Those events crippled hundreds of banks across the country, many of which were founded in the past decade. Chain Bridge, however, is part of a cohort of local bank start-ups that used lessons from the downturn to thrive, despite the tough operating environment.
That cohort of three banks founded in 2007 — including Revere Bank in Laurel and Fairfax-based First Virginia Community Bank — all boast healthy balance sheets. But the young commercial institutions must still contend with pressures of low-interest rates and economic uncertainty that threaten to stymie growth.
Revere chief executive Andrew Flott is concerned about the squeeze on net interest margins — the difference between what banks earn on loans and pay out on deposits — brought on by the low-rate environment. Still, he remains bullish on the bank’s prospects.
“We’ve been able to grow mostly by stealing market share,” he said. “We’re able to take good quality deals from players who aren’t as interested, aren’t as creative in terms of structure and credit philosophy.”
Starting out, Revere had the advantage of being unencumbered by troubled loans. Established banks saddled with nonperforming assets were reluctant to lend, giving the new kids on the block an easy way to gain market share. New banks, or de novos, without an existing portfolio of high-interest earning loans also did not suffer as much as their older counterparts when rates fell and reduced earnings.
To avoid making the same mistakes as some of its peers, Revere has been conservative in underwriting loans, Flott said. The bank held $184 million million in loans, of which less than a half percent were nonperforming, at the end of September 2011. Flott said the bank closed out 2011 with $270 million in assets on the books.
Similar to Flott, John Brough, chief executive of Chain Bridge, said the lack of legacy assets positioned the bank to take advantage of the dysfunctional market.
“People at that time were looking for a bank that didn’t have any legacy problems, and we benefitted from that,” he said.
Chain Bridge, he noted, also benefitted at the time from emerging technology. Rather than incurring the expense of opening multiple branches, the bank relied on remote deposit capture, whereby customers can scan and transmit check images to a bank for deposit. Brough said that allowed the bank to maintain low operating costs. To this day, Chain Bridge, with $250 million in assets, only has one branch.
“Banks have a lot more costs they have to absorb because of compliance-related expenses,” Brough said. “And with margins being stressed, finding a way to maintain acceptable profitability is a challenge. That makes controlling costs even more important.”