Banks

The Valley’s community banks are cheering on the sidelines as they watch the big banks merge. That’s because every time two big institutions get together, small banks reap a windfall of new clients who have grown disgruntled with the impersonal service of big monolithic banks and jumped ship. “I’ll bet 50 to 60 percent of our new customers in the past couple of years are people whose banks merged and they didn’t like it,” said Frank Ures Jr., president of Sherman Oaks-based American Pacific State Bank. “We love the big bank mergers. There’s nothing better those banks could do for us.” The recently announced proposed merger of NationsBank Corp. and BankAmerica Corp. is the latest in a string of giant marriages that have swept up such local institutions as Great Western Bank, California Federal Bank, First Interstate Bank and Home Savings of America. In the midst of all that merger activity, American Pacific State Bank has seen its assets grow by 30 percent, to $375 million, since the end of 1996. And most of that money came from former big-bank customers, said Ures. American Pacific is not the only Valley-based community bank singing the praises of large bank mergers. About 10 banks or thrifts still operate out of headquarters offices in the Valley, and many attribute their recent successes to the mergers. “The majority of our new customers in recent years come from the bigger banks,” said Jack Seefus, president of Lancaster-based Antelope Valley Bank, where assets have risen by about 60 percent to $200 million since 1993. “We have five full-time people whose job it is to sign up new accounts, and they’re kept very busy.” The benefits of banking with a small institution boil down to more personal service, according to community bankers. Unlike their larger counterparts, local banks offer customers direct contact from their top executives. Seefus at Antelope Valley Bank, for example, often includes his direct phone number on the bank’s advertisements, to assure customers that he is available. Seefus said businesspeople who have been turned down for loans at the bank sometimes contact him to appeal their cases and explain their circumstances. “Today I had a guy call me who we had turned down for a car loan,” Seefus said. “He explained to me what his problems had been, I looked through his file, checked a few things and we gave him the loan. Do you think you would find something like that with a bigger bank?” The community bankers say they are positioning their institutions to be a market counterpoint to the large banks. “In the future, there will be the large, merged banks and then there will be the community banks,” said John Reardon, president and chief executive of the $125 million Valencia National Bank. “The big banks increasingly are having their customers bank electronically, while the smaller banks will be for people who want to bank with people.” Reardon noted that Valencia National’s assets grew by 19 percent last year, mainly due to new business from people who fled large banks. That fact has not escaped the notice of large banks in the process of consolidating. “We are very cognizant of the fact that mergers create opportunities for customers to move elsewhere,” said Carey Walker, a spokesman for Bank of America. When BofA acquired Security Pacific in 1992, the merged bank lost about 5 percent of its customers, Walker said. But the bank has seen no drop in customers since the proposed merger with NationsBank was announced last month. Carl Schatz, chairman of the 6-month-old Encino State Bank, said another way community banks differ from their larger counterparts is in how they attract customers. In addition to running advertisements, bank officers and personnel use their community links. “I and the people who work here have been Valley bankers for decades and we know a lot of people,” said Schatz, whose own career as a local banker goes back to 1950. “Much of our business comes by word of mouth.” He said that since opening last October, the bank has loaned $11 million of its $33.5 million in assets to an array of individuals and small businesses. “We get all types of businesses, from construction loans to a sizable loan we just made to a mobile home park,” Schatz said. John Stafford, a spokesman for the California Bankers Association, confirmed that there is an ongoing exodus of customers to community banks. “People like community banks because the tellers know their names and they can talk to a real person on the phone instead of getting recordings,” Stafford said. “At the big banks, no one knows who you are.” However, Stafford cautioned that the banks could see a reverse flight of clients if the economy takes a turn for the worse and consumers begin pinching pennies. “You’re probably paying a little more with small banks than with big banks,” Stafford said. “It’s not much more, and it’s less of an issue now (because of the robust economy), but ultimately pricing becomes a real issue.” Indeed, the price differences between large and small banks can be considerable. At Wells Fargo, a basic checking account with no minimum balance costs consumers $5.50 a month. A similar account at American Pacific State Bank, on the other hand, goes for $10 a month. What’s more, Wells Fargo customers enjoy unlimited free access to hundreds of automated teller machines. At American Pacific, which operates no ATMs of its own, checking account customers are permitted four free transactions a month at other banks’ machines; after that, they pay a dollar a transaction. Community bankers counter that while fees for some services may be higher, other fees are lower, and there ultimately is little if any overall difference. Besides, many customers are willing to pay a little more for the more personal service. “There will always be a sizable segment that wants better service and doesn’t believe bigger is better,” Seefus said. Stafford said that while a number of community banks have succumbed to acquisitions, they have done so because of attractive buyout offers rather than competitive pressures. It is the medium-sized banks which generally have between $500,000 and $1.5 billion in assets that will experience competition-related pressures to merge. The medium-sized banks will encounter problems in being neither fish nor fowl, Stafford said, lacking the strength of the banking monoliths while being too large to offer the personal service of the community banks. With $375 million in assets, American Pacific is the closest thing the Valley has to a mid-sized bank, and Ures said that he and the board are adamant about not selling out to a larger company. However, convincing the bank’s clients that American Pacific is not an acquisition target has been a formidable challenge. “We’re unanimous, the bank’s not going to be sold and people aren’t going to end up with another bank,” Ures said. “We’re very profitable as we are.”