“I have to pinch myself. It’s kind of a landmark,” said Montecito Bank & Trust Chairman Michael Towbes. Measuring his words, he added:  “We have given $10 million to local charities.”

I spoke with Towbes just a few days before the annual Community Dividends luncheon, during which the bank hands out a cool $1 million to about 170 charitable organizations from Solvang to Westlake Village.

The 10th anniversary of Community Dividends is Nov. 19, so it seemed appropriate to sit down with Towbes, the bank’s co-founder and sole owner. More than a decade ago, Towbes came up with the idea of converting the bank to a Subchapter S corporation, which enables the bank to pass its earnings directly along to its owner.

The philanthropic-minded Towbes then decided it made sense for the bank to donate $1 million that otherwise would be paid in taxes directly back to the communities it serves. Towbes is quick to give credit for the name to public affairs guru John Davies, who seized on the idea of paying dividends that benefited the bank’s communities.

Through wars, recession and a financial panic, Montecito Bank & Trust has stuck to its commitment. Towbes credits a “focus on the bottom line” that meant the bank never posted a loss and said a polite “no thank you” to the U.S. Treasury when it offered bank bailout funds.

“I’m proud that the bank could afford to do it,” he said, adding that an unintended benefit of Community Dividends is a boost to company morale. “It gives employees a great deal of pride,” Towbes said.

Over the 10 years, the bank has expanded the number of organizations receiving its “dividends” from 100 to more than 150.

This reflects both the growth of the bank, now on the verge of being the largest independent bank in the region with assets approaching $1.1 billion.

“More people know about the bank and we have expanded our geography,” said Towbes, noting an ever-increasing presence in Ventura County. “We found it harder and harder to say no.”
As to the other benefits of being the donor of first and last resort to many nonprofits: “It clearly helped us cement relationships with organizations and with individuals who recognized what we were doing; people who admire what we do with our earnings.”

Towbes said that through the recession he was struck by the overwhelming demand for social services from people who fell out of the middle-class and into very hard times. “People lost the sense of knowing who they were; they became homeless through no fault of their own.”

He said he thought it was important to directly support nonprofits because government  “at so many levels is so poorly managed.”

Looking forward a big challenge for Community Dividends relates to its success. Many recipient organizations count on being included year after year as a validation of their mission — it’s very hard,

Towbes said, to ask an organization to take a pass for a year or two. Many frame their oversized checks and hang them in the lobby, something that brings a smile to Towbes’ face.

Towbes said he would like to see the number grow over the years from $1 million toward $2 million but he said that would depend on the banks own growth, whether it comes via acquisition or a gradually expanding loan portfolio.

Right now, he said, Montecito has “plenty of deposits. We are in a good position to make loans but demand is not strong.” He’s cautiously bullish about 2013 as a turnaround year for the economy and he thinks that community banks eventually will get some regulatory relief in Congress to reduce some of the heaviest burdens of recent reforms.

For Towbes, seeing a direct connection between his bank’s success and corporate philanthropy is a reward in itself. It is perhaps the best validation of his cautious but opportunistic style of management and giving.

Describing Community Dividends in a simple sentence, he says:  “It’s a happy day.”

• Contact Editor Henry Dubroff at hdubroff@pacbiztimes.com.