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profitable group of small survivors to fill their shoes By Joe Nabbefeld After the S&L debacle came the recession, wiping out profits, more CEOs, and even a lot of the surviving banks' sizes. Locally based banks and S&Ls together controlled close to $40 billion in assets 10 years ago. Now that’s under $4 billion, mostly in 20 banks, none of which carries more than $690 million. Credit unions, then bit players, now control another $3 billion or so. Now, as a sign of an improving economy, the remaining banks' profits have returned, and with that a baby boom of new banks has begun, the first since 1983's big one. Records show only two of 21 locally based banks lost money last year, while at least 10 reached profit levels considered above average in any economy. Even the biggest money loser, First National Bank, which had closed the year with a negative 0.90 return, says it feels invigorated. Recapitalized, again - by a fresh set of investors, again - under new leadership, again - First National says most of its $2.66 million loss for last year came from $3 million in expenses such as lawyer fees for its late-September merger with once-wounded Bank of Southern California. So it predicts profits for this year, boosted by not having to pay taxes on its earnings because of write-offs for previous losses. First National capsulizes the ride of the last decade. This is the First National that leapt to life during the 1983 Baby Boom with a previously unthinkable $15 million in initial capitalization, put together by yachtsman/businessman Malin Burnham. Most other boomers started with capital of $3 million or less.
By 1988, First National's assets neared $500 million and imported CEO Robert Richley insisted he soon would take that to $1 billion. Burnham rode high as master of the America's Cup's first-ever stop off the East Coast and looked forward to reigning as leader of San Diego’s second heavy-weight local bank, challenging San Diego Trust. Richley even got two whacks, leaving to work in Texas then returning as CEO. Losses during the recession of the first half of the '90s wiped out the capital. Instead of $1 billion in assets, First National cleaned itself down to $150 million. Meanwhile, fellow boomer Bank of Southern California never got so grandiose, but ended up in about the same place: wracked by early-1990s losses, under new management led by Tom King and fresh investors and wrung back down to about $150 million in assets. Last September's merger of the two puts First National around $300 million in assets, owned largely by Mexican businessmen and led by long-time Mexico City Citibank banker Leon H. Reinhart, who is reshaping the bank to appeal to Mexican and foreign traders. The merged bank booked more than $3 million in expenses for the merger in the third quarter, causing it to take a large loss for the year instead of a small profit. "We’re doing very well now," says marketing vice president Kevin LeVezu, who came from the BofSoCal side.
Tale At The Top The tale at the top of last year’s bank profits doesn’t differ that much, except it transpired in North County. First Pacific National Bank of Escondido didn’t exist a decade ago. Escondido National Bank did, duking it out with top-dog Southwest Bank and boomer North County Bank for Escondido business. San Marcos National Bank existed too, facing off with fellow youngster Rancho Vista National Bank for Vista's loans and deposits. Escondido National and San Marcos National each were started and run by Harveys: Harvey Mitchell at Escondido and Harvey Williamson at San Marcos. The two Harveys in 1988 united their banks under one holding company while keeping their banks' separate names, with the senior of the two Harveys (Mitchell) taking the top leadership position. Along came the recession, in came losses at Escondido National and out went Mitchell. New investors put in fresh capital, put Williamson in charge and in 1993 merged the two banks along with Temecula Valley Bank under the new name of First Pacific. The bank since bought Overland Bank in Temecula and Bank of Rancho Bernardo and ended last year at $308 million in assets - and was second in return on assets at 1.88 percent.
First Pacific wouldn't have been near the top ROA, however, without tax write-offs from the previous losses and if it had put the usual flow of funds into loan loss reserves. Its ROA would have come in at "more like 1 percent" for the year, reports Williamson. First Pacific used up its tax carry forwards last year and will pay taxes this year, he adds. Typically an ROA above 1 percent represents good to excellent profitability. Along with First Pacific, nine other San Diego County banks topped that mark at year’s end, according to data compiled by Sheshunoff Information Services, a nationwide bank data dealer based in Austin, Texas. Another five came close, posting healthy ROA's 0.80 percent or greater. "We had a pretty good year. Wesense things are starting to look upward," says Tom Michelli, CEO of Pacific Commerce Bank in Chula Vista, one of the county's most consistent strong profit-makers that notched a 1.30 percent ROA last year. The county's largest local bank, Grossmont Bank with $629 million in assets, recorded a 1.22 percent ROA in 1996. In the county's second-largest bank, Bank of Commerce (with $372 million in assets and a 0.88 percent ROA), you have another change from 10 years ago: The young are now the old and eminent. Pete Davis has headed Bank of Commerce for almost 20 years, steadily building it in the shadows of the now-departed biggies. Davis, North County Bank's Jim Gregg and Peninsula Bank's John Rebelo now wear the mantle of the area's leading bankers. Davis says their records of stability suggest they'll keep churning out strong ROAs even when others "crash and burn." San Diego undergoes periodic waves, or baby booms, of new banks. These have typically come about every seven years, but the recession caused a skip, so the last one was 1983. With the upturn in profits, and thus interest in investing in bank stocks, "it seems to me we’re going to repeat the cycle," Michelli says. At least five new banks are in various stages, led by Temecula Valley Community Bank, which Fallbrook National Bank founder Steve Wacknitz opened in December. Bank of Rancho Bernardo founder Alan Douglas is raising capital to start Rancho Bernardo Community Bank. (First Pacific bought his first one.) Howard Levenson chairs a group with Michael Dunahee as CEO, former chief of Rancho Vista, seeking to raise $5 million of initial capitalization for Southwest Community Bank in Encinitas to challenge perennial struggler San Dieguito National Bank (with 0.43 percent ROA). The Ideal Bank Ideally, there's more to banks' profits than just what kind of an ROA they generate to make their owners wealthier, such as what the banks do, or don’t do, to nourish the communities that nourish them. Particularly with the strengthening the past decade of the Community Reinvestment Act that requires banks to nourish all parts of their community instead of red-lining poorer parts, banks have had to answer more to that performance standard, too. The man in charge of monitoring that in San Diego gives the area's locally owned banks surprisingly decent - good, but not perfect - marks. Jim Bleisner, director of the City County Reinvestment Task Force, says the locally owned banks would rate six on a scale of 10 in their community reinvestment, particularly in small businesses. Unfortunately, he says the larger banks, those based elsewhere but which control far more San Diego bank assets and deposits than the local banks, score significantly worse. "I don’t think out-of-town banks infuse as much cash into the local economy," Bleisner says. "So it’s important to have strong, healthy community banks." Rancho Vista National Bank (1.01 percent ROA last year and $104 million in assets) provides two examples of what a bank can do when it tries.
Headed, not coincidentally, by the county's only female bank CEO, Rancho Vista administers a no-interest loan program for women having babies and contributes staff time to a "financial literacy" program that provides finance lessons to homeless women. The one for women having babies, called Fund for Moms and organized by Vista Community Clinics, has made about 200 no-interest loans not exceeding $2,500 from a pool of funds, and only one loan has defaulted, says Rancho Vista CEO Judy Stewart.
Stewart says she presumed most borrowers would be single women,"but that’s not the case. Most of them are married, working and just struggling to afford things." In addition to enabling parents to better provide for their infants, the loans help them establish credit ratings needed to properly care for their children in later years, she says. The financial literacy program through St. Claire's Home teaches women how to access credit and manage their financial affairs. Some go on to become Rancho Vista customers. "It’s a need that was brought to my attention," Stewart adds. "I thought we could make a difference here." How's that for a change from a decade ago? |
