Increased Bank Charter Activity In Florida: What’s Driving the Trend? By: Trey Vick

What is the Purpose and Hypothesis?  Purpose is to identify the levels of bank chartering activity in Florida from 1996 to –Determine why fluctuations occur  Expect to find that Florida has seen above average levels of Chartering activity.  Drivers expected to be economic and population growth combined with merger activity.

Why Study This?  Previous Life as State Bank Examiner  Current life as Commercial Real Estate Banker.  Desire to get in on the ground floor of de novo bank and retire young.

Literature Review  Four separate papers were reviewed –One paper actually reviewed and rebutted two additional papers.  First from William Keeton of FRB KC. –Written in 2000 to explain how two papers written within months of each other could come to opposite conclusions on the same topic. –Berger(1999) though bank mergers stimulated de novo banks. –Seelig and Critchfield(1999) though bank mergers discouraged de novo banks.

Literature Review –Both supported by empirical data. –Found that different types of merger had different affects.  Big Bank to Little Bank  Outsider Bank to Local Bank  Local Bank to Local Bank  Seelig and Critchfield (2003) –Found that Keeton was right. –Added that expected future profitability was a significant driver of de novo activity also.

Literature Review  Peter Weinstock, banking consultant –Identified four topics to influence obtaining a new bank charter  Business cycle  Small Business Lending Demand  Population (market growth)  The community bank model  Jeon and Miller (2005) –Deregulations impact on bank births, deaths and marriages.  Permissive regulation increases marriages thus increasing births.

The Basics of the Paper  Identify the trends in the US Banking Industry –Increasing assets size of industry –Decreasing number of banks –Increasing profitability –Strong population growth –Generally increasing GDP

National Trends

National Trend Scatter Plot

State of Florida Compared  Florida had population growth % well in excess of the national levels.  GSP growth in excess of GDP.  Net income, total assets and total loans of Florida banks has declined from 1996 to 2000, but shown marked increases from 2001 to –Nationally all three indicators have increased. –Barnett Bank merger primary cause.

State Trends

Conclusions  The drivers of new charters in Florida were similar to national trends.  The merger to charter relationship was not as well defined as on the national level.  Most significant driver was population and economic growth  Net income of existing banks also showed a positive relationship.

Conclusion  Population growth drives market size and allows de novo banks to capture new market share rather than take existing market share.  Strength in the economy promotes charter activity due to the ability to access capital –Contrary to research that shows the best time to open new bank is in recessionary phase of economy (Weinstock 2003).

Conclusions  Income of industry also has a positive relationship because as existing banks take more profits new banks are enticed to enter the market.  Ultimately bank charter activity is driven by mergers, population growth, economic strength and perceived profitability of the industry.

Questions?