How a new San Diego bank got roaring start despite recession

Start a record-breaking new bank?

To the layman, these recession-ridden days might seem the worst of times for such a venture. Savings and loan institutions are facing serious difficulties. Established commercial banks report rising loan losses. Small-business failures are increasing.

But Ed Cunningham is no layman. Nor are the 56 influential San Diegans who put up $15 million to found the First National Bank here.

When it opened its doors last Dec. 15, it immediately laid claim to the record books. Its capitalization made it the largest new bank ever formed in the United States. And when it looked at its books 16 days later, there was a healthy $166,000 in earnings retained after taxes.

''The bank was profitable before it opened its doors,'' says bank president E.G. Cunningham with obvious satisfaction. A quiet, friendly banker of the pin-striped, confidence-inspiring sort, he was formerly chief executive officer of the Southern California First National Bank.

Why such success?

* Local conditions. San Diego County is one of the fastest-growing regions of a state which, if it were an independent nation, would be economically the eighth largest in the world. Crucial to San Diego's success are its manufacturing firms, which in such areas as aerospace, electronics, and shipbuilding produce some $7 billion worth of goods.

But a curious sequence of events in the 1970s left what the new bank's director of corporate services, Edward D. Peterson, describes as ''really about a six-year void'' in local banking services. Missing from the high-growth formula was a bank specializing in the wholesale (that is, business-oriented) rather than the consumer-oriented trade.

The sequence began with another record-breaking event: the failure of the United States National Bank of San Diego. A major force in commercial banking, it had been declared insolvent in 1973 -- in what was at the time the largest bank failure in the nation's history. It then merged with the San Francisco-based Crocker National Bank.

Two years later the other major commercial bank in town -- the Southern California First National Bank, which dated from 1883 -- was acquired by the Bank of Tokyo. That left local commercial banking largely in the hands of the Los Angeles-based Union Bank. But that bank, merging with the London-based Standard Chartered Bank Ltd. in 1979, shifted its emphasis toward the retail sector.

Into that vacuum swept the new First National Bank -- a majority of whose directors were directors of the Southern California First before its Japanese acquisition, and who felt strongly that the area needed its own commercial bank.

* Market. Mr. Cunningham targets his customers very precisely: those firms with sales between about $5 million and $100 million annually. This ''middle market,'' he says, is ''a very high-return group.''

Typically young and vigorous, they are growing far more rapidly than their older competitors in the Fortune 1,000 group. Usually, however, they have only limited access to such major money-raisers as the commercial paper market. Describing such firms in the American Banker, Wayne Hansen of the Chase Manhattan Bank writes that they ''find themselves in a stage of high-combustion growth with a lower octane fuel.''

Regulations governing national banks prohibit them from lending more than 10 percent of their capital to any one borrower. With a capitalization of $15 million, however, Mr. Cunningham says his bank is comfortably placed for the kind of loans -- up to $1.5 million for up to 90 days -- that such firms typically need.

* Profitability. The real reason for the potential success of smaller banks, however, may simply be their newness. Established banks often have older long-term investments that are not earning at today's market rate. That is a particular problem for institutions offering home mortgages, where substantial sums can be tied up for 30-year periods earning interest at less than half the current rate.

''Because we do not have the drag,'' says Mr. Cunningham, ''it makes it a very attractive scene.''

But how will First National Bank keep itself from becoming an ''old'' bank? The key to success, says Cunningham, will be the bank's ability to ''keep the interpersonal relations'' with its customers.

But, Cunningham admits, ''We will grow.'' Board chairman Malin Burnham is even more specific: He looks forward to a $500 million bank in 10 years.