The past five years or so have been heady times for community bank startups. As beneficiaries of the fallout from the last wave of big-bank mergers, they've gained disgruntled customers seeking first-name service with a smile. As a result, community bank IPOs, and their stocks (primarily traded over the counter), have soared: Of the 42 banks that debuted in 2000 and 2001, 16 have produced triple-digit cumulative stock returns over the past five years, including South Carolina's Coastal Banking (CBCO ), up 262%, and Pinnacle National Bank (PNFP ) in Nashville, up 793%.

With those kinds of returns, who wouldn't want to start or invest in a new bank In 2002 upstarts raised some $500 million to open 74 community banks. Last year those numbers leaped to a record $1.9 billion and 134 bank launches, according to Cincinnati-based Financial Stocks, which manages a private-equity fund. But with economic growth and the housing market both sliding, the $1 billion raised so far this year for such new ventures may be late to the game, warns John Stein, president of Financial Stocks. "Everyone is looking at how well people did in the past and throwing a lot more money at this at a much more difficult time," he says.

Indeed, cashing out may be the smarter option now. So far this year 10 banks with charters less than 10 years old have sold for lofty prices. New York's Great Eastern Bank and Arizona's Choice Bank, for example, were bought for eye-popping prices equal to more than 40 times their trailing 12-month earnings per share and about 2.5 times book value. This may only encourage more investment, despite the bad timing. "Other small banks are going to see an opportunity to start up," says Jacqueline Reeves at the investment bank Ryan Beck & Co.