Texas would appear to be an obvious market for private-equity funds looking to invest in start-up banks.
At least 16 are in various stages of organization in Texas, and private-equity groups - many of which are targeting small banks - have hundreds of millions of dollars burning holes in their pockets.
But many Texas bank organizers are turning down the out-of-town money, because they can get more than they need in their own communities.
There is a lot of wealth in Texas, and savvy investors, knowing the historic returns on community banks, see them as good bets. One start-up recently returned more than $1 million to a private-equity fund, because it had so much interest from individual investors; another start-up raised so much from local investors that it had to turn other locals away.
Given their druthers, organizers say they would also prefer local shareholders, who - unlike investors from New York, Chicago, or San Francisco - are likely to become customers and de facto marketing representatives.
Managers at private-equity funds say Texas is a tough market to crack.
Sean O'Donnell, the portfolio manager for Donnelly Penman Capital LLC in Grosse Pointe, Mich., said he has talked with organizers of start-ups in the Dallas market and secured an investment of $750,000 in one.
"It's a fair statement that more of the banks in Texas are getting sold out through local investors than some of the other areas we've looked at" that have been more receptive of out-of-market investors, such as Georgia, he said.
Still, Mr. O'Donnell said he is not giving up on Texas. "We view Texas as a very attractive area demographically and imagine we will continue to look at investments there."
Organizers say the money is rolling in quickly, in large and small sums.
Texas Citizens Bank in Pasadena raised about $18.8 million, all from local investors, in 60 days, said Wes Morehead, its president and chief executive officer. The bank, which opened in May, had initially sought at least $9.5 million, but it had to amend its initial offering and return about $500,000 to individual investors who missed the deadline.
"If we wanted to go 20 more days, we could have got between $22 and $24 million," Mr. Morehead said. "We had to cut it off somewhere."
The bank plans to use at least part of the money to build a second branch within the year.
Banks in Texas are using different means of raising capital. Some are going to professionals for help organizing and capitalizing, and others are doing the legwork themselves.
Lee Bradley, the managing director of bank development in the Atlanta office of Samco Capital Markets Inc. of Dallas, recently wrapped up fund raising for Texas Leadership Bank in Royce City. He is working with two other banks in organization: Maverick Bank in Plano and Westbound Bank in Katy.
The preliminary level of interest suggests that organizers should have no trouble reaching their goals, Mr. Bradley said.
"A lot of people called asking for stock," he said. "A lot of pent-up demand is there already."
Texas Leadership had a capitalization goal of $11 million to $15 million, and it hit the $11 million mark by its fifth week. It now has about $12.9 million in escrow and is expecting more than $14 million, said Stan Pinkham, an organizer and its CEO. The bank expects to have about 400 investors, most of them living within 15 miles of Royce City.
"I never had a doubt that we would get the money raised," Mr. Pinkham said. However, "I was flabbergasted at how quickly we got it raised."
Local investments in Texas Leadership range from $5,000 to $250,000, though it did get a larger investment from a private-equity group.
"We've designed this bank to really be a community bank and really have community participation in the bank," he said. "Having local involvement and ownership gives us an opportunity to get local business. The best way to support their stock is to do business with the bank once it's open."
Bank of River Oaks set out to raise $10 million to $20 million, and it opened in November with $21 million of capital, said Joe Stubbs, its chief financial officer. Most of its investors are local individuals, though he said another bank also invested.
The $43 million-asset bank is developing a list of about 20 people who were turned away in the first offering but are on call if someone needs to liquidate or the bank wants to do a second offering, Mr. Stubbs said.
MetroNational Bank in Houston has not even gotten its charter application approved by the Office of the Comptroller of Currency, but W. Allen Gage, its chairman, president, and CEO, said early interest suggests his bank can raise $20 million or more.
"We did nothing but file a charter," he said. "Then the investors started coming to our door. We haven't done any work."
