David H. Hender has been president of TransWorld Bank for 17 years. During his reign, the bank, now part of the holding company TransWorld Bancorp in Sherman Oaks, has grown in assets from $15 million to $200 million.
TransWorld long has been marked as a conservative bank that served mostly individuals by making car, home-improvement and other personal loans. The bank's conservatism has its good side. In an era when huge numbers of savings and loans and banks are failing, TransWorld has a puny number of bad loans. But for most of the last 5 years, compared to its peers, TransWorld's financial performance has been mediocre.
But a few years ago, Hender and TransWorld Chairman Louis J. Galen decided TransWorld should shift its focus to business, making loans mostly for commercial and industrial buildings.
The trouble was that Hender was forced to round up new, more expensive talent to help him make a bigger play in the business market. Although TransWorld posted impressive results in the third quarter, during most of the changeover, its performance has suffered.
"It took the money to build the system, to find the people, to build the base" of new business customers, Hender said. "But there's no denying it," he said of TransWorld's lackluster results. "We were very aware of it."
So why make the switch? One reason could be interstate banking, which will arrive in California in 1991 when East Coast banks will be allowed to buy banks here. In other states where interstate banking opened up, small banks like TransWorld became targets for bigger banks looking to make a dent in a new market. That could happen to TransWorld.
TransWorld's stock price, despite a steady climb this year, is still rather cheap. But if Hender's new prescription can get the stock higher, an outside bank would be forced to pay more to buy TransWorld's shares.
Hender said that if a buyer offered "an exceedingly attractive price" for TransWorld, its board would have to evaluate it. "But in the meantime, we're running the bank as if we're going to be here for the next 20 years."
Galen, who is TransWorld's biggest stockholder with a 32% stake, denied that his bank's new strategy is to make TransWorld attractive to potential buyers, or any more expensive.
"We have no assurance that we will be bought in 1991 or that we will want to sell in 1991, and therefore we'd be foolish except to run the bank the best way we know how," he said.
Hender and Galen said they shifted TransWorld's focus to the business market because big banks, with their high-priced marketing budgets and huge branch systems, made it tough for TransWorld to get ahead by serving mostly individuals. TransWorld, which just moved its headquarters and main bank office to a 13-story complex in Sherman Oaks, has eight branch offices in Los Angeles County.
TransWorld will run into the same big banks, however, when it vies for business clients. But Galen asserted, as many other small bank executives have, that small banks succeed by providing executives with better service.
It's understandable why Galen wants to lend money into the so-called middle market, or companies with between $10 million and $100 million in annual sales. Loans to those companies can be highly profitable because customers usually pay a hefty premium over the prime rate.
But Galen and Hender have been at the helm of TransWorld's for nearly two decades. Why didn't they change strategy earlier? Hender said the bank's retail business was strong in the 1970s, but banking deregulation in the 1980s changed that.
Although East Coast banks are still barred from buying California banks, East Coast giants, such as Citibank and Chase Manhattan, can offer credit cards, personal loans and other credit to Californians.
"It became obvious to us that the marketplace for us was to give personal service to medium-size businesses," Hender said. "Deregulation really put the icing on the cake. So our business plan naturally changed by evolution."
The bank was started in 1953 by five Valley businessmen, who collected about $200,000 from 300 investors to open its first office in Pacoima. The bank originally was the San Fernando Valley Commercial & Savings Bank. In 1960, it was sold to a group led by Gene Klein, who formerly owned the San Diego Chargers football team, and 3 years later it sold control of the bank to TransWorld Financial Co., a holding company for World Savings & Loan in Northern California.
In 1972, TransWorld, then run by Galen, spun off the bank to its stockholders, and the newly independent and publicly held bank was called TransWorld Bank. Shortly before the spinoff, Galen hired Hender, who had spent 15 years in Denver at what is now United Banks of Colorado.
TransWorld Financial merged with Golden West Financial in 1975, adopted the Golden West name and still runs World Savings. Galen also remains Golden West's vice chairman.