When banks are struggling to make a profit, their shareholders often call in turnaround specialists such as Virginia Varela as a consultant or as a leader. Varela brings with her 30 years of experience as both a federal bank regulator and senior banking executive.
For nearly three years now, she has worked with the board of Sacramento’s Golden Pacific Bank to improve the institution’s finances. The bank had reported only one profitable quarter since 2010 before Varela arrived. Now it has four consecutive periods of profitability.
“I was an examiner or regulator for about 24 or 25 years,” Varela told me. “I’ve been literally to at least 100 banks: meeting boards, seeing the way banks work. So I was afforded a great opportunity to see the way a lot of different banks worked after so many decades of working with them.”
Since leaving the U.S. Treasury Department in 2009, Varela has been an executive at Bank of Rio Vista and Bank of the Orient in San Francisco. She was a part-time consultant for four months at Golden Pacific before the board offered her the position of president and chief executive officer.
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Banking is a lot more than just lending money or taking in deposits. ... You’re really an agent and steward of people’s lives in a lot of ways because, as their lives change, their financial needs change.
Virginia Varela, president, CEO of Golden Pacific Bank
“I asked for all their financials,” she said. “I did a peer analysis and looked at the demographics in the local area. I tried to understand the shareholder needs. ... I looked for viable options.”
As she studies a bank, she said, she looks at how it’s managing payroll or other expenses, whether there is a clear business focus and whether that business line is viable, signs of abuse of power, mismanagement or unethical behavior. Those questions can’t be answered, she said, just from looking at statistics. So, she does deep interviews with staff. Oftentimes, she said, these meetings also provide employees with the opportunity to share ideas that have been ignored or that have gone unspoken.
“They come up with better ideas,” Varela said. “They deal better with the solutions, and it’s transformative. ... Consultants come in from the outside, sometimes with a perspective that might have worked somewhere else, but there’s no buy-in from staff.”
After studying the market and talking with staff, Varela recommended to the board that Golden Pacific largely leave the business of mortgages and refocus on becoming a small-business lender. It required a cultural shift at Golden Pacific, and that, along with a decision to reduce the number of bank branches to three from seven, resulted in significant staff cuts. Golden Pacific’s employment dropped to below 45 people from more than 80.
“Instead of looking to merge and acquire, we hunkered down and developed the bank we had,” Varela said. “We moved forward to focus on small-business banking, and in a very short time, we’ve become one of the lead small-business lenders in the area. We won the SBA award for Community Bank of the Year in 2014 and 2015.”
Golden Pacific, which is based at 980 Ninth St. in downtown Sacramento, has about $130 million in total assets, Varela said, and small-business loans make up the majority of that figure. Varela said borrowers have come from diverse industries: yoga studio owners, certified public accountants, information technology companies and many others. The bank has ranked as one of the top 10 lenders for the Sacramento SBA district, which serves 21 Central California counties from Siskiyou and Modoc down to San Joaquin and Calaveras.
“A majority of our portfolio is loans made to women-owned businesses and businesses owned and run by minorities,” Varela said. “We do a lot of the smaller-sized loans that the other banks aren’t interested in.”
Banking is a business that many people see as simply dollars and cents, but that is not at all Varela’s perspective. She told me: “Banking is a lot more than just lending money or taking in deposits. ... You’re really an agent and steward of people’s lives in a lot of ways because, as their lives change, their financial needs change.”
Right now, Varela said, any profit that Golden Pacific makes is being funneled back into the business. The goal, she said, is to expand the loan portfolio and to grow revenue and net income but also to show consistency in those numbers.
Besides small-business loans, Golden Pacific continues to offer consumer and niche mortgage loans to longtime banking customers. Some of the bank’s employees had expertise in compliance rules around construction loans for individuals who wanted to build their own custom, multimillion-dollar homes, Varela said, and her team thought the area would be profitable, so they continue to offer those mortgages.
“We didn’t want the communities to feel we were taking away their bank,” said Varela, a San Francisco native who’s happily esconced in the Land Park neighborhood with a pool and a two-car garage. “We have a great customer base. Even though I said we are now a business bank, we have a lot of deposits and do a lot of services for individuals and families.”
This is also a big part of the reason why Varela said she agreed to lease the bank’s Marysville branch building to the Yuba-Sutter Chamber of Commerce for just a dollar, so the community there could use the building to create space for a business incubator and accelerator. The bank had closed that branch, Varela said, and had been looking to lease the building.
Then, Varela said, she met with the leader of the Yuba-Sutter chamber and learned of her desire to launch a business center. Now, a variety of organizations offer resources to small businesses at the Golden Pacific Bank Business Center, 519 D St. in Marysville, Varela said, and she expects that banking referrals just might emerge when the startups at the site are ready to pursue small-business loans.