After IPO, Square 1 Bank looks to maintain momentum

dranii@newsobserver.comMarch 31, 2014 

Bolstered by the money it raised in last week’s initial public offering of stock, Durham-based Square 1 Bank is focused on maintaining its momentum and continuing to grow.

“We’re at the top of the second (inning),” CEO Douglas Bowers said in a phone interview Monday. “This is a long ballgame for us. We’re going to be at it a long time.”

The bank plans to open two new branches this year, in Chicago and San Francisco, which will be its third in the Bay Area. That will give the bank a dozen offices nationwide.

Bowers also said that the bank will add about 15 bankers this year, split between its Durham headquarters and offices around the country, as it moves to expand its business in three growing markets: life sciences companies, later-stage companies and asset-based lending.

Square 1 provides loans and other banking services to venture capital firms and the businesses they invest in. It’s a sector most banks shun since many of the startups that Square 1 makes loans to are still developing a first product and therefore don’t have any revenue.

“We have the guts and the prowess, the capability, to lend to very small, young startups,” Bowers said. “Our money leverages capital that allows (startups) to build out their products, build out their brand, hire people and create prosperity. Ain’t that what it’s all about?”

The terms of those loans “are priced to the risk,” Bowers said. “In some cases, is that higher than a traditional business loan? Yes.”

Last week, Square 1 sold 3.1 million shares of stock at $18 each in its IPO, reaping $56 million before deducting fees and expenses. Some major shareholders sold an additional 2.7 million shares at the IPO price, but Square 1 won’t receive any of those proceeds.

Square 1 shares rose 14 percent on Thursday, the first day the stock was traded on the Nasdaq exchange. On Monday its shares closed at $20.10, down 39 cents.

On Thursday Bowers led a delegation of about 40 people – including senior managers, board members and senior bankers – who participated in Nasdaq’s opening-bell ceremony in New York City. Then he hurried back to Durham for a celebration at Tyler’s Restaurant & Taproom with employees and their families.

“We made it a point to absolutely come right home and celebrate with the great people of Durham,” Bowers said. About 160 of the bank’s 230 employees are in Durham.

Venture funding recovers

The venture capital market that Square 1 addresses bottomed out in 2009 and has been on the upswing since then. Nationwide, venture capitalists invested $29.4 million in 2013, up 7 percent from 2012. The number of deals rose 4 percent to 3,995, according to accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

“We’ve had the wind at our backs in terms of market growth and also as a result of our brand and reputation,” Bowers said.

Square 1 posted net income of $22.1 million in 2013, up more than 50 percent from 2012. Its loans have been expanding at a compound annual growth rate of 22 percent.

The bank often receives warrants to acquire a startup’s stock when it makes a loan. The earlier the company’s stage of development, the more likely it is to offer warrants, Bowers said.

Last year Square 1’s gains from warrants amounted to about $4 million in revenue, a record for the bank.

The market Square 1 is addressing was pioneered by Silicon Valley Bank, which is more established and much larger.

“They’re really good and tough competition, but we believe clients welcome choice,” Bowers said. “There is only one other venture bank besides Silicon Valley Bank, and that’s us.”

“We are also blessed,” he continued, “with being the little guy. We are flat, nimble. I’m on the road all the time (trying to drum up new business), as are all of our executives and senior bankers.”

IPO appeals to clients

Going public also should be a plus with the bank’s client base.

“Many of these customers would look at going public as evidence you have really done it well and done it right,” Bowers said. “I think our customers will see us as having run the gauntlet.”

The bank was formed in 2005 and was led by co-founder Richard Casey until his death in November 2010. Bowers, who previously spent more than 25 years at Bank of America, was named to succeed him as CEO several months later.

It was a tumultuous time for bank employees emotionally, but the bank’s financials, unlike many banks at that time, were in good shape.

Bowers praised the staff he inherited. He said they proved to be “resilient, very attuned to the job at hand, and in many respects wanting to honor Richard’s legacy by seeing to it that this this was the success he knew it could be.”

Ranii: 919-829-4877

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