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Tuesday, May 17, 2022

Financial Institutions: The Digital Age

Although there are some pandemic trends bankers can’t wait to say goodbye to, the digital transformation of the industry is here to stay.

The digitization of banking services has progressed from a future priority into a central selling point for practically every bank within the last 18 months. According to Tom Nida, executive vice president of City First Broadway — the entity formed by last year’s merger between Hancock Park-based Broadway Financial Corp. and Washington, D.C.-based City First Bank — the pandemic shaved years off an evolution process that was already well underway.

“Banks are finding it appropriate or necessary to close branches, as they can now replace that with technology,” said Nida. “Everybody’s been able to do a lot more remote site programming, and there’s a lot more movement towards making things available almost entirely online.”

The timing of the digital shift ended up being relatively convenient for City First Broadway, which in April, Nida said, established itself as the largest minority deposit institution in the country when it completed its merger. The consolidation of the two companies’ IT structures aligned well with the sudden tech push, as Nida said CFB has been working to expand the range of its services in Los Angeles to match its East Coast offerings.

“The old traditional banking services have really diminished outside of safety deposit boxes,” said Nida. “If we’re going to spend money on access to services, [consumers] really want to be taking advantage of the technology that’s available to them.”

Western Alliance Bancorp., parent company of San Diego-based Torrey Pines Bank, similarly announced in December that it would implement a fully integrated digital banking platform for customers, launching in 2022. Western Alliance President and Chief Executive Kenneth Vecchione said in a statement that the company “believes there will be a growing demand for instantaneous digital payments among our clients and others as technology continues to mature.”

CRE lending and market changes

Contrary to fears that the pandemic would wreak havoc on the local commercial real estate (CRE) market, banks are reporting that CRE lending for projects in the Los Angeles area has been a major source of activity. But it’s a different market emerging from the crisis, as empty offices and boardrooms that have been collecting dust since March 2020 are increasingly repurposed for sublease, residential or other types of spaces.

Torrey Pines Bank reported a “strong surge” of lending for infill projects, mostly multifamily, driven primarily by the ongoing housing shortage.

“Interestingly, two years into the pandemic, what we’re seeing is that many of these projects were not originally slated as residential — they were intended for other uses ranging from office to everyday services and retail,” Western Alliance Executive Vice President Bob McAuslan told the Business Journal.

Torrey Pines is currently finalizing financing for a multifamily residential project in Burbank, he said, an area where new housing is in serious demand.
“While thousands of new jobs have been added in Burbank in recent years, remarkably, just 55 new housing units have been built over the last five years,” said McAuslan.

Nida said conversion projects have been an area of interest for banks in heavily urbanized hubs like L.A. and Washington, D.C., noting the trend will motivate commercial tenants to renegotiate their lease agreements for years to come.

“They’ve had to figure out an alternative use once the pandemic took a whack at office space, the retail market and the hospitality market, among others,” Nida said.
Meanwhile, bank stocks have started the new year strong. Koreatown-based Hope Bancorp Inc., for example, gained 12.2% since Jan. 1, while Hanmi Financial Corp., also based in Koreatown, gained 10.3%.

Nida said the strong rebound is apparent across the industry and will likely continue throughout 2022 thanks to the likelihood of interest rate hikes.

“Bank stock prices had been somewhat depressed because of the interest rate environment we’ve been in the last few years, but within the last few months, we’ve seen a significant jump,” Nida said. “I think the markets are reading that financial stocks
are in for a rebound compared to what we’ve had, and we’re starting to see the result of it.”

More About 2022 Financial Institutions

By Staff Writers and Contributors

Bank of America Corporation

Charlotte, N.C.-based Bank of America Corp. is one of the largest financial institutions in the world and has hundreds of branch locations in L.A. County. The current iteration of the company was founded in 1998 when BankAmerica was acquired by NationsBank for $62 billion. BankAmerica was initially Bank of Italy, which was based in San Francisco and offered banking services to Italian immigrants. Bank of America established Merrill Lynch in 2008, which is now BofA Securities. Today the company is led by Chief Executive Brian Moynihan. In January, the company announced the launch of CashPro Forecasting, which uses artificial intelligence and machine learning to predict future cash positions across client accounts. This technology enables the bank to reduce costs and labor associated with that type of forecasting.

