Four Months Later, In-Q-Tel Again Needs New CEO

Investing in Start-Up Banks

For two decades, Danielson Associates of Rockville has been among the leading dealmakers for start-up banks on the East Coast. Now, it's investing in them.

Founder Arnold Danielson , known for his deep relationships with the region's community bankers, advised dozens of young banks as they grew and ultimately were acquired. His credibility stemmed in part from the reams of cogent research he wrote on community banks. In the past 10 years, Danielson Associates represented sellers in 34 bank acquisition deals worth nearly $3 billion. One of Arnold Danielson's crowning achievements was the sale of Columbia Bancorp to Fulton Financial Corp . Columbia was a longtime Danielson client, and Danielson advised the bank in its $306 million sale to Fulton in February.

Arnold Danielson is semi-retired, spending a lot of time writing a history of banking at his residence in the south of France. The firm is run by his son, David , who is president, and by principle Jonathan D. Holtaway .

Last year, Danielson Associates started Ategra Capital Management , which is run by Holtaway. The new company runs an investment fund that has bought stakes in 32 small banks, totaling about $9.4 million, said Holtaway, who was an analyst at Danielson for 10 years until 2001 and rejoined the firm last year in part to help start the fund.

The fund was created to profit from Danielson's expertise in small banks, which typically have small, intensely local shareholder groups that don't seek out institutional investors.

Not that there's a lot of institutional investment money chasing those banks. The professionally managed investment funds that specialize in community bank stocks generally invest in bigger banks, typically with assets of $500 million or more. Holtaway is investing much earlier.

"We have been a seen a good three-year wave of bank start-ups, and it's expected to continue," Holtaway said. "We only exist at the very low end, where these stocks sometimes don't even trade. You really have to work it to buy some of these stocks."

A typical investment will be $300,000 to $500,000, Holtaway said. The fund is focused on East Coast banks, the region where bankers know Danielson well.

"People in this business identify with the Danielson brand," Holtaway said. Start-up banking "is a highly specialized thing, and if you're going to join these early investors, you really have to understand it and enjoy it."

Terence O'Hara can be e-mailed atoharat@washpost.com.