Georgia’s startup banks cautious, but still optimistic

Banks big and small are struggling these days amid one of the roughest economies in memory.

Economists are predicting a lengthy recession, companies are shedding jobs by the thousands, and banks are struggling under the weight of bad real estate loans.

Sounds like a bad time to launch a new bank, right?

Not so fast. A few hardy entrepreneurs are setting up shop, banking that the upheaval caused by the economic crisis has created a golden opportunity.

“It’s a great time to open a bank,” said Joseph Moss, CEO of Tomorrow’s Bank, which plans to open early next year in Doraville, catering to the Korean and Vietnamese communities.

For starters, his bank won’t be saddled with bad loans like so many of his competitors. And he figures he’ll be able to pick up customers from banks that have cut back on their lending.

“We’ll be a safe organization to invest in and have deposits in, and we’ll have money to lend,” Moss said.

But opening a bank in such a harsh economic climate carries many challenges, experts say. It’s much more difficult to raise startup capital. Also, investors must be satisfied with slower growth than what new banks experienced during the real estate boom.

Regulators are also taking a harder look at applicants, in some cases even requiring them to raise additional funds before opening.

Some banking experts say they don’t expect to see a flood of new bank applicants anytime soon.

The economy is simply too bad and financing too hard to come by, said Walt Moeling, a banking lawyer at Powell Goldstein, an Atlanta law firm.

“If somebody came to me today and said, ‘I’d like to start a bank,’ I’d be naturally skeptical,” Moeling said. But, he added, “there are opportunities. And what I would be looking for in a new bank today is the experience of the people behind it, their knowledge of the market.”

Moeling said he’d ask prospective bank owners to “show me your business plan. Show me where you are going to get these deposits that are so scarce in the Atlanta market. Show me where you are going to get your customers.”

John Kline, a former state banking regulator who now heads a Decatur consulting firm that helps groups launch new banks, said the shortage of available capital has become a major roadblock. He tells prospective bank organizers to be ready to chip in at least a third of the startup capital themselves.

Indeed, the economic turmoil appears to have slowed the appetite for new banks.

So far this year, only two banks have filed applications to open with the state Department of Banking & Finance, compared with 16 banks in 2007 and 11 in 2006.

“It’s always harder to open in a recessionary period,” said Joe Brannen, president of the Georgia Bankers Association. “There’s not a lot of loan demand out there.”

Eight state-chartered banks have opened in Georgia this year, most of them small companies located on metro Atlanta’s fringe or in rural areas.

Given that it can take a year or more to open a bank, planning for those banks began at a time when the economy looked in far better shape than it does today.

That hasn’t dampened the enthusiasm of bankers such as Steven F. Smith, president of Verity Bank in Winder. Verity opened three weeks ago, nearly 17 months after submitting an application with state regulators.

Starting a new bank is like a “breath of fresh air” amidst the gloom, said Smith, the bank’s president, who has worked at a handful of community banks over the past 15 years. “It’s one of the best times to start a bank.”

Smith said the bank, which has 14 employees, has an advantage over older banks because it doesn’t have problem loans creating a drag on its earnings. Verity also can benefit from recent low interest rates, allowing it to concentrate on developing new business.

That task could be complicated by the slowing economy.

Like most community banks, Verity Bank expects small-business owners to be its key customers for loans and other services.

Despite the likely recession, Smith said he expects Verity Bank to do well. He said he wanted to target Winder, where he has lived the past five years, because it is in fast-growing Barrow County, about 45 miles northeast of Atlanta, where no new banks have opened in the past several years.

The economic slowdown “has been painted very broadly, but it is probably not as broad as everybody thinks,” he said. “There are still good loans to be made and clients to be serviced.”

Smith acknowledged the new bank had faced extra hurdles, adding months to the startup process. Federal and state regulators required the company to raise more capital and took longer to review its application, Smith said.

“They weren’t trying to be difficult. They were trying to understand what was taking place in the marketplace,” Smith said.

The founders had originally planned to raise $16 million from investors, but ultimately they raised $21 million at the request of regulators.

“Looking at it now, that’s probably not a bad thing,” Smith said.

The backers of Tomorrow’s Bank in Doraville also feel they have a solid plan — tapping into the thriving Korean and Vietnamese communities, particularly small-business owners.

“We’re going to be targeting a special niche,” said Shin Hwang, a Korean businessman who sits on the bank’s board of directors. “We’re not going to be trying to give to everybody out there.”

Hwang, a fashion wholesaler, is investing $300,000 of his own money in the bank.

He acknowledged that some of his friends have questioned his judgment.

“They said I was nuts,” he said. “I question it myself. It’s very tough times.”

But he’s hopeful that he’s made the right decision.

“As long as you stay conservative, this should work,” he said.