New bank treads on giants’ territory

BY DAVID SPEAKMAN

After a year of planning, Silicon Valley’s newest, independent bank is planning to open its doors in a downtown San Mateo office building by Memorial Day.

United American Bank joins a Bay Area trend of independent bank startups unafraid of entering a market dominated by Bank of America Corp., Wells Fargo & Co. and other mega banks.

Last May, Santa Clara-based Bridge Bank opened. In December, a group of Danville investors filed with the state to create the Diablo Valley Bank. A third bank, Legacy Bank, is under organization in Campbell.

Currently in organization as well, San Mateo’s United American was approved as a state-chartered bank in November and will open its doors as a full-service bank once it raises $11 million to $14 million in capital. When it moves into a newly-built headquarters at 101 South Ellsworth, it will target San Mateo County’s small and medium-sized businesses.

“There are 23,000 companies based in San Mateo County and 22,000 of them fall into the category we are aiming at,” says United American president and CEO John Schrup. He says the bank is currently talking to prospective investors and expects to easily reach that target.

“We have a list of 1,500 potential investors lined up,” Schrup says. “We could easily go above $14 million.”

That amount of financing would allow the new bank to issue business loans up to $4 million, which meets the needs of most small- and medium-sized businesses. United American’s needed capital is small change compared to the capitalization of its larger competition. Bank of America Corp. has assets of $622 billion, San Francisco-based Wells Fargo & Co. has $308 billion and Palo Alto’s Greater Bay Bancorp has $8.1 billion in assets.

United American’s closest small, independent banking competition would be the independent Bridge Bank, which reported assets of $170 million at the end of September, and has a branch office in Palo Alto.

Schrup says there is a noticeable absence in locally-based banks on the Peninsula and none in the city of San Mateo, which offers an opportunity. He says, “a lot of what used to be locally-based banks got gobbled up by Greater Bay Bancorp,” a Palo Alto-based bank holding company.

“If you look back 10 or 12 years ago, there were over a dozen independent banks, all of which were under a half a billion dollars in size,” says Bridge Bank CEO Dan Myers. He says having a healthy, competitive small banking market is good for local small businesses.

Myers says he doesn’t see United American as being a significant competitor to Bridge Bank, because the two banks’ markets do not overlap much.

Like other independent banks in areas dominated by banking giants such as Bank of America and Washington Mutual Inc., United American plans to leverage it’s hometown-based management.

“All business decisions will be made right here, not in Washington or Charlotte, N.C.,” Schrup says. “We’re not going to compete branch-for-branch with Wells Fargo or BofA, but will counter their breadth of reach will a strong Web presence, courier service and free ATM access.”

“A locally-based bank typically gets about 25 percent of the market for smaller and medium-sized businesses,” says James Avery, a San Luis Obispo-based consultant who specializes in researching the market potential for start-up banks.

He says local businesses are attracted to hometown banks because they can speak to the bank president rather than a branch manager.

“If we get one-tenth of one percent of that market, we’ll more than meet our goals,” says United American’s Schrup.

Chicago-based financial research firm Briefing.com says this is a strategy that won’t work in most markets.

“What we’ve really been seeing over the past decade is the smaller banks can’t compete with larger banks,” he says. “Small hometown banks are just not as lucrative as a Bank of America or Wells Fargo.”

But with $10 billion in bank deposits, San Mateo County suburbs don’t add up to your typical small town.

“The demographics on the Peninsula are the best in the country,” United American’s Schrup says. “The average bank branch in America has $52 million in deposits. In San Mateo County, it’s $92 million.”

Schrup says the way to capture San Mateo business is not to shut out the public in favor of larger business accounts.

“I don’t want anybody turned away from any service they want,” he says.

Initial investor funding should be in place by the end of February with United American launching in May as a full-service bank offering everything from business loans to individual checking accounts.

“Our business plan is one that others have employed successfully elsewhere for years and we have the people to pull it off here,” Schrup says.