First PacTrust Bancorp, Inc. (FPTB)
2003 Interview with: Hans R. Ganz, President and CEO
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Pacific Trust Bank (the Bank), a federally chartered mutual savings bank, operating eight office locations in the greater metropolitan area of San Diego, California.

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First PacTrust Bancorp is introducing new products and services in January 2003 and enhancing their commitment to customer service

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First PacTrust Bancorp, Inc.

610 Bay Blvd.
Chula Vista, CA 91910
Phone: 619-691-1519

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Hans R. Ganz
President and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
February 2003

Bio of CEO,
Hans R. Ganz
President and Chief Executive Officer
Pacific Trust Bank

Born and raised in Switzerland, Hans Ganz has over seventeen years experience in lending and financial institution management. He joined Pacific Trust in 1992 and served as its Vice President - Lending, then as Vice President - Operations/Chief Lending Officer, prior to being appointed as President and Chief Executive Officer in 1995. In those capacities, he was directly responsible for all loan origination, processing and loan servicing functions, as well as the daily operations of all branch offices.

As President of Pacific Trust, he oversees all facets of financial institution operations, and exercises his management expertise in coordinating with the Board of Directors and regulatory agencies, and in recruiting, leading, developing and motivating staff toward optimal performance and accomplishment of corporate objectives. He has taught classes in sales motivation, underwriting, financial statement and tax return analysis, and organized workshops for interpersonal skills and effective communications.

Before joining Pacific Trust, he served as President of Alpha Mortgage, a residential lending firm. Prior to that, he was with Great American Bank where he worked as an underwriting administrator and was later promoted to Vice President - Tract Lending. While there, he supervised the origination, processing, and funding activities for Single Family Lending, managed teams analyzing loan portfolios for purchase, drafted and implemented corporate guidelines, and coordinated with Fannie Mae and Freddie Mac to resolve issues arising from servicing loans sold to the Agencies.

Company Profile:
First PacTrust Bancorp, Inc. (the Bancorp), incorporated in 2002, is a bank holding company for Pacific Trust Bank (the Bank). The Bank is a federally chartered mutual savings bank, operating eight office locations in the greater metropolitan area of San Diego, California. Pacific Trust is a former credit union with over 60 years of experience in providing financial service. Due to their credit union heritage, they are the only bank that's part of the CO-OP Network® of ATMs, providing their customers with access to over 15,000 surcharge-free ATMs nationwide. In addition, they are the only bank that belongs to the CU Service Centers® shared branch network - with over 850 offices in cities across the nation where customers can do their banking in person.

Pacific Trust operates as a community-oriented financial institution, with its primary focus on meeting the mortgage and retail deposit needs of the local community in San Diego and Riverside counties. The Bank offers a broad array of banking services, including a wide variety of retail deposit products and related services (automated teller machines and debit cards, safe deposit boxes, wire transfers, online banking and telephone banking) and a variety of lending programs, including fixed and adjustable residential and commercial mortgage lending and consumer lending.

Pacific Trust’s major investment in a new computer system is allowing them to offer new deposit products, like our High-Yield Checking and Money Market Checking accounts. Their lean operation allows them to offer among the best rates available on their savings products, and more free services or low fees and ways that most fees can be easily avoided - like free overdraft from savings or a personal line of credit to keep from bouncing a check. All loan decisions are made quickly and fairly by their management team, not by a faceless computer program with your credit score. Customers opening a new Savings, Checking or Money Market Deposit Account at Pacific Trust Bank, receive a Service Quality Guarantee Certificate with this $50.00 Service Quality Guarantee.

The Bank's lending strategy focuses on two population groups, the low- to moderate-income population, primarily through multi-family lending whereby affordable rental rates are offered, and the upper-income population, particularly through jumbo and super jumbo residential mortgage lending. Such lending is largely focused on sales of existing units. Additionally, construction and consumer lending has been an important albeit smaller component of the Bank's historical lending operations.

Pacific Trust's one- to four-family lending is conducted through direct solicitation techniques utilizing targeted marketing, the Internet and through certain real estate and mortgage broker industry relationships maintained by its executive and lending staff. The majority of the Bank's loan volume is derived from brokers and other third-party lenders, which take applications consistent with its lending programs. In addition, the Bank originates and purchases non-conforming loans for portfolio, and these loans represent a majority of the one- to four-family portfolio.

