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Nov 24, 2008 2:09 PMPublication: The Southampton Press

Plug is pulled on Georgica Bank

Nov 24, 2008 2:09 PM

The organizers of Georgica Bank have thrown in the towel.

The group, which last spring launched an effort to raise capital to open a new East End financial institution just as the credit markets entered a deep freeze, announced this week that it has withdrawn its request for a federal charter and is in the process of returning the $17 million it raised from investors. The bank had sought to raise $25 million by December 3.

At the time that three former executives from the Bridgehampton National Bank decided to form the new bank at the end of the summer of 2007, the stock market was still healthy, the foreclosure crisis was just beginning, and the prospect of bank failures and the worst credit crisis since the Great Depression were not even on the radar screen for many financial analysts.

This week, amid the greatest market turmoil since the 1930s, the bank’s executives announced that, due to illiquid capital markets, they were not able to obtain the remaining $8 million from private equity firms that had initially expressed interest in their prospectus.

When the bank first announced its initial public offering, or IPO, in March, CEO Christopher Becker said that, despite the spreading credit freeze, he believed that this was an ideal time to start a bank, since so many existing banks had toxic loans on their balance sheets, while a new bank could start out with conservative lending standards and quickly have an advantage over troubled institutions.

The problem, he said several weeks ago, was that many of the 260 individual investors who took part in the IPO could not invest as much as they’d hoped, due to big declines in the value of their other assets.

“At that time, two months or six weeks ago, it all broke loose in the market,” said the bank’s chief retail officer, Sandra Novick, on Tuesday. “Everything went from bad to worse. It’s just a kind of confluence of market variables that have caused a log jam as far as us being able to access the funds we needed.”

Ms. Novick said that she and the bank’s other officers, including Mr. Becker, Chief Financial Officer Janet Verneuille and Chief Lending Officer Michael Spolarich, have been calling investors to thank them for support and let them know that their money, which has been held in escrow, will be returned to them by December 3.

“We’re getting amazing responses. Shareholders are saying, ‘Can’t you extend this? This is extenuating circumstances,’” Ms Novick said, adding that some customers are saying “This is our best investment.”

“They were in at $10 a share, and they’re getting out at $10 a share,” she said. “Other investments are down 40 percent.”

Ms. Novick said that none of the bank’s four officers have begun looking for other jobs, since they were working hard through November 19 to try to find a way to raise the capital to make the bank work. “It’s a sad day for us. We just put our heart and soul into this,” she said. “It was a wonderful project and it had so much promise.”

Though the bank’s organizers had the option to extend the deadline further, Ms. Novick said that she doubted, given the continued instability of the financial markets, that an extension would help.

“In order to extend the IPO further, we would have to go back to the Office of the Controller of the Currency,” she said. “Given the near-term view of the market, it didn’t seem like the responsible thing to do for the shareholders who had already invested.”

The new bank had initially been expected to open in a wood-framed building on Main Street in Bridgehampton, next door to the brick building that had once been the headquarters of the Bridgehampton National Bank. That building, which is now a Starbucks coffee shop, is owned by Leonard Ackerman, an East Hampton attorney who serves as the chairman of Georgica Bank’s board of directors. Mr. Ackerman recently submitted a plan to the Southampton Town Planning Board to build a 10,000-square-foot bank and retail shop at the corner of Montauk Highway and the Bridgehampton-Sag Harbor Turnpike on two other pieces of property that he owns there.

Though Mr. Ackerman was out of town and unavailable for comment, Ms. Novick said that he had planned to use the corner space as Georgica Bank’s headquarters. She was unsure of whether Mr. Ackerman plans to continue to build on that site.

Ms. Novick did not rule out the possibility that Georgica Bank may reorganize if the economic picture brightens. “We have been asked that question by a large percentage of our initial investors and the funds we have been talking with. The regulators were extremely favorable regarding the management team and the whole organizer group,” she said. “I want to extend a really warm thanks to the community for the support that we received. At a very hard time, it at least made us feel valued.”

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