Sunday, Aug. 05, 2007

Startup bank seeks funding from small investors

Ever think about transferring money from an IRA or 401(k) account into bank stock?

Probably not, but that is precisely the investment idea offered to a small gathering in a West Columbia dining room Tuesday.

The pitch, made to about 20 people, is: Investing in a new bank has never been easier.

Paul Dusenbury, chief executive of VistaBank, a soon-to-open lender, explains to the invited guests the merits of parking that $10,000 to $1.2 million in a startup bank.

But wait. You don’t have that kind of cash lining your wallet or collecting dust in a checking account?

No problem, the potential investors hear from Steve Parks, senior vice president of SAMCO Capital Markets Inc. Chances are, you do have that kind of money sitting in a tax-deferred savings account.

He offers packets of information and help walking anyone through the purchasing process.

The guests get a chance to invest in a startup bank, and the bank gets what it wants — an active cadre of local investors who live and work near its Aiken headquarters and Columbia branch.

Dusenbury tells the gathering at the home of VistaBank’s Columbia executive Scott Blackmon that he wants investors who have close ties to the bank.

Scanning prospective investors, clutching glasses of wine and small plates of shrimp, Dusenbury says, “We want you to be ambassadors for the bank.”

In the past, even just a few years ago, bank organizers counted on a close circle of well-heeled friends and business owners. Now, they increasingly are tapping into larger pools of prospective investors by taking advantage of multiple money sources.

That is where Parks enters the picture. He asks the guests to consider just for a second what’s going on with their tax-deferred accounts — those old IRAs they haven’t touched in years or those 401(k) plans nobody bothers rolling over from an old employer.

Some folks might have a trust, just sitting stranded in a moderately performing bank account.

What SAMCO does is help people learn how they can roll over such investments into bank stock, in many cases by avoiding taxes and penalties.

“One-third of startup banks are funded with tax-deferred accounts,” Parks said.

Generally speaking, it takes at least $15 million to open a bank, Dusenbury said. VistaBank’s prospectus calls for a minimum stock sale of $17 million.

The VistaBank pitch could have come from any of a half-dozen or so presidents of similar banks that have popped up during the past couple of years. In many cases, it has.

Dusenbury thinks the pitch can work, that a group of bankers and business leaders can collect between $17 million and $25 million from the public through meetings held in various Midlands dining rooms.

Hank Ray, chief executive of Congaree State Bank, doesn’t need to think so — he knows so.

A year ago, with the help of SAMCO, Congaree State started attracting investors. Ray said Congaree State held meetings all summer in various Lexington County homes owned by the board members.

Since 1987, Parks said, SAMCO has helped 125 banks raise the money needed to start. VistaBank will be the 15th in South Carolina. All are still operating, Parks said, and all are growing.

When Congaree State started operating out of a West Columbia storefront in October, it reported more than 1,700 shareholders and more than $22 million in assets — loans, deposits and initial investments raised mostly from those shareholders.

Eight months later, Ray said, Congaree State had more than $51 million in assets, as of Wednesday.

Parks said demand for personalized service at a bank sounds good as a business strategy, but it takes more than a good plan to get investors to open their checkbooks.

Michael Crapps, chief executive of Lexington-based First Community Bank, said that when he was making similar pitches to the community 12 years ago, he had to do a lot of explaining about banks.

Crapps was fairly confident the bank would get the required regulatory approvals, he said.

“But raising capital in the Midlands,” Crapps said, “was not something I took for granted.”

What helped those early investors, Crapps said, was that many had good memories of an older community bank that had since been purchased by a large lender.

First Community also made sure its stock offering was open to as many people as possible. This was accomplished by setting a low minimum purchase requirement — 100 shares or $1,000 — and holding several forums with potential investors.

This is essentially the same formula Congaree State followed, and is similar to VistaBank, except now there is more emphasis on using tax-deferred accounts to buy stock.

Dusenbury said VistaBank wants to limit its offering to fewer than 500 shareholders to keep the shareholders tied to the community and to avoid having to follow what can be costly filing requirements with the Securities and Exchange Commission.

The bank will still file reports with the Federal Deposit Insurance Commission, among other state and federal regulators.

But Dusenbury said no shareholder will control more than 4.9 percent of VistaBank’s stock, to allow as many people as possible to invest.

A recent phenomenon among startup banks, Parks said, is the arrival of institutional investors.

Five years ago, hardly any large institutional investors bothered with startup bank stocks.

Today there are more than 100 investment funds buying only such stocks, and Parks said if the professionals are getting involved, this must be good.

Dr. Clark Moore, an orthopedic surgeon in Aiken, just has to look at the old People’s Community Bank for proof that startups pay off.

Three years ago, when First Citizens offered $30 a share to buy People’s, Moore, a board member, saw his investment become worth about $1.3 million.

Moore, who is the board chairman of VistaBank, said so far the response from prospective investors is better than he expected.

For instance, when People’s Community started, Moore said, few doctors he knew were interested in buying stock. With VistaBank, he expects his entire practice will invest because of the past success of People’s Community.

Before People’s Community existed, Moore said, the local branches of large banks did not offer the type of service he and several other doctors wanted.

A small bank, because it has a small lending limit compared with the national banks, concentrates on smaller borrowers.

VistaBank expects the $1 million to $2 million business loan to be its bread and butter when starting.

For Moore, the money is only part of the reason he is involved with another startup. He also wants the rush of building something from scratch.

“I did it the first time because I was frustrated with the big banks,” Moore said. “But having done it, I realize I enjoy it.”

Reach Werner at (803) 771-8509.

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