A Start-Up Mini-Surge in Unlikely Markets

By Laura K. Thompson

After a sudden August jump, 2003 looks likely to beat last year in new-bank openings, and some observers see good implications for the economy.

Through Sept. 4, 67 new banks had opened, according to the Federal Deposit Insurance Corp., a 40% increase over the same period a year earlier. At that rate 113 new banks would open this year, versus 81 for all of 2002 but far behind the record set in 1999.

The fourth quarter is typically the busiest for new-bank activity, while the summer months tend to be the slowest. However, 14 banks opened for business last month, the most for an August since 1999, a year in which 240 new banks opened.

Consultants say the mini-surge may partly reflect a moderate economic recovery that has encouraged bankers to set up shop outside of the guaranteed "hot" markets. Though banks are still popping up around fast-growing cities such as Atlanta, Phoenix, and Sacramento, they are also appearing in places like southeast Georgia, coastal Maine, and rural North Carolina. (The numbers exclude start-ups by insurance and brokerage firms and companies that own banks.)

Stephen Johnson, a bank consultant in Alpharetta, Ga., said that in his 25 years of organizing banks he has consistently seen community banks starting to emerge in small towns when the economy starts showing positive signs.

Bank start-ups are "a barometer that the economy is coming back," Mr. Johnson said. "And in the last six months I've gotten calls from many banks in organization in small towns."

Arnold Danielson, the chairman of Danielson Associates in Rockville, Md., said he has noted start-ups throughout the region he tracks, the mid-Atlantic, particularly in the last few months. He attributes this to an improved economy and investor confidence.

"There has been a pickup in banks' stocks this year, so banks look like a good investment," Mr. Danielson said. "And as long as there are people willing to invest, there are bankers looking to start new banks."

Longleaf Community Bank opened last month in Rockingham, N.C., a town of 9,431 people in Richmond County. The county had not had a hometown bank since 2000, when the $760 million-asset FNB Corp. of Asheboro, N.C., bought the $124 million-asset Richmond Savings Bank, and had not had a new-bank opening since 1944.

Longleaf chief executive officer John Bullard said that with BB&T Corp. and FNB holding more than 60% of the county's deposits, "we decided it was time to bring a community bank with local ownership to Richmond County."

Richmond County has deposits of just $360 million and population growth under 1%, so it is not the most desirable setting for a new bank. But Longleaf was able to raise more than the required $7.1 million of capital in just a few months.

Then there is Community Bank of Georgia in the Appling County town of Baxley, population 4,339. It just received preliminary approval from the state banking department and the FDIC and is now seeking to raise its required $5.6 million in capital so it can open in early 2004.

CEO Lloyd Gunter said that he and seven other directors of Community Bank of Georgia's nine-member board came from SunTrust Banks Inc., which holds 30% of the deposits in Appling County. He said Baxley is not a "hot market" but that like Rockingham it needs a bank that makes loan decisions locally.

The surge in start-ups surprises most observers, who said last year that the downward trend that started after the 1999 peak would continue in 2003 and probably beyond.

But Mr. Johnson said that the success of the new banks, especially in slower-growing markets, is hardly guaranteed. They need complete support from the community, particularly local businesses. "If you have the right kind of influential people involved you can make it work," he said.

Rivergreen Bank in Kennebunk, Maine - population 11,000 - has a number of prominent local businesspeople on its board, including a hotel owner, a restaurant owner, a dentist, and three real estate developers. The bank opened its in March and now has $15 million of deposits and $13 million of loans. It recently added to its board Peter Martin, the former chairman and chief executive at the $5 billion-asset Provident Bankshares Corp. of Baltimore, and current Kennebunk resident.

Rivergreen CEO William Cannon said that local businesses were clamoring for a bank after Chittenden Corp. of Burlington, Vt., bought the $217 million-asset Ocean National Corp. in Kennebunk. Rivergreen is the first new bank in Maine in more than a decade.

"Local investors were of the mind-set that this area still needed its own independently owned and managed bank," Mr. Cannon said. "And so far I am very pleased with its performance."