The big-name tech companies and Fortune 500s steal a large part of the spotlight, but across North Texas a huge share of the population works in small business – whether that means a small IT firm or a family-owned distribution provider.
According to Ken Judd, even if you disregarded the nearly 3,000 banks that have shuttered after the financial crises of 2008, there have only been three de novo banks (meaning "of new" in Latin, de novo banks are newly formed banks) created in Texas since then. However, those bypassed the Metroplex, with the founding of The Bank of Austin in 2017 and Houston-based Gulf Capital Bank in 2019. So seeing a need in Dallas, Denton and Collin counties, where he says nearly 60% of businesses have less than 10 employees, Judd decided to found a bank.
Not originally a banker by trade, Judd partnered with former board chairman at Valkyrie Equities and current SMU Graduate School of Banking faculty member Joe Hansen to begin the three-year process to launch new de novo TYME Bank. The process culminated in December, when the now CFO and CEO, respectively, filed papers with the FDIC and the Texas Department of Banking.
Pending approval from regulators, TYME Bank hopes to open by August. Judd plans to capitalize the bank for about $30 million, giving the bank about a $300 million balance sheet, and counts a number of its board members as investors. The bank will focus on small- and mid-sized businesses looking for a loan of around $5 million or less.
But, you don’t have to listen to just me about it. NTX Inno sat down with Judd to discuss the founding of TYME Bank.
Note: Responses have been edited for brevity.
NTX Inno: How did you get to the point where you decided to found a bank? It’s not something people tend to do every day.
Judd: So I’ve got over 20 years in technology, software, hardware, IT professional services but I’ve never launched a company myself. So after all these years, for me personally, it was time for me to be a founder and entrepreneur, having spent many, many years working with some good business guys. And I had met my partner Joe Hansen, who will be the CEO of the bank, a few years ago. I’ve gotten to know him and some of our early investors over that past three year period, and I know we’ve got good chemistry and we’ve discussed the banking scene here and why is there a need for a new bank; and why is there a need for us to found one from scratch versus buying a bank. And we both came to the conclusion 'okay, let’s stop talking about it and let’s do it.'
NTX: So, why found one as opposed to going a different route?
J: There are a couple of different reasons. One of them is the economics are much more interesting. Banks, when you go to buy them typically trade on a multiple of book value. So, in Texas they trade for 2X to 2.2X of book value. When you start a bank from scratch, you only pay 1X for it. I’m going to capitalize the bank at $30 million; I’ve got to raise $30 million to get the bank open, but I’m not paying a market multiple on it. It’s also an opportunity for us to create the bank the way we wanted it to be created, from a 'who do we want to serve perspective,' and also set up great technology as well as low cost so we can pass on those savings to our customers.
Banks continue to just buy each other out. Nationally, banks are just buying each other up. There’s very little new entrance into the marketplace, and what happens is these banks just get bigger and bigger and bigger. They have multibillion-dollar balance sheets. My balance sheet will be $300 million, hopefully, if we execute our business plan, over a three-year period. What I can do, what I’m willing to do, that those bigger banks can’t do and what really creates the market opportunity, is we want to cater to small and medium businesses in Dallas, Denton and Collin counties. It's harder and harder for those [small] businesses to find a bank that will build a relationship with them and provide credit facilities to those small businesses at a $5 million or less size.
NTX: Why the focus on small and medium size companies?
J: It’s just an underserved market out there. This is a huge metropolitan area. Just as these banks go and the business is booming around here, financial institutions willing to serve that smaller market, they just can’t, or they don’t want to. It’s just an unserved market, simple as that.
The great guy that has a service business and he needs to buy four trucks for his business, who needs that $1 million loan to buy those four trucks to grow his business, it’s hard for him to even find someone to have that conversation with. We want to be a traditional community bank and we want to develop those relationships. Can you go to Chase; can you go to Bank of America and talk to the CEO or talk to the CFO? You can walk into our bank and talk to us any time. We want to bring that human touch.
NTX: How do you see yourselves as different than any other bank serving in the space you are hoping to fill in the community?
J: We’re all in market and have been in market for 10 years or more. So we know the market and we understand the Dallas area. We will have local decision making. We’re making local decisions eyeballs-to-eyeballs, but we’re developing those long-term relationships.
