Security Pacific Is Banking on Future of Orange County : ROBERT H. SMITH : Q

Security Pacific National Bank is the nation’s seventh-largest bank with $75 billion in assets and 3.5 million depositors and borrowers, but it acts like it wants to be a neighborhood institution.

Since Robert H. Smith took over as the bank’s president in April, 1987, everyone from top executives to branch managers has been getting out in public more often in an effort to attract new customers and keep old ones happy.

And they have been particularly visible in Orange County, where the bank will occupy a new 12-story regional headquarters under construction in Costa Mesa.

Smith, a 17-year veteran of Security Pacific, recently kicked off the bank’s annual round of conferences on economic trends with a breakfast meeting at the Irvine Hilton. The conferences, held in various cities during the first part of each year, got their start 10 years ago at a meeting in Irvine.

After the meeting, Smith talked with Times Staff Writer James S. Granelli about Security Pacific’s efforts to attract business in Orange County, the bank’s new headquarters, the county’s expanding Pacific Rim trade and the pending slow-growth initiative.

Q. Security Pacific is building a major banking center in Costa Mesa adjacent to South Coast Town Center. What will be housed there? A. It will be the national headquarters for our real estate finance operation--the financing of builders and developers and other real estate-related industries. In addition, we will headquarter our charge-card operation in that center. And it will be the regional headquarters for our business banking operations in Orange and San Diego counties. Also, the division management of our retail side of the bank for Orange and San Diego counties and the southern half of Los Angeles County will be in there. Overall, it’s really our Southern California headquarters. Q. Why are you setting up a major headquarters operation so close to your Los Angeles home? A. The whole purpose behind it is to get a greater identity, a greater presence and a greater recognition of Security Pacific’s activities in Orange County. And we think we have the right building, the right size and the right visibility to bring the administration, the real estate financing activities and other activities together in one location. By managing it out of Costa Mesa, we give the people a greater degree of self-recognition rather than the collectivism of being in a major downtown headquarters. Q. What is it you hope to do in Orange County once you have this greater identity and greater presence? A. Well, there are really three particular areas in Orange County that we are actively involved in. One is our retail business. We have 60 offices in Orange County and a 14% or 15% market share down there. We are focusing those offices on being the best in customer service.

On the business side of it, we want to be a banker for middle-market business and middle-market activity. And what we’ve done over the last several years is absolutely focused on that market, companies with sales of $5 million to $400 million.

