Beach Cities Commercial Bank in Irvine, California, expects to open next week, culminating a two-year campaign that saw the de novo institution raise more than $28 million from organizers and nearly 200 subscribers, President Jeffrey Redeker said Monday.
Beach Cities would be the second de novo in 2023, after Adelphi Bank in Columbus, Ohio, opened in January. Fourteen de novo banks opened in 2022, according to the Federal Deposit Insurance Corp.
Redeker and other experts believe the industry is on the cusp of a spike in bank formation, driven in large part by big gaps in the marketplace that years of consolidation have created.
"I think you're going to see an opportunity here," Redeker said. "I do believe we are at the beginning of a new expansion of small community banks."
For Redeker, whose roots in Southern California banking go back to 2001, his prediction is nothing more than a function of numbers. The U.S. had 4,716 commercial banks and savings institutions at the end of 2022, down from 8,545 15 years earlier. Virtually every market has seen multiple community banks sold, with some changing hands more than once.
Even the massive, deposit-rich Los Angeles marketplace, which includes Irvine, has been impacted, with its institution count dropping by 65 over the past decade-and-a-half, according to FDIC statistics. Capital Bank in San Juan Capistrano, where Beach Cities' CEO H. Kent Falk served as Orange County regional manager, sold to San Diego-based Seacoast Commerce Banc Holdings in May 2017 for $60 million. Three years later, Seacoast Commerce sold to the $13.1 billion-asset Enterprise Financial Services Corp. for $156 million.
"Consolidation has certainly displaced a lot of clients that were at smaller banks," Redeker said. "People are banking in places they probably didn't choose."
Edward Carpenter, CEO at Carpenter and Company, a Newport Beach, California-based consulting firm that has helped launch hundreds of de novo banks, said he, too, expects the pace of new bank formation to quicken. While rising rate environments have historically spurred interest in starting banks, the stronger impetus may be coming from small-business owners.
"It's about decision-making," Carpenter said. "Most small-business owners want to look their banker in the eye and know he or she can make a decision."
Small banks, according to Carpenter, make 50% of loans to small businesses of $2 million or less. "That's the role of a community bank. I sense there is a need for local businesses to find someone who understands them and is willing to lend."
Carpenter's and Redeker's comments come less than two months after Federal Reserve Gov. Michelle Bowman called on banking regulators to
"It's challenging to raise that much capital," Redeker said, adding Bowman's comments "are at least worth discussion." Beach Cities was required to raise $25 million in initial capital. Beach Cities was able to exceed that threshold, and do so with numerous small-dollar subscriptions, rather than "20 or 30 people with deep pockets. … We feel we have a nice blend," Redeker said.
Beach Cities would be the third Southern California de novo to receive a charter since the start of 2021. The $180.6 million-asset Genesis Bank opened in Newport Beach in January 2021, while the $52 million-asset Bank Irvine began operations in October.
At least two other California groups are seeking banking charters, one with the proposed Icon Business Bank in Irvine, the second with the proposed Entrust Bank in Los Altos. Entrust was one of three groups to apply for deposit insurance in May, according to the FDIC.
Currently, Beach Cities is one of five banks-in-organization whose applications for deposit insurance have been approved by FDIC. Organizers of the proposed Nova Bank in Huntsville, Alabama, said Monday that they expect to open late in 2023 at a location on Madison Street in downtown Huntsville.
"It has been 15 years since a true de novo bank entered this market, and we look forward to bringing local decision making and customizable banking services back to Huntsville," Marc Minish, who is expected to serve as Nova's chief credit officer, said in a press release.
Redeker and his colleagues are relieved and excited that a process that began in May 2021 is so close to completion. "We've already had walk-throughs of our locations and we had a presentation to our board last week," Redeker said. "We feel fairly good about where we are."
