There have been 116 bank start-ups in 2004, slightly above the pace of the past three years.
The difference is that these banks are coming out of the gates with far more capital than their predecessors did.
Bankers and consultants say several factors are responsible, including the fact that organizers are looking to raise more capital to better compete with established community banks, and regulators are encouraging them to do so.
But the biggest reason is that the banking industry is generally healthy, so organizers have had little trouble rounding up investors.
"The marketplace does not have a lot of good investment ideas right now, and people with significant sums of money are trying to figure out where to put it, and they are discovering that new banks represent a good investment," said Walt Moeling, a partner with the Atlanta law firm Powell Goldstein LLP.
According to Federal Deposit Insurance Corp. statistics, banks that opened in 2004 did so with an average of $11.1 million of equity capital. Those that opened last year started with an average of $8.6 million, and in 2002 the average was $7.3 million.
Investors have faith in new banks largely because of the industry's performance. The Nasdaq bank index, made up mostly of community banks, is up 11.6% this year, while the overall Nasdaq is up only 7.4%. Mr. Moeling added that most new-bank organizers are former executives at well-established community banks that were sold, and are highly regarded in their communities and among local investors.
Deal prices may also be enticing investors. Chris Hargrove, the president of Professional Bank Services in Louisville, said that small and midsize banks have fetched more than three times their book value in recent sales to other banks, and investors are hoping to cash out at similar premiums a few years from now.
"Most de novo investors put money in thinking that the company will sell in six or seven years and they will get triple the return, especially in markets with a lot of acquisition activity," Mr. Hargrove said.
This demand helps explain why organizers at Bucks County Bank in Warminster, Pa., which opened in August, raised $15 million from 262 shareholders in just five weeks. Bucks County Bank's founder, John Harding, started his first bank, First County Bank in Doylestown, Pa., in 1994, and sold it for 2.57 times book value to the $1.6 billion-asset Univest Corp. of Pennsylvania in 2003. Two others in the area sold to regional banks that year for similarly attractive prices.
Mr. Harding said he and his colleagues opted to raise capital on their own rather than use an investment banker, and the response was such that the board is considering having a secondary offering next year.
"We had had so many comments from people disappointed about not being able to invest, so I think we could have brought in $20 million to $25 million," Mr. Harding said.
Another reason new banks are raising capital is sheer necessity.
Edward J. Carpenter, the founder of the consulting firm Edward J. Carpenter & Associates in Irvine, Calif., said regulators are requiring more in capital to cover the increasing costs of operating a bank. Though the required capital varies depending on location, plans, and management, Mr. Carpenter said, banks in California were opening with an average of $10 million of capital a few years ago and are now opening with no less than $15 million.
"Regulators have more comfort when banks have more of a capital cushion," Mr. Carpenter said.
Furthermore, he said, small-business owners are seeking larger loans, which means community banks need larger lending limits to compete, and hence more capital.
When Select Bank and Trust Co. in Winterville, N.C., applied for its charter with the Federal Deposit Insurance Corp. it was required to raise only $9.5 million, but Select's president, Jim Rose, said its organizers decided to raise $15 million so that Select could make larger loans. The bank raised this money in about 10 weeks, and roughly half of it came from local investors who learned of the offering through an ad in a community newspaper.
"Our primary reason for doing that was to increase the loan size, because with 15% of the required capital" - Select's lending limit - "most deals in our marketplace could not be done," Mr. Rose said.
David G. Danielson, the president of Danielson Associates Inc., a consulting firm in Rockville, Md., said many banks in the past year have found it so easy to raise capital that they are doing it on their own - and in record time. Two years ago it took banks several months to attract just a few investors; now it is taking them just a few months to bring in hundreds of investors.
Mr. Danielson said he expects this trend to last as long as the solid performance of community and regional banks' stock continues. If it does, investment bankers should probably start looking elsewhere for business, he said.
"Most bankers are going out with smaller offers to raise the money themselves," he said. "And lots of banks don't even need to use investment bankers anymore."
