Pub. 10 2019 Issue 3

Summer 2019 17 West Virginia Banker and in raising capital in multiple rounds at different valuations and on an as- needed basis, leading to greater interest from investors • Additional flexibility to structure compensation for organizers who undertake the effort to rebuild the bank or contribute at-risk capital to the venture There are also unique headwinds that organizers choosing to buy or invest in a smaller charter approach face, including: • Ability to find a bank that can be bought or that will accept growth capital and a change in officers and directors) on terms acceptable to the new management team and investors. • Challenges in continuing to serve the bank’s existing market area, which in many cases will be rural with little or no growth, while expanding into a new market • Less clear regulatory pathway and time frame for regulatory approval • Potentially high costs of replacing legacy infrastructure/IT systems These headwinds can be significant. Studio Bank, a de novo bank which opened in Nashville in June 2018, disclosed to its investors that it spent six months investigating the acquisition of an existing bank before choosing to file for a de novo charter, evaluating 12 different banks in the process. Similarly, Atlantic Bay Mortgage Group of Virginia Beach, Virginia attempted to expand into a full service bank by acquiring Virginia Community Bank but failed to obtain regulatory approval and ultimately terminated its bid in August 2018, 13 months after signing a definitive agreement to acquire the bank. Conclusion If the economy continues its modest growth and existing banks continue to consolidate, we will likely see additional efforts to form new banks. Whether the better path is a traditional or a de facto de novo bank will depend on a number of factors but, based on our experience in the current cycle, we would caution that the ability of an organizing group to raise sufficient capital cannot be over-emphasized. A de novo bank effort that runs out of capital is no prettier than an unfinished home construction project.  B.T. Atkinson is a partner in the Charlotte office of Nelson Mullins. He focuses his practice in the areas of corporate, securities, and regulatory matters for banks and bank holding companies, including the formation of de novo banks, mergers, acquisitions, offerings of equity and debt securities, corporate governance and succession planning. He can be reached at (704) 417-3039 or by email at bt.atkinson@nelsonmullins.com. Neil Grayson, a partner with Nelson Mullins Riley & Scarborough LLP and head of the firm’s financial institutions practice group, has a corporate practice focused primarily on financial institutions and other financial services companies. Mr. Grayson advises clients on matters related to corporate governance, enforcement actions and other bank regulatory matters, recapitalizations, private equity, securities offerings and reporting requirements, mergers and acquisitions, executive compensation and related corporate and regulatory matters. Mr. Grayson has experience in corporate governance matters, securities compliance for public companies and representation of emerging growth companies and private equity funds. He can be reached at (864) 373-2235 or by email at neil.grayson@ nelsonmullins.com. Randall L. Saunders is a partner in Nelson Mullins Riley & Scarborough LLP’s West Virginia office. He focuses his practice on banking and financial services litigation, class action defense, regulatory compliance, tax lien resolution, real and personal property tax appeals, and real estate. He can be reached at (304) 526-3507 or by email a t randy. saunders@nelsonmullins.com.