Stephen H. Gordon, who has successfully started two local banks, is looking for a hat trick.
Last week, Gordon officially opened Genesis Bank, a new bank based out of Newport Beach that will emphasize servicing minorities.
“We want to make a big difference and have an impact,” Gordon told the Business Journal. “A lot of banks talk that way, but they don’t show up consistently.”
Gordon raised $57 million in an oversubscribed initial capitalization that included himself and Arkview Capital of Stamford, Conn.
The private offering represents the largest capitalization ever for an entirely new bank based in Orange County, Riverside County, or San Bernardino County. It is the second ever largest de novo capitalization all Southern California, trailing one bank in Los Angeles County.
Arkview is a minority-certified private equity fund focused on investing in diversity-oriented businesses. It was founded last year by Joon Chang, Pavel Chernyshov and Vijay Mehta, a trio who worked together for a decade at the Ziff family office in New York.
The Ziff family, heirs to the Ziff-Davis publisher of hobbyist magazines, is worth $15 billion, ranking it No. 20, among Forbes’ annual list of the wealthiest American families.
Arkview’s website said that since the U.S. minority population will expand from 40% today to an estimated 55% by 2060, there will be a “multi-trillion dollar opportunity as corporate spend with diverse suppliers reaches parity.”
“During the pandemic, we saw the need for an institution like Genesis Bank to provide access to financial services to the low- to moderate-income, diverse communities in Southern California, the second largest market demographic in the U.S.,” Chernyshov said in a statement.
Gordon has a long history in Orange County banking circles. After the dot-com bust in 2000, he co-founded Commercial Capital Bancorp, which was sold for almost $1 billion in 2006.
Following the 2008 financial crisis, Gordon in 2010 led the $460 million recapitalization of Bay Cities National Bank and renamed it Opus Bank, which was sold for $743.9 million a year ago to crosstown rival Pacific Premier Bancorp of Irvine (Nasdaq: PPBI).
Five days after that deal closed, he filed paperwork to start Genesis Bank even though it was in the middle of the coronavirus-induced recession.
“I have a tendency to start banks in contrarian times,” Gordon told the Business Journal in February. “This is a once in a 100 year moment. The whole world fell apart and there’s a huge need for a new bank that has no legacy issues, no legacy employees, no legacy tech, no complex legacy structural issues.”
Gordon isn’t alone among OC banking executives who see opportunities in lending to minorities.
Steve Sugarman in 2017 started the Change Company, an Irvine-based Community Development Financial Institution (CDFI) that is like a credit union but focuses instead on low-income borrowers.
Sugarman became known as the CEO who built Santa Ana-based Banc of California Inc. (NYSE: BANC) into what was once the largest bank headquartered in Orange County with more than $10 billion in assets before leaving in early 2017.
In 2020, the Change Co. said it originated about 20,000 home loans totaling more than $7 billion—approximately 70% of which were to Black, Latino, and other underbanked borrowers. Last month it said it expects to grow annualized originations to over $10 billion this year.
Thus far, Sugarman’s raised $250 million, including a $150 million senior debt offering last March from a consortium of over 45 insurance companies, asset managers and banks. The March notes, which received an investment grade A- rating from Egan Jones, bear a fixed interest rate of 5.375% and are due in 2031.
The March raise was a milestone that demonstrated CDFIs “are able to attract the capital and liquidity necessary to increase social and racial equity in home ownership in America,” Sugarman said in a statement.
“The Change Co. will continue to expand its partnerships to reach more underbanked borrowers in more underserved markets across the United States.”
The CDFI has attracted some notable names as backers: its board chair is former L.A. Mayor Antonio Villaraigosa, and in March it announced a partnership with Netflix to expand Black home ownership.
While Sugarman is concentrating on residential loans, Gordon said his niche is working with owners of small to midsize businesses, the real estate that they own and multifamily real estate investors.
Genesis will offer “extremely advanced treasury management capabilities” and won’t have branches, saying executives have learned how to deal without them.
“Nobody walks into a branch anymore,” he said.
Gordon says he can be more flexible than larger banks, pointing to what he called their slow reactions to government programs like Paycheck Protection Program (PPP).
“During the whole PPP program, businesses across our region were really struggling how to navigate their way through their own banks,” he said.
“After I sold Opus, I found myself hosting Zoom calls with 200 business owners. The banks weren’t stepping up for them.”
His team includes executives who worked alongside him at Opus: Jennifer Simmons, president and chief operating officer; Brian Fitzmaurice, senior chief credit officer; William Han, chief financial officer; and Andres Gallardo, chief legal and risk officer.
The secret sauce to successful banking is its employees, he said.
“You need the best talent,” Gordon said. “If you don’t have that, you create problems for the other employees. We’re only hiring the absolutely best talent. That’s the most important differentiator. It’s okay to be snobby in that.”
The new headquarters is on the top floor of 4675 MacArthur Court, which is the same building that holds the headquarters of Clean Energy Fuels Corp. (Nasdaq: CLNE), Orange County’s largest publicly traded clean tech firm that has a $1.5 billion market cap.
The financial industry is going through a consolidation, having gone from 15,000 banks a few years ago to about 5,000 nowadays.
“That may be 4,000 too many,” Gordon said. “The consolidation in the industry is going to continue. The demand for financial services—that is continuing to increase.
“We’re now going to be in the market with an incredible senior management team with no legacy issues. We get to launch a new institution with new technology.”
Piper Sandler & Co. acted as an adviser to Genesis Bank while Holland & Knight LLP served as legal counsel and Irvine’s Carpenter & Co. served as consultants.