CEOCFOinterviews: Mr. Ganz, where was First PacTrust Bancorp when you became its CEO and what changes did you orchestrate?

Mr. Ganz: “I got involved about ten years ago when we were a credit union and I have been CEO for about seven years. The credit union was started in 1941 and we converted on January 1 2000, to a mutual savings bank. We raised stock and therefore sold the ownership to the depositors at the end of August of 2002.”

CEOCFOinterviews: Why the change from a credit union and why did you go public?

Mr. Ganz: “The change to a credit union had mainly to do with the fact that, at that time, there were some issues of membership that needed to be addressed. In credit union language, a sponsor is the company that you really are serving and we had a sponsor, which was declining rapidly. At that time, our sponsor was ROHR   Industries. Aerospace was retreating slowly in the first part of the 90s, and then it hit the skids. We had to absorb a lot of charge-offs due to the fact that ROHR went from fourteen thousand five hundred employees, down to about four-and-a-half thousand in a short period-of-time; most of these people left without severance agreement and were unable to make their payments on their car loans and credit cards.

We had to find a way to ‘stop the bleeding’ first and then to start creating some solid income to make up for some of the lost revenue of the last few years and to bring our capital ratio back into line. Therefore, we decided real estate lending was the right way to go, be that on the personal home loan side or the commercial real estate or multi-family side. However, having a business plan that the board management agreed to would bring the company back to excellent health did not clearly fit into the credit union charter. Therefore, we decided that the best charter to reach our strategic goals would be a mutual thrift charter. Going to the membership, we let them vote and decided with their support to convert to a mutual savings bank. One of the advantages of a mutual savings bank is the possibility of going to the market to raise capital in order to grow the company. We thought that we wanted to grow the company and the easiest way to finance the growth instead of taking it from the net income of customers is to go to the investment community and see if the market was willing to support us with equity capital for our growth, which we did. We went public at twelve dollars ($12) a share and today we were trading at $16.30 a share.”

CEOCFOinterviews: Not bad for a three months!

Mr. Ganz: “No, not in this environment.”

CEOCFOinterviews: What is the economic scenario like in the area you are serving today?

Mr. Ganz: “We had an unbelievable Bull Market in real-estate, the manufacturing side has been alright and the commercial office side has been a little weak. The personal residences and multi-family has been quite a boom, and have out-performed inflation by vast amounts. I think we are now at a point where it will probably go back to a more normal kind of appreciation because it can’t continue at 20% a year; as you know from the Tech-bubble. If we want to avoid a real-estate bubble, supply and demand and the ability of people to pay, have to be a little bit in line. If you look at what happened over the last few years, borrowers were able to go and borrow, and pull money out of their houses to further their consumer activity without increasing the payments. They were liquidating equity without an increase in payments and that would have been no problem, if they all would have paid off high-interest credit cards and other debt, but a lot of them must not have done that because consumer debt has increased at a pretty-scary rate.

I think we are now in an economic environment where growth is going to come at a steep price and service is the only thing that will let you grow. I think there is going to be some uneasiness in the real-estate market; I am not saying a bursting of the bubble, I am saying uneasiness in certain areas. As long as the politicians down here in San Diego County, where we have the bulk of our operations, try to solve the problem of low income housing by assessing fees for new development, that will be used to support or subsidize low-income housing, supply will not increase dramatically. In addition, as long as they put more restrictions on future developments, the supply of housing will be such that it will not be able to keep up with the demand. Therefore, I don’t think that we are going to see a big bubble because the political climate. Overall, I don’t see big red flags but I see little red flags on the horizon.”

CEOCFOinterviews: People who look for trouble before it happens are usually ahead of the game!

Mr. Ganz: “I think I am seeing some; I am being told by friends and colleagues that I am maybe seeing a little too red but I have been wrong about the market this year. I didn’t think we would have the appreciation that we had this year and I was very wrong. However, there is going to be the year that I am right. We are better suited than just about any other bank for a downturn with a capital ratio of 20%.”

CEOCFOinterviews: How do you as an organization weather the ups-and-downs, particularly with all the rate cuts which nobody could anticipate, and what can you do to plan for those situations?

