Many of the newest banks in the U.S. had a profitable year in 2022 as higher interest rates pushed margins higher, while credit quality remained largely benign.

Of the 26 de novo banks established between 2017 and 2020, 20 posted a positive return on average assets for full year 2022, according to S&P Global Market Intelligence data.

As might be expected for any new business, none of the de novo banks established in 2021 or 2022 were profitable in full year 2022, except one. Ohio-based Riverside Bank of Dublin turned a profit in both the third and fourth quarters but posted a full-year negative ROAA of just 0.19%. Assets at the bank increased by roughly 57% in 2022 and full-year net interest margin jumped 78 basis points to 2.73%.

For this analysis, S&P Global Market Intelligence looked at all operating de novo banks established since the beginning of 2017, excluding shelf charter banks, nondepository trusts, companies with a foreign banking organization charter and newly formed holding companies, unless the company was formed to establish the bank.

2018 de novo banks tie for most profitability

Among the de novo banks established between 2017 and 2020, Birmingham, Ala.-based CommerceOne Bank and San Diego-based Endeavor Bank both reported a 1.50% ROAA in 2022, the highest amount among recent de novos.

Endeavor skews more toward commercial lending, with almost 56% of its loan book tied to nonfarm, nonresidential commercial real estate, and another 31% tied to commercial and industrial, or C&I. CommerceOne has just over half of its loan portfolio in nonfarm, nonresidential CRE and C&I, and roughly 18% of its portfolio in construction and land development loans.

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Grasshopper Bank pursues growth

New York-based Grasshopper Bank NA's ROAA of negative 2.81% in 2022 was again the largest loss among its de novo class peers, but its $13.0 million annual loss was its smallest loss yet, even as the company's assets more than doubled in 2022 to $621.0 million.

De novo activity shows signs of slowing down

Last year was a high-water mark for de novo bank formation as 14 institutions opened their doors, a post-Great Recession high. However, during the first two months of 2023, only one de novo bank, Columbus, Ohio-based Adelphi Bank, began operations.

De novo applications have also started drying up. Last year, 13 de novo applications were filed, while only one has been filed so far this year, this time for Grandview Heights, Ohio-based Fortuna Bank.