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Thursday, Mar 28, 2024

Win at Small Ball

Tamara Gurney has worked in the banking industry in the northeast San Fernando Valley since 1980. For nearly 20 years she worked for American Pacific State Bank, starting as a secretary to the president and moving up to become chief operating officer. After American Pacific was acquired by City National Bank in 1999, Gurney was part of a group that launched Mission Valley Bank the following year, where she now serves as chief executive. “When the bank was sold I was looking for my next opportunity and the local community was saying, ‘We want a small bank back again,’” Gurney recalled. “There were four or five of us who got together, put a business plan together and started Mission Valley.” Gurney met with the Business Journal at her Sun Valley office to discuss the relevance of community banks and the opportunities and risks facing small banks. Question: How relevant are community banks in today’s economy? Answer: Having been in the business as long as I have, I would say they are very relevant. The data supports the fact that it’s community banks that are doing the majority of lending to small businesses. Without community banks and that option to small businesses getting started or growing and serving their communities, I don’t think they would prosper. Are small banks better at small business lending? I think so. We make it a point to understand the business. Because we know the customers and are in these true relationships we can provide more than dollar financing. We can provide insight into the business operations and suggestions and guidance on how to do a better job managing it. What strategies can a community bank take to stay relevant? Many of them are doing well in specific niches. They get a specialization within an industry type. Technology is driving all of us and in order to compete and stay in business, we have to use technology to create better efficiencies but we also have to still remember that what we differentiate ourselves with is that personal touch, which is expensive. It is finding that balance. What do your investors think about owning a small bank? It’s been mostly the local community that have been our shareholders and investors. They see a real connection that if we prosper, they prosper and vice versa. That’s always played out very well. During the great recession if you had the word “bank” in your name nobody wanted to own a piece of it. We’ve come past that. There seems to be more of an interest in the last year or so in community banks from the investing public. What are investors looking for? I think some are speculative in the sense they think there is going to be consolidation, this bank looks like a target, I want to own it so I can benefit when they are acquired. I am sure there is quite a bit of that going on. There are also investors that are long term and want to see the community bank prosper. How are Mission Valley shares doing? Right now, our stock is up. It has been trading nicely above $14. It is moving. There is an interest out there. What is the minimum number of branches needed for a community bank to thrive? I don’t think there is a magic answer. It used to be expanding geographically was important in terms of growth, if you want to grow your asset base. It’s critical for deposit gathering these days to have more locations. The two for us is fine right now; we used to have three. Brick and mortar is very costly and we are going to branches in the palm of your hand in the form of your cell phone. We have to be more thoughtful about what that means for the future. Any thoughts of adding another branch? Absolutely. When we consolidated the Santa Clarita offices we said we’d be looking thoughtfully at a more retail-focused location much smaller in size. Our two branches are currently around 4,000 square feet. We think the branches of the future are in the area of 1,000 to 1,500 (square feet). What concerns you about the banking industry? The thing that worries me now is this fintech lending because it is so readily accessible. They are just trying to lend the money. They are not really looking at the business and seeing what the true business needed. We see time after time where a client gets in trouble with cash flow and the bank is being cautious with them. So, the immediate thing is to go to a fintech lender and in 24 hours you get fifty grand or a hundred grand. That can drive a business out of business. They are not getting counsel. Are federal lawmakers in Washington friendly to small banks? Washington is friendly to small community banks at least in the media. They talk a lot about it. It’s the first time in my career I have seen a differentiation where they are supportive of main street banks as opposed to Wall Street banks. I think they are trying to do the right thing by looking at the regulatory environment and identifying the fact there are regulations that are appropriate for larger banks that need to be modified to be more business friendly to smaller banks. So, yes, I think it’s becoming more friendly but at the end of the day the proof will be in the pudding. What can federal lawmakers do to help small banks? They can take a look at the regulations and be thoughtful about how they impact on what we do and modifying them to adjust for that. It becomes a best practice to adopt the regulation that was really put into place originally for the 19 largest banks. We’re taking time preparing reports that are costly for the time our human resources have to devote to it and it provides no value either to the public or the regulatory agencies. How has Mission Valley been affected by these regulations? A bank my size with the imposition of BSA (Bank Secrecy Act) and all of the Dodd Frank (regulations) it becomes to where I am spending $300,000 to $400,000 a year. Cost for compliance has gone up more than 40 percent for us. When you’re adding two, three, four people just to do the Bank Secrecy Act and anti-money laundering, that is really a huge impact. That is why so many smaller banks are merging. What do you think should be done? The business models are so dramatically different that we need to bifurcate the system and say if you want to accomplish this, write it for the large banks this way and write it for the small banks this way. We are fine with the regulations. We are not saying don’t regulate us. We are saying be thoughtful about the impact. So much of it is handcuffing. I hear from presidents of small community banks that were doing mortgage lending that completely got out of it. So, there are communities now that aren’t being served. Where is the turf battle of the future between banks? The internet banks that have no footprint at all, they are all online, that is definitely a concern in terms of competition. You are looking at banks trying to partner up with the fintech banks and the fintech banks are trying to get actual bank charters. So, there is a lot of movement and change in the industry and we’ll see how it plays out. It’s going to be driven by the consumer at the end of the day. Who else do you compete against? We have more competition from the larger banks because they are coming down market more so than they ever did before. The small businesses that we have traditionally lent to were not even on the radar of a larger bank because their thresholds were much higher for their lending. Now there is so much competition all over the place that the larger banks are playing down in the truly small business market. What opportunities do you see on the horizon for community banks? I like to think to just keep doing what we’ve been doing and stay true to our business model and not try to be, just because of competition, like the other guys. Just stick to your business model, I think, is the best thing I can say because that is what got us where we are today. What risks do you see for community banks? They are similar to risks for all banks and there is a lot of discussion on how long can this economy continue to go on without another correction. We follow closely some of the leading indicators of that and those would suggest there is going to be a modest correction sometime next year or early 2019. It’s like any other cycle. When things are good, you take advantage of those opportunities, you can get good loans on the books and generate a lot of new business but you have to continually stay engaged with those clients and follow what is happening in their specific industries. So, we look at the type of business that we have the majority of, which is manufacturing with some service businesses. We will stay in touch with anything that is going in their industry that might be a leading indicator of economic turmoil coming down the road.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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