Since opening last June, Beach Business Bank has made a name for itself as a bank for doctors, taking in about $12 million of deposits from physicians in its hometown of Manhattan Beach, Calif., and around the country.
The deposits, stashed mostly money market accounts, gave the one-branch bank an important source of liquidity early on and helped its assets go from essentially nothing to nearly $50 million.
But they are more expensive than demand deposits, and chief executive Robert Franko says it is time for his bank to start attracting lower-cost, local deposits.
To do that Beach is raising $15 million, primarily from local investors, and plans to use part of the money from the offering to open a second branch, in nearby Long Beach. It raised $12.5 million in start-up capital.
The capital infusion would more than double Beach’s legal lending limit, to $6.2 million on secured loans. That is a key to its goal of becoming a full-fledged community bank rather than a niche bank.
Mr. Franko said that the company has raised more than $11 million and that he anticipates no difficulty raising the rest before the July 15 closing date. (It is conducting the stock offering without the assistance of an investment banker.)
None of this is to say that the 57-year-old CEO does not appreciate Beach’s doctor deposits or that he is reevaluating their usefulness. Indeed, he said banking doctors is a “great business” and that he is reluctant to talk about it for fear that competitors will mimic the practice.
One of Beach’s operating units is The Doctors’ Bank. Customers from around the country have opened money market accounts with the unit to save for retirement or just to hold excess cash, Mr. Franko said.
“Most doctors are conscientious savers, and a lot will have very substantial balances,” he said. “It’s a good, stable source of funds. And the accounts don’t have a lot of transactions. The smart doctors collect money all year long and fund their retirement plans in a lump sum at the end of the year.”
Beach relies on word-of-mouth marketing, and since the majority of the 45 founding shareholders are doctors, it has been effective.
At first the bank was adding about four doctors a day to its customer rolls, as the medical professionals in its investor group and on its board helped drum up business from friends and colleagues.
That pace is now about one a week, but even at that rate business is “plenty good,” said Mr. Franko, who was a practicing dentist before entering banking in 1984. He worked for City National Corp. of Los Angeles and Imperial Bancorp of Inglewood Calif., before helping to found Beach.
Richard A. Soukup, a partner with Grant Thornton LLP in Chicago, said that though doctor deposits helped “jump-start” Beach, he agreed with Mr. Franko that it would be better off as a broad-based bank.
“It’s the reality of the world,” Mr. Soukup said. “They organized themselves as a community bank, and that’s where they’ll be successful.”
Demographics also argue in favor of a local strategy for Beach. According to the U.S. Census Bureau, Manhattan Beach, with a population of 36,000, has a median household income is $101,000 – well above the national median of $42,000. Long Beach is not as affluent but has a much larger population, 475,000.
Beach has not had a profitable quarter but appears close to doing so. It lost $300,000 in the first three months of 2005, after losing $1.3 million in its first seven months in business, and continues to add earning assets. It had its best day ever June 2, booking $4 million of loans.
“That was a high-five day,” Mr. Franko said.
