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The Private Bank of California
is unique in that it is focused on six key markets with a management team that has close
to 100 years of experience serving the Westside of Los Angeles and a board that largely
lives and works in the community
Financial
Community Banks
(PBCA-OTC: BB)
The Private Bank of California
10100 Santa Monica Blvd. – Suite 2500
Los Angeles, CA 90067
Phone: 310-286-0710
Steven D. Broidy
Chairman
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
September 14, 2006
BIO:
Steven D. Broidy
Chairman
Steven D. Broidy is the Chairman and a director of The Private Bank of California, as well
as Chairman of its directors’ Loan Committee. Mr. Broidy is a retired banker with 35
years of banking experience, the most recent of which was his service as a director of
Sanwa Bank, and then of its successor, United California Bank, from 1996 until the
successor bank’s sale to Bank of the West in 2002. Previously, he served as Vice
Chairman and member of the Board of both City National Bank and its holding company, City
National Corp., in Beverly Hills, California from 1992 to 1995; and as a partner in the Los
Angeles based national law firm of Loeb and Loeb from 1988 to 1992. Mr. Broidy served in
various capacities with Union Bank from 1963 until its sale in 1988, most recently as
Executive Vice President from 1972 to 1988. His previous positions with Union Bank
included regional Vice President of the bank’s Beverly Hills West Los Angeles Region,
Executive Vice President and Senior Executive in charge of the bank’s Northern
California activities, and Executive in charge of the bank’s Support Division. From
1996 until its sale in 2000, he served on the Board of PS Group Holdings Inc., a New York
Stock Exchange listed company. Mr. Broidy served as Chairman of the Board and Chief
Executive Officer of the Weingart Foundation in Los Angeles, which provides grants to
humanitarian non-profit organizations in Southern California, from 1999 until December
2003, and continues to serve as a member of this Board and Chairman of its Executive
Committee. He also served as Chairman of the Board of Cedars-Sinai Medical Center
from 1998 through 2001 and continues to serve as a member of its Board. Mr. Broidy
received a Bachelor of Arts degree from the University of California at Los Angeles in
1959 and a Bachelor of Laws degree from Boalt Hall School of Law (University of California
at Berkeley) in 1962.
CEOCFO: Mr. Brody, why is there a need for a new bank?
Mr. Broidy: “The vision of the founders of this bank
based on the analysis of the market is that the Westside banking market is under-banked,
for those kinds of clients and prospects that are interested in dealing with full-service
bank that provides high-level personal service. Many fine banking institutions serve the
Westside; however, most of them are quite large and often impersonal. If you look at the
number of independent banks located on the Westside of Los Angeles, it is a smaller number
than four or five years ago. We viewed it as a significant opportunity for a bank with
high levels of service and experienced management to reach out to this community and that
portion of the community that wants to deal with a bank that can provide high levels of
service and have high levels of access to the management, staff and board.”
CEOCFO: Who is your
typical client?
Mr. Broidy: “The bank focuses on six key markets; high
net worth individuals, service firms such as lawyers, doctors, accountants, property
management firms and firms in the bankruptcy industry. Many owners of businesses live on
the Westside but the businesses are not located here, but through them often times have
the ability to serve the owners of the businesses and in some cases the businesses
themselves. The bank has a particular interest in serving the business management
community, which is a very important part of the Westside business community and the
entertainment industry. We also serve local businesses and not-for-profit entities. Those
are the six key markets that this bank is serving now.”
CEOCFO: How do you reach
your potential client?
Mr. Broidy: “Our primary methodology of reaching our
client is through contacts of our executive management team. Our executive management team
is composed of five people that have 145 years of banking experience most of it on the
Westside, and knows a wide range of people, many of whom we have done business with before
in banking and elsewhere. In addition, we have an eleven-person board of directors.
Board members are well known and highly regarded on the Westside and within the
markets that the bank serves. Through them, we expect to and do reach a wide range of
potential clients. Last, and very importantly, when we had our IPO last fall, it was the
largest IPO to date in the history of California independent banking; we raised over $36
million. Three hundred and thirty eight shareholders subscribed. It was significantly
over-subscribed. Each person that purchased was asked to make an informal commitment to do
some amount of business with the bank, and that is another key methodology by which
business is being driven by the bank.”
CEOCFO: Will you give us
an example of your exceptional service and personal contact?
Mr. Broidy: “In the service business, the bigger you get
provides many benefits in terms of different services and in banking, a bigger lending
capacity, but the bigger you get, it is harder for the clients to feel they are totally
in-touch with the executive management and the management of the bank. In terms of all
independent banks, you have a real ability to provide better service to your potential and
current clients and because you are smaller in size it gives you the ability to stay more
in contact with your clients. Also, we think there are more reasons why our services
are particularly unique; the chairman of the board,
has 35 years of banking experience. The CEO has 30 years of banking experience, and the
president has 25 years of experience. Our clients deal with the relationship managers;
they deal directly with us. They have multiple points of contact. For now, most of our
clients know one or more of our outside directors. Also, what makes us unique and reflects
the focus of our bank, is the fact that we have all our staff located on the 25th
floor at our headquarters building in 10100 Santa Monica Blvd. The whole staff is together
and is all focused on providing service to our clients. By having us all together, strongly makes the point that we are very
focused on specific kinds of businesses. We are not trying to be all things to all people;
we are focused on providing unsurpassed client service to our clients and potential
clients. By being on the 25th floor, the whole staff together and not spread
between a ground floor location and an upstairs location, and strong and experienced
management team and directors that cut across the community, enables us to provide
unsurpassed client service.”
CEOCFO: Is there a
typical point of entry for most of your clients?
