FAQ’s

How do Banks Make Money?
Though banks are critical for economic development, at their core they are privately-owned, for-profit institutions. Banks are generally owned by stockholders, whose investments form most of the bank’s equity capital. At the end of each fiscal year a bank pays some or all of its profits to its shareholders in the form of dividends, which stockholders may choose to reinvest in the bank. Profits retained by the bank are added to the bank’s capital.

Banks earn money in three ways:
• Charging a higher interest rate on loans they make than the interest rate they pay for deposits
• Generating interest on the securities they hold
• Charging for customer service functions such as checking accounts, overdraft protection, financial counseling, loan servicing and sales of other financial products such as insurance and mutual funds.

On average banks earn just over 1% of their assets (loans and securities) every year, a figure commonly referred to as a bank’s “return on assets,” or ROA.

How Long Does it Take to Open a Bank?
On the average it takes 15 months to open a bank. This is largely due to the application process, because the regulators have several months to review your application. Additional time can be added to the process for gathering your organizing group and raising your capital.

Isn’t banking risky these days?
Not compared to other business ventures. In 2003, the commercial banks in the United States closed their books on one of the most profitable operating years in their history. Combined, all commercial banks in the U.S. earned $120 billion in net income. In 2003, 94.3% of all banks in the country were profitable. Further, during 2003, commercial banks  in the U.S. earned an average Return on Investment of 15.5%.

In addition, it is important to point out that the movement of money is a necessary and vital activity for every business and individual in our country. Therefore, the “need” for financial services has always been, and will continue to be, a marketing advantage for organizations involved in this activity. Granted, banking has become more competitive in recent years. However, the degree of risk has not increased for banks that are well managed and have an adequate capital base.

Can a new community bank really become successful today?
Three major factors make a community bank successful, the directors, the management team, and the market. Our board is comprised of successful people who know the area well and understand the needs of this market. In addition, an experienced, professional management team has been assembled that will safely and profitably guide the organization. As stated previously, this market is sound and expanding steadily. The combination of these elements, properly orchestrated, will enable the bank to effectively serve the needs of the market and therefore enhance shareholder value.

Is there really a need for this kind of bank?
Most definitely. Community banks play a significant role in communities throughout the country. As the national and regional banks grow, merge and consolidate, they become further out of touch with the needs of the local business and professional person. They tend to focus their attention on higher margin transactions and become more “formulized” and impersonal in the process. This creates an opening for a community bank, because it is local and therefore ideally positioned to meet the needs of the community.

What determines the price of community banks?
Stock prices are generally indicative of how well a bank is managed and marketed. Having a market maker in place establishes a professional contact for those wishing to either buy or sell stock in the bank once it is opened. This is vital and provides a support mechanism for marketing and pricing of community bank stocks.

When will the bank start paying dividends?
During the first few years, it is generally accepted that a bank’s earnings are more efficiently put to use through retention, thereby increasing the bank’s capital position. Paying cash dividends too early in the bank’s development would divert needed capital and possibly compromise the bank’s ability to grow. On the other hand, stock dividends are a more common method of rewarding the investor during the formative years of a bank. In any event, the bank’s dividend policy will be established after the bank opens and will be in keeping with sound industry practice.