Stephen Gordon considered acquiring a bank before deciding instead to form one.
Gordon has experience buying banks in a time of crisis, leading the recapitalization of what was then the $273 million-asset Bay Cities National Bank in September 2010. On Gordon's watch, the rebranded Opus Bank in Irvine, Calif., went on to buy three banks in California and Washington state, as well as add branches and fee businesses. By the end of 2017, Opus had nearly $7.5 billion of assets.
Opus also had its growing pains, reporting two quarters of losses in 2016 as it grappled with credit quality issues tied to its dealings with technology companies and specialty lending. While Opus addressed its issues, investor returns never fully recovered.
Gordon stepped down from Opus in 2018; the bank was sold earlier this month to the Pacific Premier Bancorp in Irvine.
Now Gordon is plotting a return to banking with plans to open a startup, Genesis Bank, in Newport Beach. Calif. This time around, he said, he intends to take a much more methodical approach to growth in hopes of avoiding the credit issues that dogged Opus.
He considered buying a bank, but said that the potential sellers he approached wanted too much money. Boards “have numbers in mind and the institution often isn’t worth that number,” Gordon said in a recent interview. “I was losing a lot of time dealing with those issues.”
Gordon, who is pumping nearly $27 million of his own money into the venture, is hopeful Genesis can receive regulatory approval, raise capital and open later this year.
American Banker spoke with Gordon at length about his vision for Genesis, why he thinks there is a need for a new bank and the lessons he learned from his time running Opus. This is an edited transcript of the conversation.
How did you choose between buying a bank and looking to form one?
STEPHEN GORDON: I gave a lot of thought into buying a bank. When you do that you don’t have the de novo limitations and you get an existing platform and presence. You also get an asset and deposit base and a business that’s capable of generating earnings on day one.
But I found myself in the same situations many acquirers find themselves in. Sometimes [a seller’s] board wants too much. They have numbers in mind and the institution often isn’t worth that number. I was losing a lot of time dealing with those issues.
Anytime you buy you get good things and some things that are someone else’s vision. You have to undo that. You tend to get eight things you love and two that are problematic. You also have to win over the hearts of the [acquired bank’s] employees.
With Genesis, I don’t pick up anybody’s legacy vision, platform or potential for asset issues and I don’t have to deal with someone else’s boardroom. Instead, I get to execute my vision and business plan and select the employees and team. I end up with an institution that is the way I want it to be rather than turning another institution into that.
What is your vision? How will that compare with Opus?
Opus was initially a combination of a few acquisitions we completed. We took on three different institutions with three different customer bases and employee cultures, along with different regions and technology platforms. We undid certain business lines and bought a number of branches and nonbank-related business while ushering in the talent we chose.
At Opus we were in every major West Coast market all the way up to Seattle. I think we were a little bit spread thin. With Genesis, we’re going to be extremely commercial focused in [a handful of counties]. Still, we’re talking a market that is larger and more impactful than many states.
I don’t want to do what I did in the past, which was banking a large group across a lot of geography. I was getting in planes to fly everywhere. And I don’t want to be distracted with being a publicly traded company. Investor expectations aren’t what they were 10 or 20 years ago. For us this a long race — not a short sprint.
Genesis is being formed at an unusual time. Why start a bank now?
You could look at all that’s going on and conclude that Stephen Gordon’s timing is perfect or he’s absolutely insane. But the need cannot be greater now than at any time in my career. I’ve never seen anything like this before. One day the world was great and the next the economy was closed and shut off. We’ve seen incredibly deep recessions, but we’ve never seen an economy turned off and everybody told to stay at home.
There are a lot of people out here with [lingering anxiety] even with the economy starting to reopen. I have no interest rushing back into a restaurant, movie theater or sitting in an airplane for five hours. Borrowers are being propped up by government programs and actions. Banks are being told not to foreclose and make sure everything stays OK. The [Paycheck Protection Program] is getting money into local businesses.
Many banks are assessing their own balance sheets and are not going to be making loans. So I think it is incredibly important that there’s a new bank with a clean balance sheet and a passionate commitment to put money back into the economy.
You’re putting in half of the initial capital. That’s a big gamble.
I’m willing to bet on myself and anybody who is on this team. I would rather put my own capital into building a company. And I’m doing what my clients would do — putting my own money at risk with this.
Opus had its struggles. What did you learn from that experience?
You must make sure you have hand-selected people who are responsible and accountable. You have to make sure you give people a loose rope — but there’s still a rope with checks and balances. You have to avoid taking on unnecessary risk and have a phenomenal underwriting team. And you need good board leadership.
We had created our own credit crisis [in 2016]. We cleaned all that up, but that’s pain I never want to experience again in my life. It was something I had to think about before I jumped back into this.
It is going to be very hard to get a job at Genesis. You will need a lot of experience and you’ll need to check your ego at the door. If you have a grandiose personality, this isn’t the place for you. Arrogant people make mistakes, and I don’t want any weak links.
Opus was just bought. What opportunities does that create?
With Opus, you had an institution with $8.5 billion in assets and a strong presence in a lot of markets. It was one of the biggest multifamily lenders along with West Coast, including Southern California. With Pacific Premier, the [combined company] has $20 billion in assets and a lot to internally focus on. I think they’re going to be playing defense for a while.
There are other institutions in the market that are in the same boat. There are talented people in the market that have been reaching out to me. I think there are lot of bankers who are in play at a time when things are meaningfully changing.
How will Genesis differentiate itself from other banks?
As an industry, we were doing a phenomenal job of discouraging people of wanting to walk into a branch. Opus had 50 branches. The interesting thing about branches is that you have to fill them up with people. That had me questioning why I had so many branches.
With COVID no one was going to a branch and yet [people] figured out how to pay their bills and transfer money. That’s the nail in the coffin of the branch system.
I’m going to have very few branches and phenomenal bankers. For the most part, business will be conducted at a client’s office or over lunch. We’ll use today’s technology to make that happen. It should make us a lot nimbler and operate in the way that our clients expect.