- The Washington Times - Monday, December 2, 2002

RICHMOND (AP) The late 1990s saw the last large banks based in Virginia agree to buyouts by bigger out-of-state institutions, and a wave of small banks starting up across the state.
Now, like fruit ripening on the vine, many of those newer banks may be ready for plucking by bigger institutions, but economic conditions may slow any wave of buyouts.
Since 1994, 33 new banks have opened in Virginia, according to Federal Deposit Insurance Corp. data. While the rate has fallen since nine went into business in 1999, more banks continue to open, with two added this year.
Out of those 33 startups, 32 remain independent institutions. Richmond-based Metro-County Bank was bought earlier this year for about $17 million by Warrenton, Va., holding company Southern Financial Bancorp.
Big out-of-state banks hold nearly two-thirds of Virginians' bank deposits, and it's unlikely that in-state banks will make much of dent in that percentage anytime soon, said Arnold G. Danielson, chairman of Danielson Associates Inc. The Rockville company tracks the banking industry in the mid-Atlantic region and provides consulting services for startup banks.
Most individuals don't move their accounts when their bank is acquired by a larger company because they like the convenience provided by a large institution with numerous branch locations and automated teller machines, he explained.
"Large banks handle the normal customer quite well," Mr. Danielson said. "It's small businesses that are really hurt by the elimination of local banks."
Small-business owners frequently find that when a large company with remote headquarters takes over a locally owned bank, they have more difficulty getting the attention and the working capital they're used to. In addition, many such entrepreneurs simply prefer doing their banking with people they know personally in the local business community.
As a result, Mr. Danielson said, a wave of buyouts generally leaves an underserved market of small businesses that new banks can try to serve.
Bruce T. Whitehurst, deputy executive director of the Virginia Bankers Association, pointed out another factor behind the creation of new banks the sudden availability of a pool of experienced bankers who can run a new institution, as executives lose their jobs to consolidation or resign because they aren't comfortable with a large institution's corporate culture.
Another, and perhaps more important, force driving bank startups is the premium prices paid to their shareholders in buyouts.
"There was clearly a good experience with bank stocks" during the 1990s, Mr. Whitehurst said, creating an available supply of investment capital to fund startups, and an incentive to use it.
But while a buyout at a premium price may be the ultimate payoff for those who invest in new banks Metro-County, for example, was sold for slightly more than double its book value it may still be a while before any of the '90s crop in Virginia is ready for harvest.
For investors who back bank startups, "the time period tends to be that you think about selling after about five years, but because it takes time to put things together, it tends to take place in seven to eight years," Mr. Danielson said.

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