Arizona to get its first new bank in 14 years

When Scottsdale Community Bank opens for business in coming weeks, it will mark a first in the state of Arizona since the 2008 financial crisis.

SCB's founders were concerned about a dearth of local banks even as Greater Phoenix’s population swells and its economy advances. Major banks such as JPMorgan Chase, Bank of America and Wells Fargo pepper the metropolitan landscape, but local banks that cater to small businesses are scarce.

In 2008, there were 32 community banks in metro Phoenix, according to state data. By 2021, only four remained. The dwindling numbers followed bank failures in the wake of a real estate meltdown and ensuing years of industry consolidation. Across all of Arizona, there were more than 50 community banks in 2008 but only 10 as of the start of this year.

Nearby Utah, with half the population of Arizona, has more than 40 community banks.

“Arizona is drastically underbanked,” George Weisz, the founding chairman of SCB, said in an interview.

SCB received final regulatory approval from the Federal Deposit Insurance Corp. and the State of Arizona in January. The bank plans to hold its grand opening by mid-March.

Bloomberg

The bank said it would focus on serving small and midsize businesses, family-owned companies and nonprofits. It may also partner with wealth management service providers, financial planning firms, insurance carriers, family business consultants or other community banks to meet clients’ needs. SCB plans to open its first bank in Scottsdale, an affluent Phoenix suburb, and hopes to serve clients throughout Arizona over time.

SCB’s founders raised more than $19 million in capital over the past couple of years — $3 million more than initially targeted — from more than 200 investors who “told us they really need more community banking options,” Weisz said.

While Arizona faces a particularly glaring shortage of community lenders, start-up banks — often called de novos — have been rare across the country over the past decade. Regulators ramped up scrutiny of new banks in the aftermath of the crisis, making the process of opening a new bank more difficult and expensive. Over the past couple of years, raising capital has been tricky as well, given uncertainties imposed by the pandemic.

“The regulatory hurdles and the challenges overall are much greater than when we went through the process and started out,” said Frank Sorrentino, the founder, chairman and CEO of ConnectOne Bancorp in Englewood Cliffs, New Jersey. The $8.1 billion-asset bank launched in 2005, before the crisis.

“I think you will see some more de novo activity where there is really an obvious need,” Sorrentino said in an interview. “But the regulations, if anything, only get more difficult, and that pushes a lot of people away.”

Weisz said that getting approval to launch SCB was a lengthy and difficult process that began before the pandemic and involved a 1,000-page application that took nearly a year to work through with regulators.

“It is a tremendous amount of work to get a new bank going; no one should underestimate that,” Weisz said. But regulators were fair and recognized the need for more financial services options in Arizona, he added.

Starting in 2015, the state allowed de novos to start raising funds before they apply with federal regulators, with a goal of reducing the overall time it takes to launch the bank.

Two other banks are currently in formation in Arizona: Gainey Business Bancorp in Scottsdale and Integro Bank in Phoenix.

The last new bank in the state was Gateway Commercial Bank in Mesa. It opened its doors in December 2007 and has grown to $210 million of assets.

The Greater Phoenix area is growing fast, fueling job growth and new business formation, Weisz said. Companies will need loans and banking services to finance growth plans and expand alongside the local economy. “We saw both a great need — and a great opportunity,” he said.

The Phoenix metro area population, including Scottsdale, totaled nearly 4.6 million in 2021, up about 2% from the prior year and up 26% from 2010, according to U.S. Census Bureau estimates.

Arizona’s workforce returned to pre-pandemic levels in March and has gained more jobs each month since, according to data from the Office of Economic Opportunity. The state entered 2022 with 60,000 more people in its workforce than it had in February 2020, prior to virus outbreaks, with more than 3.64 million workers in January.

There are surely other markets in need of new banks, said Damon DelMonte, a Keefe, Bruyette & Woods analyst. But the banking industry has a long way to go before it experiences a de novo renaissance, he said.

Nine community banks were chartered in 2021 across the country, according to the FDIC. Four new credit unions received charters last year.

In contrast, 10 de novo banks opened in Arizona alone in the three years before the crisis. Nationally, fewer than 50 de novo banks opened in the U.S. in the past decade, far below the average of 100 per year before the crisis, Federal Reserve Gov. Michelle Bowman said in a presentation last year.

“We have a very entrepreneurial society, and I won’t be surprised to see more entrepreneurial bankers step up to fill some need,” DelMonte said. “But I’m not waiting on any kind of massive wave of new banks.”