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Blue Gate Bank: A rare de novo grows in Southern California.

Blue Gate Bank opened in January 2017 as the first de novo bank in California’s Orange County since the great recession. Based in Costa Mesa, it is one of just a few banks in the nation to receive FDIC approval for a new charter since 2009.

Blue Gate Bank Founding Chairwoman Molly Gallaher Flater’s vision to bring a client-centric community bank began in 2015 when she sought to address the lack of in-depth services from larger financial institutions. Soon after, she assembled a board of directors and executive team that successfully applied for and achieved FDIC approval in October 2016. As chairwoman, she leads an executive team that includes long-time banking veterans with many years of experience in the industry.

“We have a responsibility to make our communities stronger, and that begins with giving local companies the financial opportunities they need to be successful,” said Flater. “That’s what sets Blue Gate Bank apart from other community banks. We believe in a client-focused approach to service and are passionate about making great things happen.”

BankNews Editor-in-Chief Bill Poquette interviewed J. Chris Walsh, a 37-year veteran in the banking industry, who joined Blue Gate Bank as an organizer/founder in February 2016 and serves as director of banking month. Prior to joining Blue Gate Bank, Walsh served as CEO and president of Irvine, Calif.-based Sunwest Bank. During his leadership, the bank more than tripled in size to approximately $820 million in total assets, becoming one of the most profitable banks in Orange County. During his tenure, Walsh led five FDIC acquisitions and expanded the bank’s presence into Arizona, Idaho, Utah and Washington.

Q:  What prompted the name “Blue Gate?”

A: We thought a lot about the name. There are a lot of banks incorporating words like “California,” “West Coast” or “Commercial” into their names, and we didn’t want a name that would pigeonhole us into one product or place. We wanted our name to reflect unlimited horizons. Blue Gate happens to be the street where the bank’s founders live, and it’s worked well for us as a name. The imagery it presents helps to distinguish us and set us apart.

Q: Why did the organizers opt for a de novo charter versus buying an existing bank, which arguably may have been less costly?

A: There were a couple of reasons for that. First, we wanted to start fresh with no loan or regulatory problems. Usually, when a bank is for sale, it’s not necessarily that something is wrong, but that its investors want out. “No baggage” comes to mind as a good term. The second reason was that our founders and investors have a lot of community banking experience in Northern California, and they saw an opportunity to bring that to Southern California. They have a passion for the industry and a proven philosophy for how to thrive in it.

Q: California lost 40 or so banks during the recession through failures and there has been ongoing consolidation before and since. Were these motivating factors in starting a new bank?

A: Yes, they were, especially in the Orange County, California, marketplace, which has experienced a lot of consolidation of community banks. We felt this was a great opportunity to start a community bank for small to mid-size businesses and high-net-worth clientele seeking the kind of personalized service they could no longer find. In addition, community banks offer more flexibility than the “credit scored” lending practices of big banks, which creates further opportunity for us.

Q: How did you convince investors to join the venture? Were most investors local?

A: Most investors are from Northern California, and the Gallaher family who founded the bank represents the majority of our investment, although we have nearly 20 investors to date. What made our situation unique was that our investors have not only decades of banking experience, but a passion for this type of work. They know what a community bank truly entails, and the positive impact it can have on its clientele and the community as a whole.

Q: How long did the organizing/application process take?

A:  We submitted our applications to the FDIC and the California Department of Business Oversight in February 2015, and received approval from the state in July 2016 and the FDIC in October of that same year.

Q: Did the encouragement expressed by the FDIC for de novos in the past couple of years help?

A: Considering that we’re the first bank in California since 2009 to get approved and to open, I think that should answer the question. We’re the third in the state to get approval in that time. The FDIC on the West Coast and the California Department of Business Oversight have been wonderful to work with, despite the fact that the process required us to file thousands of pages of documentation. Officials on the West Coast were very supportive throughout the process.

Q: Why was Blue Gate’s charter approved and those of other de novos — two in Southern California — have languished with regulators?

A: Those other banks haven’t necessarily languished with regulators. Both were approved by the FDIC and DBO. They languished in raising the $30 million required in capital to become established. I believe there were 11 approved banks nationwide in the past several years, and only three opened. The tough part is getting the investors. You need an investment group that is passionate about opening a bank and dedicated to the cause, and we’re fortunate Blue Gate Bank had this.

Q: Does the Blue Gate Bank approval signal that other approvals might be forthcoming soon?

A: From my knowledge, there are two other banks in the approval process in Southern California right now. I don’t know if they’ll get approved, but again, the tougher part is getting the investors and the capital.

Q: How is Blue Gate differentiating itself from the competition?

A: Banking is a very commoditized industry. We all offer virtually the same products and strive to deliver phenomenal service. What makes Blue Gate unique is that our senior management and board are extremely committed to helping businesses succeed. We’re very passionate about what we do. We really want to be involved in helping our clients’ businesses be successful, and that’s why we are dedicated to offering the products and services they need to thrive. We try to partner with our clients, looking at their one-, two- and three-year plans and working with them to achieve their goals. If they are successful, then we are as well.

Additionally, when clients first meet with a Blue Gate Bank relationship manager, they also get a senior manager. This is so important because not only do clients get the person who will be the quarterback of their relationship, but they also get a senior manager who will be supportive of their business and their journey moving forward.

Q: How soon will Blue Gate Bank be profitable?

A: We are hoping to be profitable in our second year.

Q:  What is your anticipated asset size in two, three, five years?

A: We expect to reach $300 million in two years; $450 million to $500 million in three; and in five years, that’s a tough question, but we are aiming for $750 million to $1 billion. It’s arguably a real aggressive projection, but that’s where we are aiming.

Q: Would you encourage or discourage potential organizers of other de novo banks?

A: I would encourage other de novo banks if their senior management and board have the same huge passion and vision for banking that ours does. If they don’t have a hunger for it, they’re not going to have the commitment needed to succeed. Everyone, from the board members who raise investment capital to the managers who provide that first-level of service to our clientele, needs to have that passion and courage to always strive to do their best. If they don’t have that hunger to commit to that level of dedication, I’d probably discourage them from starting.

 

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