Proposed New Rules for Reg D Offerings

Bank Capital is KING! As they say. So, it is important to understand the new rules of the game. This article may help you plan your capital strategy for your de novo bank or your second round offering.

Starting A Bank Project ...

The Pre-inc Process

The process of starting a de novo bank begins with the "pre-inc" agreement preparation. The pre-inc agreement is the agreement that all organizers must execute to become an involved member of the de novo bank project. This agreement is a critical step in properly and successfully organizing a new bank. De Novo Strategy can assist your group through the pre-inc process; there are just a few items of information we will need as we start a bank project with you...


How To Start A Bank

When starting a bank, each proposed organizing group must file an Interagency Charter and Federal Deposit Insurance Application with the regulatory bodies. Depending on the charter selection, your group may choose to become a state bank, a national bank or a thrift bank; each charter has different characteristics. All proposed banks file with the FDIC for deposit insurance. Additionally, each individual organizer will file an Interagency Biographical and Financial Report. It is critical that these applications are fully completed and all supporting documentation is provided. Below you will find a link to the site where you may download these applications.

 These applications are the starting point; there are many other important strategies to assembling a successful bank application. A typical bank application can be in excess of 2,000 pages and (with all requested copies) weigh over 140 pounds when shipping.  For more information, you may request a basic white paper on the subject of starting a bank.

De Novo Capital Campaign - What to Do?

Capital is critical to a de novo bank and is the most difficult part of starting a bank.  Selling stock is a challenge for many people.  It has many rules and regulations that must be followed to keep the offering legal.  Under certain circumstances, banks may offer their own stock with out the use of a Broker/Dealer or with SEC registration.  Below is a brief outline of using a public or private offering.  This outline is by no means all encompassing - it is clearly the basics.

Type of De Novo Capital Campaign to conduct

1. Public Offering

a. Unlimited Shareholders
i. When shareholders of record exceed either 300 or 500, depending on the charter, the bank becomes a public reporting company and is subject to SARBOX.
b. All types of shareholders welcome
i. Shareholders may be different entities, Trusts, non- US citizens, retirement plans (IRAs, Keoghs, 401(k), etc), estates, LLCs, and other corporations.
c. Public marketing of stock
i. Stock is offered to the public through many forms of advertising. Care must be taken to insure that proper rules are followed on what is presented, i.e., cannot offer any guarantees on the stock and must disclose risks associated with the stock.
d. Shares may listed on OTC the pink sheets and easily traded via a market maker who is a registered broker/dealer. This provides an exit strategy for people who may in the future need to sell their stock for whatever reason.
e. This can also facilitate ownership of stock in retirement plans as a market maker will provide current up-to-date stock valuations.

2. Private Placement

a. Unlimited Accredited Investors
i. Investors must have more than $1,000,000 of assets or
ii. $200,000 of annual income for the past two years and expect the same for the next year or
iii. $300,000 joint income with spouse for the past two years and expect the same for the next year.
b. Super-Accredited Investors (should take effect sometime in 2008)
i. These people have investments in excess of $5.0 million dollars, excluding their residence, and there is the ability to do some limited public advertising to find these people.
c. Limited to 35 non-accredited investors
d. Limited marketing to only people with personal relationships of insiders.