Business owners have always had a love-hate relationship with their bankers--and these relationships have only become more strained as local banks have been gobbled up by large corporations in recent years. Sure, Citigroup and Bank of America offer their clients ubiquitous branches and online banking and even prestige--and there's nothing wrong with that. But try getting a line of credit extended quickly, let alone getting one of the bank's higher-ups on the phone. It rarely happens. And yet there's hope. As the total number of banks shrinks rapidly, a new breed of entrepreneur-friendly bank is emerging to fill the void.

The boomlet of start-up activity comes after 20 long years of consolidation in the banking world. At the end of 2004, there were 7,630 banks in the United States, according to the Federal Deposit Insurance Corp. That's roughly half as many as there were at the end of 1984, the year the population of banks peaked.

But as the overall number of banks has dwindled, start-up activity has begun to tick upward. In 2004, 127 start-up, or "de novo," banks were established. Another 147 banks received charters in the first 10 months of this year--up from the 94 start-ups in the same period two years ago. The typical de novo raises approximately $15 million in assets at the time of its launch.

Consolidation is fueling this trend, creating gaps in the market and displacing experienced bank executives who are in a position to raise money and to obtain a charter. Local business owners are also often involved in bank start-ups, as investors or as proponents--nurturing the trend perhaps because they sense the need for a bank renaissance the most.

"Welcome, Lon Getlin!"

Thurston First Bank is a prototypical de novo. Last year, Michael Edwards, who has worked in banking since 1963, raised $11.4 million from 375 investors--a mix of professionals and civic-minded business owners--to launch the Olympia, Wash., bank.

Like all de novo banks with limited assets, Thurston First serves a small number of clients--just 125 at this point. Unlike most, it caters exclusively to a business clientele and avoids all forms of consumer banking, operating without an advertising campaign or even a public branch. Companies that bank with Thurston First are typically too big for a standard community bank, says Edwards, but are too small to be well cared for by one of the major national institutions. Among Thurston First's specialties: land, commercial real estate, equipment financing, and asset acquisition loans. It offers personal banking services to its customers only after it has established a track record with them as business clients.

Thurston First further differentiates itself by offering great perks, including a mobile branch that will pick up deposits at a customer's office. The bank also deploys remote deposit technology. A customer can have deposit checks read by a special scanner on his desk. Funds are disbursed to the correct account without the customer or even the paper check leaving his office.

Such up-to-date technology is one of the hallmarks of the newest crop of de novos. In the past, only bigger banks could afford to offer online banking and the like, but now so many systems can be outsourced that newer, smaller banks can match or even beat the systems offered by their regional or national rivals.

Beyond systems or services, however, a personal relationship with the head of the bank is the key to the de novo's sales pitch. Thurston First's Edwards, for example, encourages customers to call him on his cell phone.

This is not uncommon in the de novo world. Lon Getlin, who runs a pharmaceutical supply business in West Linn, Oreg., used to split his business between Bank of America and Wells Fargo. He switched to the Bank of Oswego in Lake Oswego, Oreg., after he met Dan Heine, co-founder and CEO of the bank. Heine promised Getlin favorable terms on a line of credit, but he also agreed to review his business plan and provide details on financing options above and beyond what the typical bank would offer. And when Getlin comes to the bank to meet with Heine, he is greeted at the door by a sign that welcomes him by name. "I was totally impressed by a whole bunch of things that they said they would do and in fact did," says Getlin.

"Getting the Band Back Together"

Certainly part of the reason for the boomlet in de novo banks is that the market for raising capital is as favorable as it has been for some time, says Edward Carpenter, chairman of Carpenter & Co., an Irvine, Calif., investment bank that advises banks on financing and acquisitions.

With banks reporting strong profits, Carpenter says, investors are eagerly pouring capital into the industry. Net income for all banks in 2004 was $104.7 billion--up 43% from three years earlier, according to FDIC data--with small banks outperforming the industry average. Shares of banks with assets of less than $500 million have increased by 181% over three years, Carpenter says. Such growth fuels heady prices when small bank shares are traded and when banks are sold. Banks involved in mergers are selling for nearly 25 times earnings.

Business owners may worry that one drawback of signing up with a de novo bank is that it's built to flip. And in some cities, there are already well-known serial bank entrepreneurs. Of course, any business you work with can be sold at any time. But according to the FDIC, only 5% of de novo banks are acquired in their first five years of business.

Meanwhile, more de novos are chartered every week. Consider the extraordinary case of Square 1 Bank, based in Durham, N.C., which was formally established last August. Initially, a group led by CEO Richard Casey set out to raise $105 million, the amount specified in its charter and an unusually large sum for a de novo bank. In fact, the offering was oversubscribed at $200 million.

Like other de novos, Square 1 was set on course by a merger. Casey had been an executive at Imperial Bank, where he initiated a program for lending to venture capital-backed companies. Imperial was then taken over by Detroit-based Comerica Bank. Casey left after a year, waiting out his noncompete clause, and then joined with former colleagues to launch Square 1. "It was a case of getting the old band back together," he says.

Today, Square 1 focuses on what it perceives as an underserved niche: companies that are backed by venture capital. The fledgling bank set up offices in technology parks in cities such as Austin, Seattle, North Carolina's Research Triangle, and Palo Alto, Calif. The plan is to provide a full range of banking services to this narrow band of clients. Casey and his team have knowledge of and ties to that community that run deep, he says.

Like other start-up bankers, he brings decades of experience to a bank that is brand new.

Looking for Account Ability

As with any start-up you work with, a de novo bank requires careful vetting

How do I find a de novo bank near me?
One way is to search the FDIC's Institution Directory. You can search for banks by state or Zip code and date of charter. You can also call state banking authorities or the federal Comptroller of the Currency, whose office formally issues bank charters.

How can I do due diligence on a de novo?
All banks must be insured by the FDIC to get a charter. By using the "bank find" feature on the FDIC's website, you can verify the insurance status of a bank. You can also call the FDIC hot line at 877-ASK-FDIC (877-275-3342).

How can I make sure the bank is right for me?
A lot of this will boil down to personal chemistry. You should also find out what the bank's assets are and how many customers it has. The typical de novo bank with $15 million in assets will have a loan maximum stated in its charter. If the cap is, say, $2 million, and you need that much or more, look elsewhere.

Dan Ackman can be reached at