And the third is in real estate: financing and being the banker to the real estate developers and builders. A lot of them are headquartered--no matter where their activities are--here in Orange County. The county is one of the hottest real estate markets in the country, and it’s convenient to have our real estate officers centered here. Most of them live here already. Q. Orange County is becoming an important center for international trade, primarily with Pacific Rim countries. Does the bank handle much Pacific Rim business involving Orange County firms? A. Oh, absolutely. We issue foreign letters of credit and other international trade financings right out of Orange County. We are in the Pacific Rim age, and we have the ability with 27 offices in Asia now to do all of the trade financing at both ends. Q. What are you hearing from your Orange County customers about their export trading business? A. We’re hearing now from clients of all sizes that their foreign business is picking up dramatically. The trade deficit is coming down slightly, and we are surging in foreign business. That’s the very reason we’ll have our international finance group for Southern California headquartered right in the Costa Mesa building. Q. So the Costa Mesa office also will be engaged in international trade activities here? A. Yes. That will be a fundamental part of the business here. Q. From what you’ve been saying, Orange County presents some challenges that perhaps other counties in the state do not present. A. It presents the challenge of being one of the higher growth areas. That’s why we are concerned with the no-growth initiative on the June ballot. It should be a concern of business and commerce here, too. We have all laid plans that set an expectation that controlled or managed growth will occur in this area over the next 10 to 20 years that will enhance, we think, the value of life here. It will enhance commerce and enhance peoples’ status in life, and we are laying our plans on the basis that that will continue. Obviously, when growth stops--with less construction of plants or buildings or homes--the economy is curtailed in some way. Q. How will a slow-growth initiative, if passed in Orange County, affect the bank’s business and its plans? A. Well, it would be in terms of the ability to grow along with the community: The community grows slower, we grow slower. It’s harder for a new industry to come in. New industry finds that the cost of labor is higher than other alternatives. Shopping centers don’t go in because there isn’t the anticipated growth in new residents. So, I mean, we absolutely flow with the local economy. If you were a new business looking to move into Orange County, but your employees can’t afford to live here, you may very frankly look elsewhere to relocate your business. It’s not a healthy situation. Ultimately, the conclusion is that if new communities develop outside of Orange County, where people live, then commerce and industry will go to those new communities. Q. Security Pacific has 13 business banking centers throughout the state. Is it safe to assume that Orange County is your one of your biggest middle-market areas? A. It really is our fastest growing middle market. By sheer size, the greater Los Angeles area is our biggest middle-market area. So we have to structure Orange County’s business banking center a little differently than we might structure one in, say, a more stable area, so we can meet the county’s faster growth. In Orange County, we recognize that our first responsibility is our client relationship, but at the same time, we do look for new prospects. Q. What about the large companies in Southern California? A. For those companies that are headquartered here and are the top 500 or top 1,000, we have a merchant banking operation that allows us to deal with them. They usually go directly to writers of funds, and we have the ability to mediate and to facilitate those transactions, such as swaps on their debt and caps on their interest rates. We only can do that for some of the middle-market companies, though that kind of financial engineering is filtering down into the middle market. Q. What kind of internal changes are you making to go along with your new focus on Orange County? A. A major change is that our top people are out with the customers, not sitting at a desk doing administration. Bosses from Los Angeles are down here probably once a week, and they’re out with customers, visiting clients of our business customers, showing the interest that Security Pacific has in their growth and development. And top people here (in Orange County) are in the position where they can make nearly all unsecured loans without approval from Los Angeles. Or they can make asset-based loans, secured loans. Our customers are dealing with the decision-makers here. Q. Is this effort to get top managers out in public more often possibly your biggest internal change during the last year? A. That’s right. With the more senior people out in the field, that’s a fundamental difference. You know, doing business with clients is not a training ground. They want the best expertise they can get. And what we had before was top managers mired in administration. The job’s 10% administration. Their job is to be out with the customers, whether it’s entertaining, visiting plants, talking about credit, talking about investment. I mean that’s my job, too. I spend 30% of my time now out with customers. We know more people today in the business community as the senior executives than probably at any time in the recent past. And the advantage to the customers is that they have the comfort of knowing that someone knows a little bit about their business and that the decision processes can move fast. The idea is to get the important people out in the field with the customers, not the junior trainees two years out of college. Q. What changes have you made in the bank’s retail operation in the last year and what plans do you have for it? A. What we’re attempting to do in the retail system is to get greater production and productivity out of the office, but overriding that is the ability to give the customer more attention and better service. And the way that works is to centralize all of the administrative responsibilities that were previously handled at the branch level and are now technologically very capable of being handled centrally. That way, we can free the branch people, the branch managers and the system managers to focus on the customer. That is to say, if you walked into one of our branches, what you should see is me willing to give you the kind of attention you need, whether that need is your transaction account, a trust, an investment or borrowing. That’s my job. Q. You’ve also changed your banking hours. A. To make it more convenient, our hours are now from 9 a.m. to 4 p.m., a 33% increase in the hours that banks are open. We opened just an hour more in the morning and an hour more in the afternoon to give customers a greater level of convenience. At the same time, we’re improving the productivity by centralizing all these administrative functions. It’s almost as if what we’re trying to get away from is the fact that customers do interrupt you. And that’s good that they do, because they want help or they want service, and helping them isn’t taking away from the administrative job anymore. Q. And haven’t you started toll-free telephone service for retail customers who want to handle some business from home? A. Yes, we’ve initiated our TeleBank, which, in essence, is the ability to talk about assets or loans or other products. You can now call a number seven days a week, 7 in the morning until 9 at night, and get what you need taken care of. So, you don’t necessarily have to go into a branch if you don’t want to go into a branch. It’s like the other side of the ready teller machine. If you don’t want to talk to someone, fine, you use the ready teller machine. I’ll show you how to use it, and from my point of view, it’s more economical. From your point of view, it’s easier and more convenient and it’s open 24 hours a day. Since TeleBank started March 1, we’ve averaged 2,500 calls a week. Q. Aren’t other companies also providing financial services over the telephone and mailing out loan application forms? A. Yes. But when we get an application back in the mail, we promise a response within 48 hours, which is unique in the industry. You can initiate transactions over the phone and the follow-up would be made by someone processing the transaction. But it could all take place over the phone and through the mails. Q. Do you think you have your strategy pretty well in place? A. Yes, we really do. The focus over the next two or three years is to make it work for the benefit of the customers and the shareholders and the employees. The management and the organizational structure absolutely is in place.