Mr. Ganz: “There isn’t much planning you can do. It is almost an oxymoron, but to plan the unforeseen is impossible. You react to it as the situation changes over the years; you readjust your budget expectation and your planning about certain things and you institute projects that before didn’t make sense and you cancel some that did make sense. I think what you have to do is keep your eye on the ‘ball’ and you are constantly moving. I think to be agile, watch what is happening and to react to it in an appropriate way is all you can do when the unexpected happens.

What we do is look at our risk exposure. We are a real-estate lender and our risk increases but interest rates increase and decrease, so our risk got diminished over the last few years with those interest rates coming down. We are now very cautious and making sure that when this ‘train’ goes the other way or the pendulum swings over again, which it has a tendency to do, that we are not going to take a ‘haircut.’ We are now planning to protect from a reverse in interest rates. If the reverse is worse than we planned, then we will have to increase or decrease the measures in certain areas to make sure that we are protected from it. That is all we can do at this point.

Nobody knows what is going to happen during the year and everybody says that interest rates will go up over the next twelve to eighteen months, but that has not been true in Japan or in Europe over a long period-of-time where interest rates stay low. They don’t have the same production gains that we had in the US, so I don’t know if this comparison is appropriate but there is also a case to be made that we could have another two to three years of low rates. To be prepared for all three scenarios is what we try to do. The rates going down; we are not too worried about, rates staying the same; we would love it and rates going up, we want to make sure we are protected.”

CEOCFOinterviews: Tell us about the philosophy behind your focus on basic services.

Mr. Ganz: “The philosophy behind that is very simple; I talk to a lot of customers and on our website is my direct telephone number; you do not have to go through a secretary, and I think that is important. Many banks say they provide wonderful service and I don’t know of a bank that doesn’t have a free checking account anymore, although when we started it a few years ago, we were the only ones. I don’t think there are a lot of banks that are competitive that don’t have Internet services anymore, especially in my neighborhood every bank has a website that has some kind of functionality attached to it in regard to transactions. Real-estate loans on the conforming side have become a commodity; on the non-conforming side is where we really operate. That is where we can add some value to the product. On the deposit side, some people are rate sensitive/ but more than rate sensitive, most people are service sensitive.   I believe people today, just as they were before this big internet boom, are sensitive to when something isn’t right they want to talk to a real person, whom they can reach easily.

What differentiates us more than any other bank rather than rate or product is what happens to you when you walk into our branches or call our call-center or when you call me. I also go out to branches and talk to customers offering seminars on investing in CDs. I want to stay connected to the customer because no matter what we do, if we are not going to serve the customer to the customers expectations, we will not reach our strategic goal..

Service is the best differentiator for a bank; this is why we are pushing this hard. If you go to our website you can see who we are, what we do and why we’re better. Other banks say and don’t do, but we do what we say! That is where the customer’s loyalty and trust come in, because banking is about trust. When they have something to resolve, we will resolve it! I believe it, my board of directors believes it, management believes it, all staff believes it and we are going to push hard because we want to stand out. I believe service is what is going to get us in the direction we want to go. Not only is our website now talking about it, everywhere you are exposed to us you will see it. Every teller will have a laminated sheet on their workstations, where all these points are listed for them to look at  every single day. We are going to make people live it and not just say it.”

CEOCFOinterviews: How do you develop that in your staff?

Mr. Ganz: “Some of it is by standing right up front where the wind blows the hardest and say, “I’m doing it and I expect everyone else in the organization to do it.” That’s why my name and direct phone line is there, because if I am not stepping up front, how can I expect all of these people to follow. Leadership is being personally willing to make the difference by implementing something that is very hard to do in any business. We have to be totally dedicated in believing employees can provide a service to the customer, so that the customer becomes a fan of the bank. If I am not there leading that charge, then I don’t think it is going to work.”

CEOCFOinterviews: Give me a concrete example of what you might do customer service wise that somebody might not find elsewhere.

