Here’s how de novo banks are boosting Arizona’s business community

As one of the largest cities in the country, Phoenix has no shortage of banks to serve its residents and businesses. Global commercial financial services companies such as Wells Fargo, JP Morgan Chase & Co., and Bank of America can be found in almost every neighborhood. But one thing that the Valley lacks are community banks. Three new banking institutions – “de novo banks” – are looking to change this.

After more than a decade without new banks, these businesses, known as ‘de novo banks’, are set to open, which would make them the first new chartered banks to open in the state since 2007. A de novo bank is a new chartered bank that is not acquired by purchase.


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To start

A de novo bank is a newly created bank as opposed to a bank resulting from a merger or acquisition or a newly opened branch. Any bank starting from scratch is considered de novo – the title is abandoned after five years of operation. De novo banks include community banks, which have assets of $ 10 million or less, but are not exclusive to them.

“In 2008, there were 32 community banks in the Phoenix metro area; there are currently four, ”said a spokesperson for Gainey Business Bancorp, one of the de novo banks seeking approval from the Federal Deposit Insurance Corporation (FDIC), in hopes of starting its operations. by Jan 2022. Scottsdale Community Bank and Integro are also under review by the FDIC. Scottsdale Community and Gainey have received conditional approval.

The last decade has seen a drastic decline in the number of banking companies, both national and community-based, located in the state. “Fifteen banks left between 2009 and 2014. There were 93 banks in Arizona. Today there are 66 registered bank names here, only nine of which are headquartered and licensed in Arizona, ”said Paul Hickman, CEO of the Arizona Bankers Association. “After that, regulators didn’t really approve banks nationwide de novo for a period of four or five years.”

Before a new bank opens, it must receive the approval of a state charter and secure deposit insurance from the FDIC and comply with all regulatory capital requirements. To obtain assurance and FDIC approval, the bank must provide a mission statement, a business plan with financial projections, and policies for loans and other investments and operations.

Regulation modification

Tighter restrictions set by the FDIC after the Great Recession make it difficult for banks to approve and open. But in 2015, the Arizona Department of Financial Institutions began allowing banks to raise capital before FDIC approval, in an effort to speed up the process.

Stephen A. Lenn, lawyer at Brennan Manna Diamond who has worked with chartered banks in the past, explains: “Very few banks open their doors and are immediately profitable. It takes time to build this.

“The FDIC wants to make sure the bank has enough capital to not only go into business, but enough to get through tough times, and that you also have people in place who know how. [operate this type of institution]”Lenn continues.

Gainey’s conditional approval means continuing the momentum he created by sticking to the next steps that the FDIC has set for him.

“We continue to work each day with a number of prospects who review our plans. We will be sure to believe that we will have problems meeting the conditions, ”notes Joseph Stewart, President and CEO of Gainey. The company must raise a minimum capital of $ 15 million.

“The pandemic has slowed us down because it’s not easy to raise capital when you’re limited in how you come together with people,” Stewart said. He adds that with the economic growth happening in the state, people feel confident about their investment.

Jim Unruh, Chairman of the Board of Directors of Gainey, continues: “We need to bring real added value to our stakeholders. We think this is very attractive to our investors. We expect a good rate of return in relatively low risk businesses with the secondary benefit being the value it creates in the community by helping these young businesses to thrive and grow.

Market change

Along with the de novo activity, there has been an increase in the number of non-state banks entering the Arizona market.

Hickman notes, “We are also seeing regional products entering the market. Sunflower Bank intervened, among others. There is more interest and you are going to see more of it than what we will see in de novo banks. A regional bank is a bank with assets between $ 10 billion and $ 100 billion.

Some local banks are also sold to foreign competitors. It is much easier to complete these transactions than to get the approval of a new bank by the FDIC, says Hickman.

According to Stewart, there is a need for banks that serve different customers in different sized markets. Community banks cater to small and medium-sized markets. National and international institutions that have branches in the Valley do not replace local community banks and cannot match the customer service provided by community banks.

“Out-of-state banks will always be a part of our economy because Phoenix is ​​one of the most attractive markets in the country,” Unruh said. “But Gainey will have a much faster turnaround time and a deeper level of involvement. We don’t need to call other cities, and we don’t need to fit into a box for a client.

“Opening a bank starts with the criteria to be met, and the most important thing is a real need. This led to this opportunity, ”continues Unruh. “These are the local people who assess what is missing in the market, and what was missing in Arizona, are the banks that really specialize in supporting small and medium businesses.”

Hickman concludes that in today’s market, the community needs all levels of banking services.

“You have to have banking services at all levels to reach all the different constituencies. You have to have the consumer banks where people will come in and cash a paycheck, and you need niche banks, ”he explains. “The more variety we can have in Arizona, the better.”

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