Tiny Charter Bank Treats Its Size as a Major Asset

Bent over the phone, Frank Sabetta, president of Charter National Bank, was trying to hustle up some business with a potential customer before 9 a.m. “It’s been five years and we’ve never done a deal yet. Don’t let me down,” he said into the mouthpiece. “We’ll just make an appointment and come over.”

As president of one of the San Fernando Valley’s smallest banks, Sabetta can’t afford to sit around and look sage. Charter National Bank in Encino has only $47.8 million in assets. Major banks write off bigger loans than that and don’t blink.

These should be troubled times for a midget bank such as Charter. Banking, like the airline business, is wrenching its way through deregulation and a wave of mergers. Bigger banks, inevitably, will dominate the landscape. How can Charter compete?

Sabetta contends by emphasizing its very smallness. For elderly customers, say, who like the feel of old-fashioned passbooks with teller entries made by hand, Charter will issue them.

“In a lot of large institutional banks, customers are just a number. They walk into a machine. We offer personal attention,” he said.

It’s working, so far. For the fiscal year ended Dec. 31, Charter posted a record profit of $376,000, a .9% return on average assets, just a tick below the 1% return that is a benchmark for excellent bank performance. Charter’s assets have nearly tripled, from $16.9 million, since 1982.

“As the bigger banks get more bureaucratic and less responsive, boutique banks that can exploit that niche will do great,” said Gerry Findley, publisher of several banking newsletters.

Said Dan Geary, senior vice president of Independence Bank in Encino: “Charter grows a little each year and keeps a profit. Frank is not the kind of aggressive person who goes off in a wild tangent to make a big score, and that’s good.”

Most banks try to dazzle customers by offering full services, the convenience of branch offices and, it seems, an automatic teller machine every few blocks. But Sabetta runs his bank as though it were still 1955, the year he got into the banking business.

Only One Office

There is only one Charter office, and it doesn’t have an automatic teller machine. The bank does not offer credit cards or long-term home mortgage loans. “We do things the old-fashioned way,” he said.

By old-fashioned, he means that his tellers recognize most customers by name. Although the stencil on the door says the bank is open from 10 a.m. to 3 p.m., if somebody arrives early or a bit late, all they have to do is ring the bell to be let in. “Somebody will pull the shades at these bigger banks and you will be at and the door and they point, ‘It’s 3 o’clock.’ We do not do that,” Sabetta said.

If you have an account and there’s an out-of-state check to deposit, you can draw on it right away. “It’s the little things,” Sabetta said.

The bank opened in May, 1982. Sabetta, who put in tours with Bank of America and American City Bank, invested $100,000 in Charter’s stock and eventually rounded up 200 investors who ponied up $3.2 million, enough to meet federal capital requirements to start the bank.

It wasn’t an easy sell. Sabetta said he warned prospective investors, “This is not a get-rich-quick scheme. Put the stock in a box for 10 years and forget about it.”

Indeed, five years after going public, Charter’s stock, which opened at $10 a share, is trading at only $10.50 after a 25% stock dividend.

The willing investors turned out to be doctors, accountants and small businessmen, such as the bank’s chairman, Melvin Sapiro, who owns a carpet business in Los Angeles. “Our first customers were the people who invested in the bank. We said, ‘Hey, we’re open for business.’ ”

Others Have Failed

Other small banks have shot up like bottle rockets only to fizzle out. Last year, Center National Bank in Woodland Hills failed in part because of its adventurous push into auto insurance, a business most banks won’t touch.

Businesses such as insurance or precious-metals financing are not Sabetta’s style. “We’re staying with what we know best,” he said.

The bank’s bread and butter remains loans to small companies, those doing $500,000 to $15 million a year in sales. The bank’s average loan is $80,000.

Because Charter does not have the money to advertise, most of its business comes by referral.

One of the bank’s first big customers was Paul Pope, owner of National Pax, a $10-million business based in Arcadia that makes Otter Pops flavored ices. Pops defected to Charter after many years with major banks.

Pope likes Charter’s courier service, which sends a driver over to his office to pick up deposit checks. Other banks offer the service too, “but Charter doesn’t bitch and moan about it,” he said. “They treat me like Bank of America would treat General Motors. . . . When we need a loan or special letter of credit, Charter handles it without a lot of paper work.”

Pope has set up some personal accounts with Charter as well, and this spillover is how Sabetta builds up assets. For every business checking account, Charter has three personal checking accounts.

Speed is another reason for Charter’s success. There are three loan officers at the bank plus Sabetta, who spends some of his time working with customers. Although Charter’s loan committee reviews big loan applications once a week, if there’s a rush job Sabetta will phone up the bank directors to get a quick answer in a day or two.

Speed is Customary

“The last thing we do is jerk people around for a month,” he said.

Charter has also pushed Small Business Administration loans, which now make up about 10% of its loan portfolio.

For all Charter’s success as a small-timer, Sabetta acknowledges that he has considered expanding by buying another bank. In the Valley, there are about a dozen small banks with assets of under $100 million.

But Sabetta is wary of creating a bureaucratic monster and has not made any merger offer. He continues searching for a bank that would fit his own style without destroying Charter’s special appeal.

“Charter has got to merge with another bank or be bought out,” rival banker Geary said. “A combination of small banks hasn’t come about yet, but small banks will merge and have four or five offices strategically placed,” he said, speaking of small Valley institutions.

Because insiders own about 40% of Charter’s stock, there is no rush to sell or merge with another bank.

“We don’t have to get bigger. Is big best? If we provide a service and can make a profit, that’s what a bank is for. We’re not greedy,” Sabetta said.