Mr. Broidy: “There is no typical point of entry. There
are all ranges of experiences. Some start with a full relationship, for example a
particular grouping of companies that have the basic line of credit or depository business
with us and in some cases clients start with a piece of their relationship. They might
move part of their depository relationship. In some cases, some of the kinds of clients we
are dealing with like in the bankruptcy field and the business management field. The needs
for credit are not so great in some cases and they are really looking for the traditional
service kinds of support to their depository accounts and typical operational related
services, whether that be wires or cash management. These are basic banking services.
Therefore, there is no common thread although there is probably some of everything and
that is fine with us.”
CEOCFO: Are there
services you are not currently offering that you would like to add or feel the need to
add?
Mr. Broidy: “Largely we are offering a full range of
banking services. There are a couple of banking products that we are in the process of
activating as we talk this morning, that
are important to us and a number of our clients have indicated a need for. However, I
would say largely we have in place a full range of products and services. Over time, as
the banking industry develops and technology changes to develop new products and services,
we will explore those and add them as it becomes appropriate to serve the needs of our
clients. There is something called remote capture, which is a new technology recently
developed which enables clients to deal with their checks from their offices so they don’t
have to get those checks deposited in the bank. That is a service our bank will want to
bring up. However, we have a broad range, but as additional needs are identified by our
client base and the marketplace, we will be responsive to that.”
CEOCFO: You just
released your numbers for the period ending June 30th; how is business for the
bank?
Mr. Broidy: “As the numbers show, the bank is making
significant progress in growth, by taking the just over $36 million dollars in capital
that our shareholders provided us and leveraging the capital by adding additional assets,
loans and deposits to our balance sheet. This bank opened on October 24th of
last year (2005) and through June 30th has been opened for just under nine
months. While we didn’t quite meet a hundred million, we got close to it with just
over $94 million in total assets. We also had significant deposit growth, significant loan
growth during this period. From that perspective, we are very pleased with the growth that
we have achieved to date. In terms of our operating performance, start-up banks as a group
generally lose money during their first eighteen to twenty-four months of operation and
certainly, from the period ending June 30th we continued to lose some money.
However, the amount of loss was significantly reduced from the 1st Quarter and
much of that were non-cash charges, provisions for the cost of expensing of our stock
options, which we are required to do and provision for our credit losses. In aggregate,
the balance sheet is growing; we are leveraging capital and doing it in a way consistent
with our strategic plan. That is very pleasing to us. Nobody likes to lose money; although
all start-up banks lose money for a period of time. However, we are pleased with the
progress in the 2nd Quarter to reduce that loss significantly; 51% reduction in
operating loss compared to what it was in the first quarter. Our objective is to continue
to grow the balance sheet and continue to reduce our loss down to breakeven and to profitability as soon
as we can. We have very much in mind the fact that other new banks are able to do that but
in an 18-24 month time.”
CEOCFO: Is the current
interest rate environment a good time for you to be starting this venture?
Mr. Broidy: “Banks are intermediaries, so the state of
the economy is always important for the banks whether they have been around for fifty
years or a startup bank. The economy in aggregate from our perspective remains pretty
good. In the aggregate, there are issues in terms of concerns that the Federal Reserve
system has and the inflation rises.
However, in the aggregate the state of the economy as we see it is quite satisfactory with
the risks that we are all aware of. In terms of interest rates and what has occurred with
interest rates is a result of the factors I just alluded to; we have what is known as the
interest rate curve. For short interest rates, you get a lower rate of interest, and for
longer periods of time you get a higher rate of interest. We are now in an unusual period
where it is a very flat yield curve. Therefore, for some banks that presents challenges.
It is probably less so for us than it is for some well established bank in the sense that
banks tend to borrow money short from their depositors and lend it out longer and in that
they get a spread between what short-term interest rates cost and what they are able to
lend over a longer period. With the yield curve, what it is today, that isn’t the
case because the yield curve is flat with no differentiation. These kinds of periods
generally do not last very long, either short-term rates come down or long-term rates go
up, but the yield curve does not remain flat for extended periods. I think most bankers
would tell you that over time we would prefer a stable and good economic environment,
which is what we have today generally speaking, and a normal yield curve.”
CEOCFO: In closing, why
should potential investors be interested in the Private Bank of California, and what doesn’t
jump off the page at first glance?
Mr. Broidy: “The history of most startup banks in
California over a five to ten year period,
is these banks start from square one with the capital they raised, leveraged the balance
sheet, come from a loss operation to profitability. They grow the bank and provide service
to their clients and good returns for their shareholders. If you look at the history of
startup banks in southern California most
banks are able to achieve that kind of benefit to their shareholders. Many of the startup
banks after five to eight years have been sold, but many have not. Either way, the returns
to their shareholders over a long period have been good. The thing investors need to
realize with any startup bank is that it takes a while to leverage that capital, get to
profitability and a little longer to get to normal kinds of returns on equity and assets
that banks expect. That is true of all startup banks in my opinion. What is unique about
the Private Bank of California beyond that is the fact that this bank is very focused on
the markets we serve. Further, we have an executive management team with 145 years of
banking experience and, if you look at the resumes of the five members of executive
management, very close to 100 of those years is serving people on the Westside of Los
Angeles. Therefore, the executive management team knows these markets and the markets know
the executive management team and that is very unique. If you look at other startup banks
they are run by good people and in many cases we know them. However, the amount of
experience here is unique and the quality and knowledge of the board and the markets we
serve is very special. Our business activities are focused and there is great strength
through our effort. Our board has invested a significant amount of capital and, while they
have a great deal of interest in serving the community where they live, they have a lot of
money at play and they would like to get an appropriate return on their money over time.”
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