Santa Clarita is probably one of the fastest growing business sectors in Southern California. We're blessed with 17 million-plus square feet of industrial space up here, growing rapidly, so it's a perfect environment for a business-oriented bank to establish itself, especially given the sale of Valencia (Bank & Trust) that occurred November of 2002.
Signal: You used to be with Valencia Bank, Jim
Hicken: Yes I was, Leon. I was executive vice president (and) chief lending officer for seven years.
Signal: And Frank, you? What's your background in banking?
Di Tomaso: Well, originally, Union Bank in the early '80s. A few years there, went to their management training program. Moved on into Metro Bank, where I was for about 14 years. Worked up my way through the lending department. Headed up the asset-based loan department, certain loan departments within that bank. And ultimately when Metro Bank sold, I joined Comerica; was there for about a year before I moved on to City National Bank, where I was up until recently; resigning (in the) earlier part of this year to start this venture.
Signal: And Jeff Pollard, another Valencia Bank veteran, is with you, as well?
Hicken: Absolutely. Jeff is the chief financial officer and chief operating officer. So Jeff, Frank and I compromise the three individuals who got this bank of the ground.
Signal: Who owns your bank?
Hicken: The citizens of Santa Clarita.
Signal: You mean I own part of it?
Hicken: Well, if you bought the stock. One of the visions that I had for this institution, that we all had for this institution, is, we truly wanted it to be representative of the people who lived here. It was our desire to have as many people within this valley invest in this bank, and I'm happy to say that at the close of the offering which occurred at the end of August, a little over 80 percent of the stock that was sold was sold to people who lived in the Santa Clarita Valley. And the average subscriptions, or the majority of subscriptions that were taken, were between $5,000 and $10,000. So we have people in Agua Dulce, in Acton, in Canyon Country, in Saugus and Valencia and Newhall and Stevenson Ranch and Sunset Pointe and Castaic; we have a great representation of the valley. It is truly the community's bank.
Signal: Who are the biggest shareholders?
Hicken: There aren't any really big shareholders. If there were any large shareholders in the institution, it would be those of us in the executive management slots and some of the board members.
Signal: How many people own stock all together?
Hicken: Well, at the end of the day, we had subscriptions in excess of 527. That will sort down as some accounts get combined. There are subscriptions coming out of IRAs and individual accounts, so it will settle out somewhere under 500.
Signal: So, if not the entire Santa Clarita Valley, then at least 500 people in the Santa Clarita Valley own it.
Hicken: That's exactly right.
Signal: Tell us the story of how all this came about.
Di Tomaso: Jim initially called me, and we had known each other, going back. We both started at Union Bank back in 1981 or '80, and we had maintained contact throughout the years (we) were together at the same banks. Then August of last year, Jim gave me a call. He was actually looking to employ somebody, wanting to pick my brain to see if I had any referrals.
We sat down at Mimi's Cafe and I asked Jim, I said, "Jim, have you ever thought about starting your own bank?"
Hicken: I said no. And to put that comment in perspective, when Valencia (Bank was sold) in '02, there were a number of people in the valley who came to me afterward and said, "Jim, you really need to start a bank." And I said, "No, now's not a good time. We're in a low interest rate environment." And I could come up with all the reasons why it didn't make a lot of sense. When Frank and I had lunch in August of last year and he posed the same question to me again, I basically gave him the same answer that I had been very good at coming up with.
But sometimes things happen in life that cause you to go back and take a second look and pause and reflect. And it was after that meeting that I went home and really started thinking about what Frank had asked me, and I thought, you know? Maybe now's the time to do it. Because if I go back in my history I've always had a dream of being a president of a bank one day, and as I looked it I said, maybe now's the time.
But for that to occur, you have to have the right combination of people, and I had heard that Jeff Pollard had been looking to start a bank, or at least toyed with the idea of starting (one). So I picked up the phone, called Jeff and said, "Jeff you and I should meet." So he and I got together, and I asked Jeff if he had any interest, and he absolutely did. So I said, "Well, OK, I've got to make a phone call, because I think there's someone else you have to meet." So I picked up the phone and called Frank and
Di Tomaso: And it was Friday night, the phone rings, and Jim asks me flat out, "Were you interested in what you really were proposing?" And I said, "I'd drop everything that I was doing to pursue starting a bank in the Santa Clarita Valley."
Signal: So is this a big leap of faith, or is it something you'd always dreamed of doing?
Di Tomaso: For me my father started a bank. Frank Di Tomaso Sr. started a bank called Bank Beverly Hills back in the '70s. So I grew up in the banking industry, and that was always a dream of mine.
Unfortunately this is a sidebar, but unfortunately my father passed away a few years ago, so he never saw this come to be. But I know he's looking down on it.
Signal: What about you, Jim?