Mr. Ganz: “I will take any phone call and meet with any customer without screening. I will go and meet somebody at a branch; I have done all of these things. When somebody comes in and reports a problem and they want to talk to the CEO, they will be given my business card and they can dial me right then and there. I will stay in touch like no other CEO. I know that this is not an easy thing to do, because I do get phone calls. Out of five phone calls that I get, four will be positive calls. It is much better to have my phone number in any branch or any newsletter as a quality control tool, than paying for some survey of customer satisfaction. This is the ultimate survey of customer satisfaction. If the employees know that access to me is unrestricted, their service will be provided at a higher and better rate than if I were not leading the charge. I am convinced of that.”

CEOCFOinterviews: Do you advertise in the community?

Mr. Ganz: “We do some, which includes a local radio talk-show advertising. We send also out a quarterly newsletter to everybody that has an account with us, where we communicate with them about a lot of consumer issues and advice, not necessarily selling a product, but financial advice on how to do certain things, what to be careful about, identity theft and all the issues that come along. We use it more as an identification tool than a sales tool and as a way to stay in touch with customers who don’t come into the bank often.”

CEOCFOinterviews: Are you involved in the community and/or with charities.

Mr. Ganz: “We were replacing and upgrading our computer system, so instead of just discarding them, two days ago, we donated fourteen computers to “Operation Home Front”. They are a local organization that will donate these computers, which are perfect for word-processing and e-mail, to the military families that cannot afford computers, but will have to talk to their loved ones on the ships. We also sponsor a dignitary luncheon at the Mother Goose Parade, which is the biggest parade out west after the Rose parade; the children appreciate that. We are not a huge donor of things, but what we do give, we want to make sure that the public at large or a certain group of people clearly and directly benefit.”

CEOCFOinterviews: Are there any new products and services that you would like to offer?

Mr. Ganz: “In January (2003), we are going to go through a core system conversion and then we are going to introduce a High-Yield Checking and Money Market Checking accounts; two products we currently don’t have. We are also going to bring all of our loan servicing in–house so that a customer will be able to see all his and her relationships with us, and to execute all transactions on the web.”

CEOCFOinterviews: Are you looking to open any new branches?

Mr. Ganz: “Yes, as we have publicly disclosed in our prospectus, we will open one new branch a year. We have done so this year and expect to do so in the years to follow.”

CEOCFOinterviews: Are acquisitions a part of your strategy going forward and are you committed to remaining independent?

Mr. Ganz: “Yes, we are at this point committed to remaining independent, however on any such statement, I have learned never to say never because situations might change. I am not currently looking to acquire another bank. If I had a chance to acquire one at a great price that would be a credit to our income, I would do it.   I think we want to keep our options open and have available strategic acquisitions or dispositions down the road. Whatever we feel is appropriate for the shareholders; that might change because what is true this year may not be true next year. This year we are not planning on selling and we haven’t decided to buy. We want to keep our options open but we don’t have definite plans one way or the other.”

CEOCFOinterviews: How do you do with non-performing loans compared to your peers?

Mr. Ganz: “We have been doing well, if you look at our 10-Q, we have been in good shape from an asset quality point-of-view. As long as the real-estate market stays up, I think all thrifts are going to do well in asset quality.”

CEOCFOinterviews: I see that you have a service guarantee; do people take you up on that?

Mr. Ganz: “We haven’t paid out much yet.  The reason we did it is because the bank managers and employees tell the customers about it when they open their accounts, and if the customer leaves us, because of a service issue, I think that it is worth at least fifty dollars for me to know.  Many companies say “ open a checking account with us and we will put fifty bucks in it.” We are basically saying that you might go out and buy a checking account, but to get a loyal customer is not guaranteed.  I would much rather tell a loyal customer that “if you ever have a problem, I’ll pay it.”

CEOCFOinterviews: What should shareholders and potential investors know about First PacTrust Bancorp?

Mr. Ganz: We are a plain vanilla S&L, and if you want to invest in a plain vanilla S&L, we are probably the way to go. We don’t do many of the things that other banks do because we are a niche player. We do home lending multi-family and commercial real-estate loans and deposits, better than anyone else in our neighborhood.

For deposits, I think we have the best transaction schedules in regard to fees and service, of any local bank, We also have the best home loan process and we are faster at approving a home loan than any other bank locally. I think we have two competitive advantages, one is that we have better transaction services for less fees and we are faster in our loan   processing and approval than our local competitors.”


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