Banks Gain, Turn Cautious

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The top commercial banks with headquarters in Los Angeles County see healthy financial growth ahead despite some jitters over rising interest rates.

“Our bank is concerned – the loan quality is very good, loan delinquencies are very good, but I’m not totally confident about what might happen in the next couple of years,” said Joanne Kim, president and chief executive of CBB Bancorp Inc., parent of Commonwealth Business Bank. “So we are tightening our underwriting (on small business loans) and getting ready in case the winds change. I still have a pretty good memory of what happened eight or nine years ago.”

Koreatown-based CBB Bank is No. 17 on the Business Journal’s list of Los Angeles County-based banks ranked on assets.

It shares concerns with larger banks, including Pasadena-based East West Bancorp Inc., the largest independent bank based in Southern California, and No. 3 on this week’s list, with $38.0 billion in assets.

“The downside risk is higher than the upside potential, given (volatility in) the stock market, real estate and interest rates,” said Dominic Ng, chief executive and chairman of East West Bancorp. “We have to stay vigilant. The asset quality is high, and loan loss provisions are low. It’s a very benign market in terms of loan quality.”

The 48 entries on the Business Journal’s 2018 banks list saw a cumulative 3.5 percent growth in assets over the 12 months ended June 30, climbing to a total of $232 billion compared with last year’s list of 50 banks with $224.2 billion in assets. Bank assets are anything a bank owns, including interest-earning loans as well any securities, cash or property.

Profits for the region’s banks grew 18.2 percent to $1.7 billion while deposits grew 2.6 percent to $189.6 million in 2018. The number of employees at locally headquartered banks grew 7.9 percent to 22,459.

The top five banks accounted for 71.3 percent – or $168.5 billion – of the total assets.

Those banks averaged a 5.56 percent gain in assets year-to-year, up from $159.8 billion in 2017.

The top five banks employed 13,862 in L.A. County, or about 62 percent of the 22,459 bank employees counted on the list.

The top five banks reported profits of $1.3 billion in Los Angeles County, up about 24.5 percent from the prior year.

No. 1 this year is downtown-based City National Bank, with $48.3 billion in assets (see related story, page 1).

CIT Bank, parent of Pasadena-based OneWest Bank is No. 2 with $41.7 billion in assets. Both CIT Bank and OneWest Bank are ultimately under the umbrella of Livingston, N.J.-based CIT Group.

East West Bank, came in at No. 3, ahead of No. 4 PacWest Bancorp, the Beverly Hills-based parent of Pacific Western Bank, completed its $681 million cash-and-stock acquisition of Los Angeles-based CU Bancorp’s California United Bank in October. The deal added $2.1 billion in assets to Pacific West Bank’s total, to give it $24.5 billion.

California United, at No. 13 on the Business Journal’s list of largest banks in 2017, was the second biggest local bank to be acquired in the region.

No. 5 on the list is Chinatown-based Cathay Bank with $16.2 billion in assets.

Rising rates

Chief concern among bank executives is the rise of interest rates, which have been reflected locally on rates for certificates of deposits, or CDs.

CBB’s Kim said CD rates crawled above the 2 percent mark in general nearly a year ago, but some Koreatown-based competitors – No. 6-ranked Bank of Hope and No. 8 Hanmi Bank – pushed the number up higher to attract new deposits. Rates recently reached 2.5 percent for 12-month CDs of $100,000 or more. They’ve since eased on promotional rates.

For Hanmi, however, the higher CD rates came at the expense of loan growth. The bank’s Chief Executive Chong Guk Kum said in a recent interview that he ratcheted down lending due to the “pressure on deposits.”

List moves

A few bank names besides California United have disappeared from the landscape of L.A. County-based institutions since mid-2107.

Ontario-based CVB Financial Corp., which operates 51 branches from San Diego to California’s Central Valley under the Citizens Business Bank brand, earlier this year acquired Pasadena-based Community Bank in an $878.3 million cash-and-stock transaction. Community Bank added 16 branches in the region, $3.7 billion in assets, $2.7 billion in loans and $2.9 billion in deposits to CVB Financial’s balance sheet.

Community Bank, at No. 10 on this year’s list, was the biggest local bank to be bought in the past year.

Los Angeles-based Grandpoint Capital Inc., parent of No. 12 Grandpoint Bank, with $3.1 billion in assets, was bought in February by Irvine-based Pacific Premier Bancorp Inc., in a $641.2 million all-stock transaction.

Another Irvine-based institution, First Foundation Inc., paid $106 million last December for Los Angeles-based PBB Bancorp, parent of the $587 million-in asset Premier Business Bank, which was merged into First Foundation Bank. The purchase represents the fifth for First Foundation since 2012 and its first deal for a bank based in Los Angeles.

PBB’s Premier Business Bank, No. 26 on the Business Journal’s list of largest banks in 2017, was the third biggest local bank to be acquired.

One institution, Carson-based Merchants Bank of California, fell off the 2017 list – it was capped at the top 50 last year – but with industry consolidation it was back on, if only briefly, this year at No. 48.

The return will be short-lived as Merchants Bank went out of business July 1 – the day after the Business Journal’s rankings cutoff – after it was ordered to pay $7 million in fines for violating the Bank Secrecy Act. Merchants had allegedly moved more than $192 million in wire transfers illegally, according to the Financial Crimes Enforcement Network, an arm of the U.S. Treasury Department that closely monitors illegal transfers of money in the banking system.

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