Hicken: I first got into banking in 1978, and probably in about 1980, 1981, I thought I would love to be president of a bank in a small town one day. Now, to me, I always envisioned being in Jackson Hole or some place like that. Little could I see back then that I would be president of a bank in a community of about 225,000 to 250,000 like Santa Clarita.
Within banking, you really have two directions to go: You could go to work for the large institutions, and that's where you spend your time; or you can go to work for smaller institutions. For those of us who have been blessed for working with smaller banks for me it was Valencia Bank & Trust you really begin to realize what kind of impact you can have on the community and the people you live and work with. So for me it has always been a dream.
Signal: Jim, you were with Valencia Bank when it was acquired by Union Bank. A lot of people in town seemed upset that we were "losing" our only locally headquartered bank. Where did you stand? Were you for the takeover? Against it? Obviously, you ended up leaving Union Bank
Hicken: The interest thing, on that part of it and this may be a little of a surprise, but Jeff and I were (among) the last to find out that we were actually in the process of being sold. When I joined Valencia in 1996 and we began to change the bank and move forward, we started doing a lot of good things, and I was having a good time. It was a lot of fun. I enjoyed it.
I was disappointed when the bank sold. Valencia was a publicly traded company; we were on the Nasdaq (Stock Market). So, you know, to the extent that somebody comes in and makes an offer to buy the bank and they put enough money on the table, it's something the board's got to consider.
But from Jeff's and my perspective, we were not aware of what was going on, so we were probably as surprised and disappointed as anybody else when we found out the bank was being sold.
Signal: Where can people buy stock in your bank? Or can they? Over the counter?
Hicken: Well, we will be (on the) OTC Bulletin Board. We'll have three market makers, so probably sometime in the next two to four weeks, we'll go through and get our approvals necessary from the market makers to have them represented. At that point, if people want to buy stock, what they would do is contact one of the market makers.
Now, having said that, you have to have someone willing to sell stock. So it's got to be a buyer and a seller. But the market makers are the ones who allow trades or facilitate the trades.
Signal: Were you surprised, when you reached 500 subscribers, that people had that much faith that a locally based bank could work again?
Di Tomaso: That's an interesting story. When we first started out, we were questioning whether we could raise $5 million. But the bar kept on being pushed up by the regulators. They felt that in this type of area, the Santa Clarita Valley, they felt that we could actually raise the bar and raise more capital to start the bank. So it kept on moving up and up and up, and at $10 million, we felt that was a big hurdle, but as it turns out we only had the offering out there for about four weeks, and we raised well in excess of $10 million, actually closer to $15 million.
Hicken: One of the challenges you've got to deal with when you do an offering like this, especially for a bank, is, you have to go out with a stated range. In our particular case, we went out with a $10 million to $12.5 million (goal), and we raised $13,750,000, which is what we finally settled on which is 10 percent over, which were allowed to do.
But within the environment, if you go out and you say you're going to raise a minimum of $10 million and you raise $9.5 million, you don't open. You don't go back and redo your offering. You don't open. The money goes back. So when you come up with a dollar amount to go raise, you have to be realistic; it's got to be an amount enough to allow you to open your doors and function as an institution, but it can't be so aggressive that if you don't achieve it, you don't open your doors at all.
Obviously we had a lot of issues that we were concerned about. We've had the terrorist issues. There's been a lot of discussion about whether or not there's going to be a lot of issues domestically with terrorism. It was an election year, which can create a lot of volatility from an investment standpoint. And we were raising our capital what, four months before November, before the election? So there were a lot of things that made us concerned.
Were we surprised that we had that level of support? Probably a little bit, but we were also excited. We had heard that the enthusiasm was out there. People had told us the enthusiasm would be there to support us. But hearing it and seeing it can be two different things.
It has been a tremendous journey. It has been a lot of fun. We have met a lot of interesting people. When we sold the stock, we sold it the old-fashioned way, which is just handing out circulars, meeting people, talking about what were doing.
Di Tomaso: We did not use big brokerage houses.
Signal: A lot of business lunches, huh?
Hicken and Di Tomaso: Yeah. (Laughing.)
Signal: It seems that we have a glut of banks coming into town small ones and branches of big ones. The obvious question is, what makes you think your little one-branch bank can complete?
Hicken: Because we're the only bank in the valley that's the locally owned bank, and that's a huge difference.
Signal: Why is local ownership important?
Di Tomaso: There are a lot of different reasons that make a community bank successful. First off, big banks, by their very nature, spend a lot of time investing dollars to actually push away contact with their clientele, especially on the small end. That's why they use the ATMs. They charge clients for walking in.
We're not like that. We want that contact. We have direct access to management both Mr. Hicken and myself and Mr. Pollard and anybody on our staff, as well. So there's a lot of personal touch. Hands-on. When somebody walks in and says "hello" we say, "Hi John, Hi Joe." And I mean, those are just a couple of them
Hicken: But more importantly, decisions are made locally. For all the banks out there, when you go in with a loan request, when you go in with issues, decisions are made somewhere else. They can be on the other side of the hill; they can be in downtown Los Angeles.
