratio above 10% and grow its asset base to about $100 million by the end of its third year.

"The bank we were trying to create was small," he said.

Johnson said he believes the FDIC officials would like to grant a charter for a new community bank in Georgia. "But they are going to ensure that the bank has the most qualified leadership possible to succeed in the market which it will operate," Johnson said.