It is taking bank organizers longer than expected to get up and running in Arizona despite a law designed to give them a leg up.
Several groups went public with plans to form banks last year, but none of them have filed applications with the Federal Deposit Insurance Corp. It has been a slow race to see which one will be the first new bank in the state since Gateway Commercial Bank opened in 2007.
Arizona's law lets organizers apply for preliminary state approval before having a management team in place or a physical location. Groups can start raising capital once deemed “in organization” by the Arizona Department of Financial Institutions.
Two planned banks — Scottsdale Community Bank and Gainey Business Bank — are still raising capital months after receiving preliminary approval. Organizers of Discovery Business Bancorp expect to receive preliminary approval soon.
There are several reasons for the slow progress, industry experts said.
FDIC applications include sections for organizers to discuss a proposed bank's executives. It can take months for a de novo group to find the right leaders.
Making it more challenging, most of Arizona's investor groups are new to the process, said Ernie Garfield, a former state senator and owner of Interstate Bank Developers, a firm that is working with Discovery and Scottsdale Community.
"It takes time to ... make sure they understand what they're doing," Garfield said. "I don’t ask any of them how much they're going to invest until we have educated them and have done a business plan because they don’t have any idea what they're doing."
Waiting to hire a management team until initial capital is raised and an application is largely completed could save groups $150,000, on average, Garfield said.
Federal regulators seem to accept Arizona’s process, said Paul Hickman, president and CEO of the Arizona Bankers Association.
"We always work with the chartering authority and coordinate even if our processes differ," said FDIC spokeswoman Julianne Breitbeil.
Arizona's approach has drawn skepticism from some industry observers, who argue that it is important to hire experienced executives early in the process because investors want to know who will be leading the proposed bank.
It’s also important to bring on leaders, especially a CEO, early on so he or she feels tied to the group’s vision, said Dan Yates, CEO of Endeavor Bank in San Diego, which opened last year.
“To not lead with a CEO is to me a real challenge,” Yates said. “It is important for investor-led charters to really think about that. If I were to give anybody advice, the first thing you should do is figure out who your CEO is early on and have that person find the management team.”
Gregory Dunn, a division manager who handles bank applications for the Arizona Department of Financial Institutions, said that the agency tells interested parties to communicate with the FDIC early on about requirements for de novo banks. He echoed concerns about it being difficult for organizing groups to raise capital without executives in place.
"We try to make it clear to the applicant or organizers that our particular application process is just the very, very beginning of the process," Dunn said. "The big hurdle that has to be met is the guidance set forth by the FDIC."
Dunn said that he has communicated with two or three other groups besides Gainey and Scottsdale with interest in starting new banks. He said that he is waiting for more information from those groups. Dunn added that Gainey and Scottsdale Community "haven’t met their capital raising goals and the superintendent is very cognizant of that fact."
Organizers must submit final applications to the FDIC and the ADFI before checking all of the regulatory boxes needed to proceed.
Scottsdale Community organizers conducted a national search to find its president and CEO, said George Weisz, the group's proposed chairman. Neill LeCorgne, former president and COO of Regent Bank in Florida, will lead the proposed bank. Regent sold to Stonegate Bank in Pompano Beach, Fla., in 2016.
The group is finalizing plans to hire a chief financial officer, chief lending officer and chief operating officer. Once those posts are filled, Weisz said the group plans to meet with the FDIC and state regulators to begin the formal application process.
“We have done a lot already in trying to earn [regulators’] respect and trust, but of course we have to prove that," Weisz said. "We want to exceed all expectations they have for us."
Scottsdale Community is aiming to raise $16 million to $18 million in initial capital.
Gainey, which would also be based in Scottsdale, is raising at least $20 million, said Jim Unruh, the bank's proposed chairman. The group, which is in talks with a potential CEO, expects to hire someone in the second quarter.
“I’m confident we will have a CEO — and from this market,” Unruh said. “I feel very strongly about the importance of a management team that has a lot of experience in this market and I’m confident now that we will have that.”
Unruh hopes the bank is ready to open late in the fourth quarter. He said talks with regulators have gone well so far, though he is surprised by how long the process has taken. Unruh said the group faced delays due to internal challenges.
"We stepped back to reorient what we were doing and we wanted to take time to gain confidence that we were going to be able to find management team with local experience," Unruh said. "I view it as a positive pause that extends the time in short term in the interest of creating a better long term bank."
Discovery, which plans to open in Chandler, Ariz., has been waiting for preapproval for several months. Organizers said they are finalizing a contract with a candidate to run the proposed bank.
Nicholas Kehagias, proposed treasurer and secretary of Discovery’s board, said talks with regulators have gone well. He said the state has told the group that the FDIC requires a complete application with input from the management team.
State regulators' questions "had to do with what the FDIC will eventually need,” Kehagias said. He said raising capital should be easier when a president is hired.
The group, which plans to raise $12 million to $14 million, hopes to open by early 2020.
“I wish we were a little ahead of process, but we are full steam ahead,” Kehagias said.
