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College Students Who Meet in Bank Vault Become Successful Bankers

Dan Yates, president of Regents Bank in La Jolla, and Michael Perry, president of San Diego Trust Bank, share a bit of history in the industry.

Both started on the bottom rungs of the ladder and went on to fame in local banking circles.

Perry left as head of commercial banking at Scripps Bank (later sold to U.S. Bank) and reconnected with his former San Diego State University classmate in 2001.

“One day, I got a phone call from Mike (Perry),” said Yates. “He said, ‘I’d like to come and talk to you about working for (Regents).’ ”

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After the meeting, Yates gave Perry the names of business contacts and told Perry that he might enjoy being a bank president.

“Then one day, I saw he filed as an organization,” said Yates.


No Substitute For Experience

In college, Yates and Perry worked in the central cash vault at Bank of America, where their friendship and banking philosophies developed.

For instance, both banks have boards of directors that boast hundreds of years of combined experience from which the two institutions draw clients.

Tom Young, chairman and majority owner of Regents Bank, is so reputable in his hometown of Vancouver, Wash., that his bank opened one of four branches there.

“There was a tremendous opportunity to bank with his (former bank’s) clients,” said Yates. “(The branch) made a profit in its first 10 months.”

It’s worth noting that Perry, Yates, their managers and boards of directors have sunk personal wealth into their banks.

“We’re all in,” said Perry, who holds 6 percent of San Diego Trust stock.

“When all your net worth is tied up in the company, it affects the way you approach work,” he said. He points out that each of San Diego Trust’s 16 employees is a shareholder.

Yates holds a 10 percent stake in privately held Regents Bank.

Aside from being privately held, Yates said that there are more similarities between the two institutions than disparities.

“We both focus on relationships and talent,” said Yates.

“(Community banks) can all coexist with slightly different business models. It’s possible to have success with less than 1 percent of the market share.”

Added Perry, “We probably compete more for talented bankers than we do for clients.”


By The Numbers

Recently, both banks announced earnings reflective of their business philosophies , in particular, lending.

San Diego Trust had $65.6 million in loans while 5-year-old Regents tallied $189 million in loans as of Dec. 31. Neither bank reported delinquencies, past-dues or nonperforming assets.

“We know who to do business with and who to avoid,” said Perry.

San Diego Trust reported net income in 2006 of $1.25 million, up 94 percent from 2005, a jump that allowed the 3-year-old bank to recoup startup costs and end the year with positive retained earnings.

Return on assets at San Diego Trust , the most recognized measure of profitability , increased to 1.5 percent from 0.89 percent in 2005, pushing the bank in a high percentile among 3-year-old banks.

For 2006, Regents reported profits of $2.6 million, up 71 percent from $1.5 million in 2005. It had return on average assets of 1.12 percent compared with 0.85 percent the previous year.

“We don’t have the pressure to build this thing up quickly and turn around and sell it. We’re not about to mortgage our future for short-term gains,” said Perry. “We’re going to take our time.”


In For The Long Haul

“We informed our shareholders that we’re not selling this bank,” said Yates.

He said when a bank starts, typically, an exit is set when the bank will have a “liquidity event” or sale.

“When the board of directors gets a little long in the tooth, they want to turn their stake into liquidity. We already had our liquidity event,” Yates said, referring to the bank’s rapid profitability.

Publicly traded on the Over-the-Counter Bulletin Board as SDBK, San Diego Trust faces costs related to meeting new regulatory requirements.

However, according to Perry, San Diego Trust , at $95.1 million in total assets , fits in a compliance loophole and is not subjected to the restrictive Sarbanes-Oxley regulatory requirements until the bank has $500 million in assets or 500 shareholders. The law requires companies to beef up their internal accounting procedures and then have those procedures reviewed by outside auditors.

Currently, the bank has 250 shareholders, including management and the board, both of which control 40 percent.

Though directors and management may have opportunity to cash-out, Perry is almost certain they won’t.

“None of them need the liquidity,” said Perry.

Bank client and shareholder Bob Cunningham, chief executive officer of Mission Valley Pools, said the thinly traded stock is difficult to come by.

“I’m probably just a minor stockholder,” said Cunningham, one of San Diego Trust’s some 250 shareholders on record. “I would definitely consider buying more. I took everything that was available at the time (in 2006).”

San Diego Trust’s average trading volume in a three-month span was 684 shares a day. Many days have no activity.

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