In recent years, the banking industry has been defined by contraction and consolidation.
Consider these jaw-dropping facts:
• Since 1990, there has been a net reduction of 10,042 banking institutions — or 66 percent.
• In 2008, the Federal Deposit Insurance Corporation (FDIC) approved nearly 100 new banks. By 2009, new licenses dipped to 31, before bottoming out at zero in 2012, 2014, and 2016.
• In the last 12 months, there has been a net reduction of 246 bank charters.
• For 2020, the De Novo Bank Replenishment Rate is expected to be 5.7 percent, which means there are expected to be fewer than six new banks for every 100 merged or failed banks.
So looking at those statistics, it seems like you’d have to be 99 cents short of a dollar to want to start a bank — especially in the shadow of a global pandemic. Right?
Not so fast.
“The idea to start Gainey Business Bancorp started from a recognition of need,” says Jim Unruh, who is leading the charge to bring the community bank to the Gainey area of Scottsdale. “When you look at the fast-growing area of small- and medium-sized businesses, which is what really builds the economy, and you look at this market, we are really down to four community banks that meet the needs of small- and medium-sized businesses.”
And there are plenty of small- and medium-sized businesses that need to be served by the banking industry. In the eight-mile radius surrounding Unruh’s Scottsdale office, there are about 11,000 businesses with revenues of $10 million or less.
“A lot of those businesses are very small,” Unruh says, “but when you look at the development surrounding the Scottsdale Airpark and along the Loop 101, there is a lot of market to serve here — in healthcare, technology, and other emerging industries. There is a real need, so there is real opportunity for a community bank that fulfills those businesses’ needs.”
While the number of new bank charters sank to zero in three of the last eight years, there has been a slight uptick in activity. Over the last three years, the FDIC has helped 20 new banks open, including eight in 2019. And the agency is working to make it easier for aspiring community banks like Gainey Business Bancorp to become a reality.
“A pipeline of new banks is critical to the long-term health of the industry and communities across the country,” says FDIC Chair Jelena McWilliams. “The FDIC wants to see more de novo (starting from the beginning) banks, and we are hard at work on making this a reality.”
To make that happen, McWilliams says the FDIC is working to streamline the application process so it’s not so burdensome that it deters prospective banks from applying.
“I recognize that, like many competitive industries, a dynamic banking sector needs new startups entering the marketplace,” McWilliams says. “De novo banks are a key source of new capital, talent, ideas, and ways to serve customers. Most de novos are traditional banks that offer services and products to underserved communities and fill gaps in overlooked markets.”
Which is exactly where Unruh sees Gainey Business Bancorp fitting into the Valley.
“As a person running a business, you never really know what your banking relationship is until some problem comes up,” Unruh says. “A lot of people found in the last six months — when COVID hit and they needed help from their banker — that the relationship wasn’t the relationship they needed. We hope to create a bank that gives those small- and medium-sized businesses the banking relationship they need to be successful.”
To give Gainey Business Bancorp its best chance at success, Unruh has assembled an experienced team that is skilled at building the kind of banking relationships that small- and medium-sized businesses need to grow.
“We had to find a top team with experience in this market,” Unruh says. “Finding people with experience in this market will help us grow a little faster because they already have the contacts. It will also lower our risk because they already know the market and things to avoid.”
Helping Unruh launch Gainey Business Bancorp are Joe Stewart, who was the president of JP Morgan Chase Arizona for eight years and helped introduce Bankers Trust to the market; and Rich Vogel, who started Compass Bank operations in Phoenix and helped launch First Scottsdale, which was the last de novo bank approved in Arizona in 2010.
The banking industry veterans say there is going to be one thing that separates Gainey Business Bancorp — and other community banks — from the bigger competitors: Service.
“That’s our mantra,” Stewart says. “We’re going to be a nimble fighter battleship and the mega-banks are the aircraft carriers. If we cannot out-maneuver them, they will block us right away.”
Unruh and Stewart say they are focused on being a business bank and are not setting themselves up to compete as a retail bank. Their typical customer is going to be an entrepreneur or business owner with revenues hovering in the $10 million to $15-million range or below.
“It’s all about service,” Unruh says. “Our money isn’t going to be different. It’s our ability to prove the importance of personal service and meeting the needs of businesses that is something that will be little different.”
The team launching Gainey Business Bancorp is hoping to open the bank by the first quarter of 2021. They are in the process of raising capital, getting approval from the State of Arizona, and finalizing the business plan that will be presented to the FDIC. Once all the paperwork is submitted to the FDIC, there is a 120-day waiting period. Then, all their hard work will pay off and they are in business.
“This isn’t work,” Unruh says. “I’ve got too much passion. I love the process of building businesses and what those businesses can represent. We really want to become the best of the community banks by virtue of the support we provide to the community, as a place to work, and as a place to do business. This is our opportunity to give back because we are in a position to share the experience we have to help others build success.”