UPDATE: This article includes additional information from Steven Chang.
When Steven Chang, a Palo Alto, California, neurosurgeon, began assembling a group to found a bank in nearby Los Altos, the aim was to capitalize on what they perceived to be a gap in the market. While Los Altos and the surrounding Silicon Valley region make up one of the nation's wealthiest locales, it saw the number of hometown banks shrink by more than a dozen in recent years.
That consolidation affected small investors and Main Street business owners, who were being "ill-served by big banks," according to Tom Vertin, CEO of the proposed Altos Bank. "Unless you needed a big loan, most of the big banks weren't interested in talking. You didn't move the needle," Vertin said Friday.
In March 2023, a month after the Altos Bank group hired its executive team in preparation for a de novo application with California's Department of Financial Protection and Innovation, Silicon Valley was rocked by the failure of the $209 billion-asset Silicon Valley Bank in Santa Clara. A month later the $233 billion-asset, San Francisco-based First Republic Bank failed.
Their departures transformed what had been a favorable business climate for a startup bank into what Vertin characterized as a once-in-a-lifetime opportunity. Vertin, who spent 18 years at Silicon Valley Bank, described its failure, as well as First Republic's, as tragedies. At the same time, they've left a "fertile environment" in their wake, with scores of talented bankers open to new jobs and "thousands of clients that ended up in a bank they didn't choose."
"How often do two of the largest depositories in your market fail," Vertin said.
For Chang, who serves as Altos' chairman, founding a financial institution in the heart of Silicon Valley is the realization of a dream he had as a Stanford undergraduate, when he and his friends, all quantitative economics majors, "toyed with the idea of opening a bank."
"We got together more recently and said, 'Maybe the time is right,'" Chang said, adding several of his college friends also serve on Altos' board.
The other major impetus behind Chang's decision was his own experience as a bank customer. Along with his neurosurgery practice, Chang said he does venture capital and real estate investing. "I'm a heavy user of banks," Chang said. "I talk to bankers three or four times a week. I noticed that as my bank grew, the service kind of deteriorated. I thought that if I'm a heavy user of banks and I'm struggling, what is the guy on the street thinking?"
Altos is building its leadership team. It hired a pair of veteran California banking executives, Tom Tolda and Dante Tosetti, to serve as chief financial officer and chief credit officer, respectively. Regulators are requiring a $25 million capital raise. Altos is setting its sights higher. "We're pretty sure we can get to $30 million," Vertin said. "We have a lot of people that would like to join us."
The Department of Financial Protection and Innovation approved Altos' application to open a new bank Wednesday. Vertin believes approval of its deposit insurance by the Federal Deposit Insurance Corp. is not far behind. Vertin is eyeing a soft opening in November, giving the bank the opportunity to test and perfect its systems, followed by a more public "grand" opening early in 2025.
"Altos will do well," Edward Carpenter, chairman and CEO of Carpenter & Co., a Newport Beach, California, consulting and private equity firm that's advised more than 500 de novo banks, including Altos, said Friday. "The opportunity set is good. It's got a strong board and it's in an affluent business and residential community without a lot of significant locally based competition."
Chang, Carpenter added, is a "highly respected" surgeon and academic, as well as a "strong" business person. "He's as efficient and visionary a chairman as any we've worked with over the years."
According to the most recent Census data, Los Altos' population is about 30,000. The city's median household income is $250,000, above the statewide average. The surrounding Santa Clara County has a population of 1.9 million, has median household income of nearly $150,000 and is home to more than 47,000 businesses, according to the Census Bureau. FDIC statistics show Santa Clara's deposit market grew nearly 13% between 2018 and 2023 to $159.3 billion, even as the number of banks doing business there shrank.
Though the number of startups has declined dramatically in recent years — just 72 banks have opened since 2011 according to the FDIC — "the market opportunities for de novos is very good," Carpenter said.
"It really is a good time to start a new bank," Carpenter said, adding his firm is experiencing higher levels of inquiries from groups around the country that are interested in starting community banks. "New banks that have opened are doing quite well ahead of schedule."
So far in 2024, one de novo, Nova Bank in Huntsville Alabama, has opened, but several more expect to open soon. Four States Bank in Carthage, Missouri, is targeting a September opening.
For Altos, the chartering process has been long but "incredibly beneficial," Vertin said. "We've covered every aspect of the business plan, the policies we would put in place and the market we're pursuing."
