BANKING ON FRESNO DOLLARS Second new independent bank within a year will open in town in December. By Bethany Clough / The Fresno Bee (Updated Sunday, October 29, 2006, 5:50 AM) Fresno's newest bank will open in December. A group of local investors says it is raising money at a rate of about $1 million a week to open the first Security First Bank branch near Manchester Center. The news of a second new independent bank opening in town in less than a year caught the attention of John Blaylock, associate director of Austin, Texas-based Sheshunoff & Co. Investment Banking, a financial adviser to community banks. "Two new banks? That might be a little unusual for a market the size of Fresno," he said. "That's fairly fast." Fresno First Bank opened in a temporary location last December and will celebrate the grand opening of its new, permanent headquarters at Palm Bluffs near Herndon and Palm avenues Monday. As Fresno's population grows, so does the money. As that happens, industry leaders say, existing banks open new branches and new banks pop up, eager to land cash in checking and savings accounts and give loans for new homes and businesses. But there is another factor that drives new banks, at least one local banker said: They're a good and safe investment with a high return — despite a highly competitive marketplace. That doesn't mean success is simple. Competition is fierce in Fresno and nationwide, said Anissa Routon, spokeswoman for the California Bankers Association. Consolidation over the years has made banks fight even harder for customers, she said. Ten years ago California had 426 banks. Today that number has dropped to about 300. Twenty-eight banks do business in Fresno County, according to the Federal Deposit Insurance Corp. National banks such as Bank of America and Wells Fargo dominate the market. Together those two banks had a 37% market share, based on deposits as of June 30, the most recent figures available. But regional banks and smaller community banks battle for customers. Some community banks have just one branch, such as 22-year-old Murphy Bank in Fig Garden Village. Others are young but growing fiercely, such as Premier Valley Bank, which opened in 2001 and bought the multibranch Yosemite Bank last year. The banking industry is a busy world. Community banks follow a cycle of growth, said Tony Swartz, president and CEO of Fresno First Bank. "You open a bank, you grow it to a certain size and the big guys, like Wells Fargo, Bank of America, they buy you up," he said, noting that Fresno First Bank does not intend to sell. And those buyouts create a void, allowing new small banks to pop up, he said. Enter Security First Bank. The board of directors wants to create a bank that emphasizes customer service, said director J.P. Sethi. "There's big banks where you've become a number, not a person," he said. Security First Bank wants to cater to the individual or the small business, such as the person taking out a loan to make improvements on a farm, he said. At the new bank, "you won't get voice mail, you'll talk to a live person," he said. Sethi's bank has received approval from state and federal regulators. As of last week, investors had put up $8 million of the total $12 million planned to be raised at $10 a share, Sethi said. The bank will be full service. Twelve investors will become the bank's board of directors, and many of them have familiar names. At least three have banking experience with the former Kerman State Bank, which merged with Westamerica Bank in 2002. Jerry E. Henry was board chairman, Gene H. Kezirian was on the board and Edmond Lelandais retired as bank president in 2000. Lelandais is Security First's president and CEO. Other directors are: Narayana S. Ambati, Malik N. Baz, Alan R. Hopkins, Victor Robert Lee, Everett E. Norcross, Jack M. Oberti, James R. Provost, Eric J. Wilkins and Sethi. The directors will contribute $2.5 million of their own money, Sethi said. A founder's board of 30 to 50 investors will pitch in at least $50,000 each. The board of directors will meet twice yearly with the founders board to hear its input, in addition to the yearly annual meeting for all shareholders. Security First is renting the former First Interstate Bank, a free-standing building outside Manchester Center on Blackstone Avenue in central Fresno. "With everybody moving up north, this is a niche to be filled. There are a lot of small businesses around that part of town," Sethi said. They also got a good deal on the building, he added. Investors decided to start a bank now because of the changes in the area in recent years, he said. "There's a tremendous growth in Fresno and the surrounding areas — the population, the businesses," Sethi said. New and existing banks are doing well, he added. Plus, "there's not many community banks left," he said. Fresno is an easy place to raise money for a bank, Sethi said. "We've got a lot of rich people. There's over $10 billion dollars in Fresno, in savings accounts, banks, CDs," he said. Last year, Fresno First Bank raised $2 million more than the state allowed and had to return it. New banks across the country typically don't have problems raising money, financial adviser Blaylock said. But there is another reason new banks form, said Dennis Woods, CEO of Fresno-based United Security Bank, also a community bank. "There's not a lot of risk," he said. "It's historically been a good investment." Banks are so highly regulated that they usually don't fail. If they get in trouble they either sell to a bigger bank or regulators push them into a sort of "forced marriage," he said. "The reality of it is, generally more than 80% of the banks lose money the first year," Woods said. "Because there's so much expectation with these new banks, the stock will go up, even if your bank loses money. That's what's really triggering the investment." And when the bank sells, investors make their money back, plus more. Fresno First Bank has assets of $43 million, Swartz said, but has yet to turn a profit. However, its stock has risen from $10 when it opened and was trading at almost$16 a share Friday. The bank does not plan to sell, Swartz noted. Likewise, Security First Bank's directors have no plans to sell, Sethi said. "That has not been talked about," he said. "We don't open to sell — nobody does. We are open to expand, do well and serve the community." Existing banks also see opportunity and are growing as a way to compete. Merced-based County Bank has added five new branches this year for a total of 24 and plans to add four to seven new offices a year in the next several years. Faced with a lack of opportunities here, United Security Bank, which had a 5.1% market share this summer in Fresno County, went outside the Central Valley for the first time and announced earlier this month that it was buying a bank in the San Jose area. Premier Valley bought Yosemite Bank last year and took over branches in Coarsegold, Oakhurst, Mariposa and Groveland. Several are setting their sights on downtown Fresno. Banks are growing elsewhere, too, and credit unions are quietly expanding their reach as well. Some go after certain niches, such as catering mostly to businesses. Many go head to head on the same corner, such as Citibank and Union Bank of California at the corner of Champlain Drive and Perrin Avenue in northeast Fresno. As of June, Citibank was winning the battle for deposits, with $38.9 million recorded at its bank, according to FDIC records. Union Bank was slightly behind at $36.1 million. And it may get tougher next year, said Woods of United Security Bank. With the way the economy is going, a slowdown in the housing market and California's increasing minimum wage, banks will face hurdles in the year ahead. "It will be one of the toughest times in the last 20 years to open a bank," he said. "It doesn't mean they won't be successful. ... For all of us, 2007 is going to be a challenging year."