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Sunday, Oct 1, 2023

Local Bank Is Settling Into a Disappearing Niche in the Community

For those who wonder where all the little locally owned banks went, Frank J. Mercardante has the answer: They were bought up by bigger lenders and their management started new banks.

That’s what Mercardante, president and CEO of Encinitas-based Southwest Community Bank, did in 1997.

Mercardante said it was the culmination of a lengthy effort by him, board chairman Howard Levenson, and Paul Weil, a member of the board of directors, to start a bank able to capitalize on the booming San Diego coastal area, its affluent residents and growing business community.

The bank, which trades on the Nasdaq under the symbol SWCT, has seen a nearly tenfold growth in assets to $50 million and a 60 percent increase in common stock price since its start.

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The rising stock price bucks a trend and comes as many other bank stocks have fallen in price over the past two years, according to separate financial stock indexes maintained by Prudential Securities Inc. and The Wall Street Journal. The local bank’s stock is currently trading around $25 a share, up from $15 early in 1999. The bank also declared a 50 percent stock dividend in November 1999.

The new bank incurred an approximately $490,000 loss on gross revenues of $3.27 million in 1999. The expense of starting FDSI contributed to most of the loss, Mercardante said. That’s down from a loss of $982,000 on gross revenues of $1.06 million in 1998.

He and other executives of the bank said they anticipate it will turn a profit this year.

“People buy community bank stocks for a long-term investment, usually five to 15 years,” said Mercardante, 52. “Now, with our new subsidiary (Financial Data Solutions Inc.), we also offer them a way to participate in an Internet business-to-business company.”

Looking Toward The Future

Mercardante believes his organization will follow in their footsteps to higher share value and eventual acquisition by a bigger bank at a premium price. Other local bankers say it’s a desired goal because large bank shares are more liquid than those of small banks. Consequently, officers of the acquired bank can dispose of their shares in the acquiring bank without affecting the price dramatically.

Southwest Community Bank employees in name and management, is a reborn Southwest Bank. Mercardante served as president and CEO for Southwest Bank before Security Pacific Bank bought it in 1989. By then, the bank had $500 million in assets and 23 branches throughout Orange, Riverside and San Diego counties.

Steven Ahlquist, senior vice president of the new bank, also worked in management at the old Southwest Bank. Mary Scotti, vice president and branch manager of the Encinitas office, held the same position for the old bank. Harry Shank, business development officer; Debbie Galvan, customer service manager; Joyce Gallegos, assistant vice president; and Chuck Farrell, business development manager, also are veterans of the old Southwest Bank.

High-Tech Background

Southwest’s Temecula-based subsidiary, Financial Data Solutions Inc., which was started last spring, draws extensively on Mercardante’s experience in computers and data processing. It provides digital check imaging and Internet retrieval services to customers of the banks it serves.

Among FDSI’s customers are San Bernardino-based Business Bank of California; Pacific Western National Bank of Pico Rivera; Los Angeles-based Guarantee Bank of California; and the Orange County Teachers Credit Union.

FDSI also offers local- and wide-area network design and management to its bank clients.

“Computer technology has gone from being a minor tool in the industry to becoming an essential part of the operation,” Mercardante said.

He started in banking as a data processing expert in 1967 at San Diego Trust & Savings Bank. In 1972, he moved to a data processing job at Southwest Bank headquartered in Vista. He later worked as a consultant to restore profitability to several troubled banks.

During this time, he and other investors began to lay plans for a new local bank. In the early 1990s, Mercardante studied the shift in where local consumers were depositing their money. Until then, most deposits were placed in locally owned banks and savings and loans, he said.

“But there were a lot of S & L; takeovers after that and the number of community banks declined as well,” Mercardante said. “There was a shift in deposits and loan-making to out-of-town banks, and I saw this as an opportunity for a locally based bank.”

With those statistics in hand, Mercardante and his co-investors began to lay plans in 1994 for a new bank based in coastal North County that could not only serve depositors, but also local commercial borrowers as well.

However, a short-term career commitment to another bank by Mercardante put his personal plans for the local lender on the back burner. It wasn’t until three months after Southwest Community Bank’s first branch office opened on El Camino Real in Encinitas that he joined as full-time CEO.

Branching Out

Now the bank has a Downtown branch as well as the original office and an SBA loan production office in Encinitas. A third branch will open early this year in Escondido, he added. The bank, which has 34 employees, has identified several other communities in the county where there is a need for a locally operated bank, he said.

“There aren’t too many start-up banks that are as diversified as we are in terms of the business base we are establishing,” Mercardante said.

The steady income from the banks that use FDSI’s services will even out monthly earnings for Southwest Community Bank, he said. Typically, bank income can fluctuate from month to month depending on loan production and other factors, he added.

Mercardante sees the little touches in customer service as essential to build the bank’s client base. For example, customers get a three-ring binder to hold their check photo images. The pages are already three-hole punched when the customer receives them in the mail.

“The board of directors is also

open-minded to opportunities,” Mercardante said.

Southwest Community Bank offers full Internet banking services to its customers, he said.

Among its loan products are SBA loans, accounts receivable financing, and commercial equipment loans. It also makes construction loans for residential development and offers the full spectrum of consumer loans.

“We also do a little bit of leasing work as well,” Mercardante said.

Bob Hahn, president of First National Bank of North County, a competitor, praised Mercardante’s skill at marketing financial products such as the check service.

“Frank is an extremely skilled and sophisticated computer guy,” Hahn said. “He has a wonderful history of identifying that kind of product niche and exploiting it. You have to have his level of computer expertise in order to go into it and that makes him a unique community banker in that he has that expertise.”

Hahn predicted that because of Mercardante’s extensive computer knowledge, the new bank and its subsidiary would do well in E-commerce.

“If anybody could be successful with an electronic check service, it would be Frank,” Hahn said.

Don Schempp, president and CEO of Capital Bank of North County, worked with Mercardante for several years at the original Southwest Bank.

“Frank and I have crafted our current banks along similar lines,” Schempp said. “Frank’s philosophy is, ‘People bank with people,’ and so he tries to find employees who are very customer-oriented and involved with their community. We can go out there and bring in customers, but if we don’t take care of them, they go out and talk to 20 other bankers.”

He also saw FDSI as having tremendous potential for success.

“Frank is one of the best,” he said. “That arm of the bank will be very successful.”

Ray Wakeham, owner of Vista-based Wakeham Construction, took his business to Southwest Community Bank when it opened. He admitted being frustrated with the service he was getting at a bigger, out-of-town bank.

“After having large corporate banks handle our banking needs, it has been a relief to find a professional, no-hassle banking environment that still has the comforts of a one-on-one relationship with its clients,” he said.


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