I Am My Own Banker

More entrepreneurs are starting community banks

The time is finally right for Denny Buchanan. A veteran of a big bank that got gobbled up by a larger one in 2004, Buchanan wanted to start a bank in 2001, but investors yawned. He tried again in 2005, hoping to land about $6 million in equity capital. Buchanan walked away with $7.5 million and started Independent Bank, a community bank in Austin, Tex. "We could have raised $10 million," says Buchanan. His bank turned a profit in record time, netting $1.4 million its first year.

Although entrepreneurs typically don't have much praise for their financiers, a growing number are actually becoming bankers. Some 190 community banks opened in 2006, compared with 179 in 2005 and 124 in 2004, according to the Federal Deposit Insurance Corp. And investors plunked down $1.8 billion in equity capital for new banks in the first nine months of 2006. That's nearly 3 1/2 times the figure for 2002, according to Charlottesville (Va.)-based SNL Financial.

Experts typically see a surge in bank startups three to five years after a wave of industry consolidation, as out-of-work bankers decide the market has room for smaller banks. So far, the banks continue to appeal to investors as they grow. About one-third of the 42 banks that went public in 2000 and 2001 have garnered triple-digit stock returns, and many that were acquired are selling for up to 40 times their trailing annual earnings and more than double their book value—numbers many entrepreneurs are banking on.

Edited by Jeremy Quittner

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