I'll give you a great story on the difference between a branch (of an) out-of-valley bank and local bank, and I'll use the Canyon Theatre Guild as an example.
When the Canyon Theatre Guild was up Sierra Highway and they were contemplating moving down to Newhall if you remember, they moved into the (NAPA) Auto Parts house over there. And (theater Director) Tim Ben (Boydston) came to me (at Valencia Bank & Trust) because they needed financing. The city was going to contribute part of the money to get them down here, as part of the redevelopment, but they also needed a bank that would basically come in and finance the real estate acquisition for them. That was a deal that any bank outside the Santa Clarita Valley would never touch. It didn't conform; it was a high advance rate; it didn't make a lot of sense.
But as the community bank, as someone who lives and works in the valley my daughter was in many of the plays that were up the canyon, (and) I understood that it was something that the valley wanted. I understood that the support for the theater was there. We ended up doing the real estate loan to get them in their facility there. That's a great example of the difference between a locally owned community bank versus the branches of others.
Signal: You've got a state charter for your bank, which gives you a higher lending limit than a federal charter, right?
Hicken: A higher lending limit. Within a national bank OCC (Office of the Comptroller of the Currency charter), which is what Valencia bank was originally Valencia National bank you have a 15 percent limitation, legal lending limit, on capital. Within a state chartered bank, it's 15 percent unsecured, 25 percent secured "secured" meaning real estate.
Signal: So, how big a loan can you make to a single party?
Hicken: Within the legal lending limit, you just take the capital of the bank and multiply it by those ratios, and those are the dollars you come up with. So you might not necessarily make a loan of that size based on the individual criterias, but if you just take the capital of any bank times 15 percent or 25 percent; that's how you come up with the legal lending limit.
Signal: If you're planning to target businesses, are you also planning to make a lot of construction loans?
Hicken: Absolutely, and I think this is one of the best environments for it.
One of the niches that I think is a very good niche in this valley, especially with single family (homes) you've got a lot of single families that get constructed up in the Agua Dulce area, in the Acton area; Westridge is doing a lot of owner-occupied construction over there; Castaic (is) coming online. It's a great venue for a local community bank to finance those.
I did a lot of the financings within the industrial parks. I financed an awful lot of what went on Smyth Drive, a lot of different products. Ivan Cohen was a huge developer up there that we financed a lot with. So, financing in a growing environment like this is very, very good for the bank (and) good for the community.
Signal: Will you also be getting into the mortgage loan business?
Hicken: No. That is one of the things that's a commodity-based business. You've got Countrywide (Home Loans); you've got all types of mortgage companies that are in there. Mortgages, interestingly enough, are not something that people typically come to their banks for. If you look at the advertisements, you can go on the Internet; you've got Ditech (.com). So it's a very competitive marketplace; there are people who specialize in that. One of the things that you learn as a bank is, focus on your niches and do what you do well and certain areas you're best to stay out of.
Signal: Frank, you're handling the marketing for the bank; will you be knocking on doors in the industrial and commerce centers?
Di Tomaso: I do it the old fashioned way, and how I go about doing that is yes, actually, I buy a lot of pairs of shoes and I walk the industrial park. And just branding the name and getting it out there and I think, again, direct access to management is a big plus.
Also, my background is lending on the commercial side for many years, so if someone asks me a question I can certainly answer it right then and there. I can determine if we can do the transaction or not as opposed to the mentality (of) collecting information (when) no, you really can't do it. And trying to appease a higher authority to make somebody else happy I can address it and let them know exactly, or give them the road map that shows them, maybe we can't do it today, but we can do it down the road. Which the community in general, especially the borrowing community, is very grateful for something along those lines of that expertise.
It's just getting out there and knocking on the doors and just introducing myself and the bank, and letting everyone know we're here.
Signal: So you won't really be targeting the consumer market you won't be offering free checking accounts and that sort of thing?
Hicken: No. If you look at the consumer marketplace, you have Bank of America, which is a huge consumer bank; you have Washington Mutual, which is a huge consumer marketplace. As a small bank, as a medium-size bank, if you go directly after that component, you're not going to compete with these guys. They're just too big and too volume-driven.
Where we compete more effectively in the consumer marketplace (is) with those individuals who want a high-touch relationship. You don't come in and it's free checking and everything's for free; but having said that, for a lot of people in this valley, to be able to walk in and know who they're dealing with and have that personal relationship, is worth a lot to them.
Signal: The business focus sounds similar to City National; was that your experience there, Frank?
