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Wednesday, Nov 29, 2023

Despite Tough Climate, Two Start-Ups Seek Funds

Bank failures, plummeting stock prices, a weak dollar and real estate in turmoil: these things don’t scare the folks who have decided that this may, in fact, be a good time to start a brand-new community bank. One starry-eyed dreamer might be understandable, but there are two groups of financiers in the Valley who are betting their personal funds, and those of local business owners, on de novo, or start-up, banks. First up is SoCal Business Bank, under the leadership of proposed President and CEO Chuck Fenton, formerly of Verdugo Bank; CFO Tom McCardle, most recently of National Bank; and Chief Credit Officer Bob Scott, fresh from turning around Golden Security Bank. The SoCal team received approval of its national charter on May 19 and was given the go-ahead to start raising money on June 20. They gave their first public offering presentation on June 25 and have received approval from the FDIC. The organizers need to raise $19 million in capital within one year. Fenton doesn’t think they’re crazy, even though when they first started planning three years ago the climate was much more comfortable for a start-up. “We had to decide whether to go forward,” said Fenton, but even as the economy slid closer and closer to a recession, “We decided we were going to persevere.” Having been part of the start-up team for Verdugo Bank in 1991, a similarly negative time for the California economy, he says there are still some very positive reasons for their decision to start a business bank that would be based in Van Nuys. In his presentation, Fenton quotes statistics like these: deposits in the Valley have grown 51.6 percent over the past 10 years, to $5.7 billion in 2007; and the top five depository institutions in the region have 71.5 percent of the market share. And going back to that Verdugo start-up, Fenton said that when the bank was sold to Pacific Western in 2003, they had $182 million in assets. “We gave the shareholders a good return on their investment,” he said. SoCal Bank will have individual investments capped at 4.9 percent of the total capital, or about $1 million. “So there’s no grand wizard behind the curtain,” said Fenton. The minimum investment is $10,000 and Fenton said that only two or three people have ponied up the maximum so far, with a total of just over $2 million having been raised from the founding members as of mid-July. One thing that jumps out from the offering packet is the monochromatic nature of the board of directors and executives. Every single face on the page is what appears to be a Caucasian male, although when questioned, Fenton points out that one of the men is “part Indian” and another is “part Colombian.” There are, he adds, several women and people of color who are founding members and he said there are several female senior executives who are currently employed, and therefore remaining anonymous, who are committed to coming aboard should the capital offering succeed. “Van Nuys, that marketplace, I think you’d want to have a board that reflects the type of community entrepreneur,” said Carl Raggio, founder of three-year-old Western Commercial Bank. “Especially the Latino and Black population, I’d want to see that. I don’t know how many women business owners are in that marketplace.” That’s perhaps the main difference between SoCal and another proposed start-up: El Camino Bank in Chatsworth. Same market El Camino is aiming for the same general market as SoCal, namely the small- and mid-size business owner, but with a “slight Latino flavor,” said Cole Minnick, president and CEO- to-be (who was, with SoCal’s Fenton, also a founder of Verdugo Bank.) “Since the population is already 35 to 40 percent Latino we will primarily be concentrating on second- and third-generation Latino business owners.” They are also planning on focusing heavily on SBA lending. El Camino has two women on its board: the president of Ojai State Bank, Sharon Skinner, and another female business owner; and the executive vice president and chief marketing officer will be 20-year banking veteran Armida Colmenares Stafford. Minnick credits Stafford as being the driving force behind El Camino. “She has really been the firebrand, the person who carries the torch,” said Minnick. After working her way up through Security Pacific Bank, Bank of America, Citibank, and, most recently, US Bank, she felt there were several niches that those big entities were not servicing appropriately. “I was at one point the regional sales manager for B of A where I managed 20 branches in the Valley,” said Stafford. “I saw there were a lot of underserved small- and mid-size businesses as well as the Latino businesses.” In looking around, she realized there are no community banks within a five-mile radius of Chatsworth, so that’s where she decided the bank should set-up shop. Her board of directors is made up of local businesspeople with diverse business interests and her management team, most of who are still working elsewhere and have asked to remain anonymous, are also locals who have started other financial institutions in the region. “Our board is very diversified,” said Stafford. “They are from different business backgrounds; we have women and Latinos on the board.” Not yet approved El Camino has not yet been approved by state regulators, so they are not able to disclose much about their plans other than that they have applied to raise $13 million. That, said Tamara Gurney, founder, president and CEO of Mission Valley Bank, could prove to be the biggest challenge facing both start-ups. To Gurney, this “obviously is not a marketplace to go out and ask for peoples’ money because we’re staring at banks like IndyMac and watching all of our (bank) stock prices falling.” Unlike the start-up teams, Gurney is not convinced the small- and mid-size business market can sustain a couple of new banks. “Part of what got some of these younger banks into trouble recently is not the subprime or land or construction loans, but there is so much competition and the pricing is so thin that they have to get lots of deals on the books to leverage up their capital and show they’re relevant,” she said. That led them, Gurney added, “to make some risky decisions.” These new banks, in her opinion, will have to leverage their capital quickly. “Shareholders don’t have the patience they did several years ago,” said Gurney. Western Commercial’s Raggio doesn’t quite agree, saying that he believes there’s plenty of room in the Valley. “At one time we were able to have 15 banks with their headquarters just in the San Fernando Valley,” said Raggio. “Eight were bought out and at one point we were down to just four.” But, he shares Gurney’s concern about the difficulty of raising capital in such a challenging environment. “It’s such a difficult time in this market to try and raise capital,” said Raggio. “I’ve got to think that’s going to be a very steep uphill slope to climb in this marketplace.

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