ServisFirst Bank in Birmingham, Ala., opened its doors less than a year ago and already it ranks among the Southeast's fastest-growing start-ups ever.
The bank can attribute its rapid growth in part to the record amount of capital it raised and the books of business that executives and lenders brought with them from previous jobs.
But there's another secret to its early success: ServisFirst requires investors to move loans and deposits they have with other banks to ServisFirst before they buy the stock. That strategy has helped ServisFirst attract mostly core deposits, which means it does not have to rely on higher-cost brokered deposits to fund its loans.
"Before they can be our cheerleaders, they have to be our customers," said Thomas A. Broughton 3d, ServisFirst's president and chief executive officer.
ServisFirst has amassed $325 million of assets since its May opening, and Mr. Broughton, a longtime Alabama banker, said he expects it to reach $1 billion by 2010. He plans to take the bank public within a year and use the proceeds to finance expansion into Tennessee and Florida.
Mr. Broughton is not alone in his optimism.
"There is no reason that this business can't be substantially larger in the next few years," said Chris Marinac, an analyst at FIG Partners LP in Atlanta.
Mr. Marinac, said many start-ups use brokered deposits or certificates of deposit to fund loans. At Dec. 31, ServisFirst had no brokered deposits on its books.
"Coming out of the gate with strong core deposits quickly enhances the credibility of ServisFirst and gives it an advantage in growing the business," Mr. Marinac said.
Mr. Broughton began his career at AmSouth Bank in 1977. In 1985 he founded First Commercial Bank in Birmingham, which he sold for $125 million to Synovus Financial Corp. of Columbus, Ga., in 1992. He remained at Synovus as president and as a Synovus regional CEO until he retired in 2004.
Paul Schabacker, an executive vice president at ServisFirst, called Mr. Broughton "a legend" in Alabama banking circles, and that reputation helped the company bring in employees.
Eight former Synovus employees followed Mr. Broughton to ServisFirst. It also recruited top-level bankers from the $31 billion-asset Compass Bancshares Inc. in Birmingham and the $21 billion-asset Colonial Bancgroup Inc. in Montgomery, Ala.
It lost more than $2 million last year, which is not unusual for a start-up bank, but most of the losses were recorded in the second and third quarters. It lost just $77,000 in the fourth quarter, and the company says it will turn a profit this quarter.
Mike Washburn, the president and CEO of the $105 million-asset Red Mountain Bank in Birmingham, which opened in June 2004, called ServisFirst "a pretty solid competitor." The $35 million in start-up capital it raised, he said, "allowed it to jump right in and make some pretty good-sized loans quickly."
But Mr. Washburn said the Birmingham market is favorable for small banks, especially in the wake of the November 2004 sale of SouthTrust Corp. to the Charlotte-based Wachovia Corp.
Mr. Marinac said many start-ups are setting records raising capital because community banks have delivered healthy returns over the past half-decade, making investors eager to buy stakes in them.
Mr. Schabacker said ServisFirst's organizers probably could have raised more than $35 million if they had not required that shareholders be customers. The organizers also turned away investors they decided would not be able to drum up business.
"There were some people who wanted to buy stock but we didn't think could bring a lot to the table from a banking perspective," Mr. Schabacker said. "So we didn't take that money, either."
Mr. Broughton said the bank's roughly 325 shareholders are living up to their end of the bargain.
"Every day I get a referral from a shareholder," he said. Georgian Bank in Atlanta and the Mountain 1st Bank and Trust Co. in Hendersonville, N.C., also require shareholders to become investors.
But Mr. Marinac said that few community banks can make such demands of potential shareholders because they need the capital. "It's something that a lot of banks want to do but not everyone can pull off."