Di Tomaso: I think City National Bank is a fine bank, and I think what they've done is, as banks grow, they go up-market, so they're looking for the larger and larger clientele and that's what creates the opportunity for community banks such as ourselves.
Signal: Isn't the trend nationally toward consolidation? Are you bucking the trend?
Hicken: Well, the answer is yes and no, and I'll answer it this way: Community banking, start-up banking, is still alive and well in this country. Having said that, it is increasingly more difficult to get a bank open these days. There are far more regulatory issues that have to be dealt with. It's a much tougher environment, and clearly, when you're at a bottom of an interest rate cycle like we are low interest rates are not always the best thing for banks, because as a bank, if you think of it, we have cash to invest. So if you're making 1 percent or 1/2 percent on your money market, well, when we're investing that same money, we're making the same thing. So you're better off in a little bit of a higher-rated market.
But having said that, there is a lot of consolidation. The consolidations are taking place faster than the start-ups of the new banks. We are bucking it a little bit to the extent that we did get our bank open and we are up and running.
There will be banks after us. Will we have the level of small banks in the future that we've had in the past? Well, based on current trends, probably not. But we're not going away, either.
Signal: Doesn't a small community bank miss out on the economies of scale that bigger banks have, like in technology?
Hicken: Actually not. And that's one of the interesting things. When you look at the basic needs of a business, it really centers in the area of technology, in terms of cash management services and things like that.
There are two ways that you can handle it. As far as the big banks, they have internal systems. They have legacy systems this is where they spend tens of millions of dollars to develop their cash management, their Internet, all different types of products.
For us, for a small bank, for medium-sized banks, there are companies out there, third-party vendors, that all they do is provide those services on a fee basis to banks. For example, the platform on our cash management system, our balanced Internet system, is a state-of-the-art company that developed the platform for the retail component for Bank of America. So the technology that we have, the technology that we can bring to the table, is every bit as good as what the majors have if not better, in some cases.
And believe it or not, in many cases we can do it cheaper. Because once again, we're not investing in this huge infrastructure; we're relying on these third-party companies that this is what they do for a living; this is all they do for a living, and they're the ones that get the economy of scale because they're selling it to us and other banks like us around the country.
Signal: Considering your focus, do you even see a need to open branches down the road?
Hicken: The answer is yes. What we need to do is, we need to be convenient for our customers. We'll have a courier service, much like Valencia (Bank) and everyone else has; so to that extent, we can pick up deposits, but when you get into the smaller businesses, when you get into individuals, it's all about convenience and location. So, to truly serve the needs of the valley, we need to open up an office out toward the Canyon Country area; we need to open up something more in the central part of the valley. We need to be sensitive to the needs of what the community wants, and that will entail opening future branches.
Signal: Valencia Bank experienced rapid growth for several years; do you foresee the same thing happening?
Hicken: They say you can predict the future through the past, and maybe you can, maybe you can't. I believe we will have some pretty good growth up there. A lot of it is predicated on the economy (and) what the competition does. But from all indications that we're getting, there is a strong demand, a strong desire from a local community bank.
I think in many ways people took Valencia (Bank) for granted, and now that Valencia's gone, they realize how much they enjoyed having a local bank. I think we bring a new perspective to the table because we are a different institution. We were created differently. I think we have a much broader-based support within the community from a stock ownership standpoint.
Signal: Our valley is expected to double in population in the next 25 years or so. You wouldn't be doing this in downtown Los Angeles, would you? You're doing it here and now because we are a growth area.
Hicken: Oh, exactly. Exactly.
Signal: Give us a little economics lesson. How do you help the economy of the Santa Clarita Valley?
Hicken: We help the economy of the Santa Clarita Valley because we support small businesses by providing them the working capital so they can grow their businesses.
Di Tomaso: That's exactly right. I wanted to (add to) something you said a minute ago. The valley has been so supportive of everything that we have done. They've been so receptive and supportive and you talked about downtown L.A. and trying to start something down there. Well, I don't think there's the same sense of community down there as there is here. I think that's a lot of what drove us, as part of our vision, to start this institution.
Signal: An emotional attachment to a community bank.
Di Tomaso: Yeah. And I don't think you're not even going to get that same feeling, I don't think, even in the San Fernando Valley.
Signal: Jim, what do you want to leave us with?
Hicken: I think this is an exciting time. The valley has been extremely supportive. The message I want to leave is, we're here to support the valley. The valley gave us life, so it's our obligation, our moral responsibility, to give back to the community.
You're going to find us supporting all of the charities in the valley. We're putting programs together to help support the charities to make them more successful. We're here to support the businesses of the valley. We're here to support the valley.
See this interview in its entirety today at 8:30 a.m., and watch for another "Newsmaker of the Week" on Wednesday at 9:30 p.m. on SCVTV Channel 20, available to Comcast and Time Warner Cable subscribers throughout the Santa Clarita Valley.