On the subject of technology, and this is where my background comes into play, the cloud service providers and the managed serve providers that provide these platforms for banks, and particularly new banks, they’re matured to the point that we’ll be able to compete not only on that relationship side, but we’ll also have all the modern technology that people don’t even expect, they demand from a bank these days. We’ll have a very modern online platform, a mobile platform, peer-to-peer transfers, and we can do that because these technologies have matured to the point where, one, they work – seven or eight years ago they didn’t work. But I can get them at a price point that fits my business plan and I’ll have the same tools and conveniences that you would get from a BVA or a Chase. They spend a gazillion dollars on it, they have to, but I can get the same stuff.
NTX: Why do you think there’s not more activity in the de novo space?
J: It’s hard.
NTX: What actually goes into starting a bank?
J: I’m glad you asked that question. We’ve been working on this for over two years. In 2019-2020 an application for a new bank, there’s nothing electronic about it. It’s nothing but paper. We filed our applications formally at the end of December. It’s literally three-ring binders of your business plan, your financial analysis supporting the business plan. It’s different scenarios surrounding your business - what happens if a recession hits? We shocked our business plan; we... ran our financial model through [TIB's] interest rate shock model – what happens if interest rates jump 400 bases points? What happens if they go down 400 bases points? Does your business model work? You have to go through all this analysis, you have to go through all these policies, you have to build a team.
Most of [our board] wrote checks and that’s important – you got to have people willing to take a chance, to recognize that opportunity, but believe that you’re the guys that can actually get this done. So I’ve raised almost about $1 million of at-risk funds from [some of our board] and a few others, and what that means is they gave us some working capital to get liftoff on the bank. This is a multi-year process to get this off the ground.
NTX: So where are you in the process and when do, you know, plan to actually open?
J: December 23, Joe and I met up at 5 a.m. at this office and rode down to Austin, met with the Texas Department of Banking for about 45 minutes, turned around, drove back to Dallas and dropped those same stack of papers off at the FDIC building downtown to get our applications in. So for us, that means [likely approval in] April.
We’re not going to open the bank in April. That [just] means we break escrow and I’ve got money to actually spend on my technology, hire additional people. So after we break escrow, it’s probably about a four-month process to get the systems in place and make sure that our workflows are working as intended and as expected for making loans, taking deposits, writing checks, all that good stuff. Probably looking at a summer opening, we’d like to get it done by August.
NTX: What are your thoughts on investment activity going on around DFW?
J: I think the investment scene is emerging, it took a hit that it never quite recovered from in the telecom crash from years ago, but I think it’s coming back. I think it needs some homeruns. It needs some names that put make the national map for technologies and solutions providers that are based in Dallas. There’s a lot of money here in Dallas, but there’s not a lot of homegrown homeruns that are based in Dallas. We want our community bank to be owned by the community. I want local ownership. We get calls every day from large institutional investors that are interested in taking a big chunk of the deal or even the whole thing, but that’s not what we want. We want it to be a true community bank, owned by the community and used by the community.
NTX: Being a new bank, how do you go about building that trust in the community, since you don’t have a reputation that people have seen yet really?
J: A lot of that just comes from existing relationships. We’ve all got people and networks that we know. My board members know a lot of people around Dallas, so some of the trust is there because of the people, but we do have to establish the TYME brand as a trustworthy brand, but the people – the management and the board – I believe they have those relationships to bring that inherent trust with them.
NTX: So looking at the big picture, what impact are you hoping to have in the North Texas community?
J: We’re trying to build something of lasting legacy. We’re not trying to build something to flip it in this era of bank mergers and acquisitions. That’s not what we really want to do, we want to maintain those relationships for a long time and bring back something that’s been lost - that small community bank-feel. We think we can grow the bank over a 10-year period or more and still be small enough to serve the community. Our initial capital raise, and I’m rounding some numbers, of $30 million, will allow us to grow a $300 million balance sheet for a bank. It’ll probably take us about three years to deploy the capital smartly and to get to that size and you start optimizing your operations, but in the world of banks that’s still a small bank. At that point we would probably do some kind of small recap, raise some additional capital that will allow us to get the bank to a $600- to $800-million balance sheet. Again, that’s still small.