City First Bank

Last year Washington, DC-based CFBanc Corp., or City First Bank, and downtown-based Broadway Financial Corp. merged to create CityFirstBroadway, the largest Black-owned minority depository institution in the United States. The new entity, which maintains dual headquarters downtown and in Washington, D.C., is led by Vice Chair and Chief Executive Brian Argrett. It had more than $1 billion in combined assets under management and more than $900 million in depository institution assets at the end of 2020. City First Bank and Broadway Financial Corp. now act as a wholly owned subsidiaries of the merged company. Since the merger, the new bank has increased its total equity to approximately $135 million.

City National Bank

City National Bank, based in downtown’s City National Plaza, is a subsidiary of Toronto-based Royal Bank of Canada. It is one of the largest financial institutions in L.A. The bank was founded in 1954 and was based in Beverly Hills before moving downtown in 2004. It went on an acquisition spree in the 1990s, absorbing seven banks. In 2000, it made further acquisitions before opening a New York office in 2002 and acquiring more banks in the 2010s, as well as opening a Nashville office. The bank entered into an agreement in 2015 to be acquired by the Royal Bank of Canada and now has more than $90 billion in assets under management. In 2019, Kelly Coffey became the first woman to serve as the bank’s chief executive. City National Bank Chair Russell Goldsmith is retiring as of Jan. 31, completing a leadership transition to Coffey, RBC Wealth Management U.S. Chief Executive Michael Armstrong and Royal Bank of Canada President and Chief Executive Dave McKay.

Credit Unions Tap Tech, Partnerships

Leveraging technology has enabled credit unions to better serve members — despite the challenges of Covid-19 and the competition of larger, tech-savvy financial institutions. Millennials, Gen-Xers and even baby boomers now expect improved digital experiences from their credit unions, and integrating advanced tech such as cloud platforms and artificial intelligence has put credit unions in a position to offer more value to their members while also better managing their own data.

In September 2021, for example, Water and Power Community Credit Union, based in Chinatown, partnered with San Mateo-based Upstart, an artificial intelligence lending platform, to provide personal loans to its members, including reaching new members in the communities it serves. Upstart’s AI platform is designed to enable banks and credit unions to achieve higher approval rates and lower loss rates, while simultaneously delivering the digital-first lending experience that modern banking customers demand. According to the company, more than two-thirds of Upstart loans are approved instantly and are fully automated.

“As a digital-first, human-centered credit union, WPCCU is partnering with financial technology companies like Upstart to take care of the financial needs of our members anywhere, anytime,” said Barry Roach, WPCCU president and chief executive, in a statement.

Cloud computing has also been a critical step for credit unions.
Glendale-based Los Angeles Federal Credit Union recently signed a multiyear agreement for San Ramon-based Lumin Digital’s cloud-native platform for online and mobile digital banking solutions. LAFCU will have over 45,000 active users on the platform, which launched in June 2021. LAFCU launched the online banking upgrade initiative in late 2020 to continue advancing its technology and improve its ability to deliver future enhancements to members. Lumin Digital’s platform is designed to allow LAFCU to introduce new functionality to users more frequently.

Similarly, Torrance-based Unify Financial Credit Union has migrated to a private cloud environment with the aim of minimizing the challenges and cost of maintaining and running its data center. The $3-billion-in-assets credit union used the renewal of its data center building lease in 2020 as an opportunity to find an operating environment alternative that would support its growth and innovation goals. Unify considered co-location facilities and large web services providers but ultimately chose Jack Henry & Associates Inc., a provider of technology solutions and payment processing services based in Monett, Mo., to host its core.

Partnerships have been a key method for credit unions to leverage and grow their strengths within and beyond their niche memberships. Last year also saw several mergers among credit unions, including between Manhattan Beach-based Kinecta Federal Credit Union and El Segundo-based Xceed Financial Credit Union. The merger gives Kinecta a presence in El Segundo’s growing tech scene and equipped Xceed with products and services for its members it wasn’t yet able to deliver on its own. Combining made the institution, which operates under the Kinecta name and has over $6 billion in assets, the 35th largest credit union in the nation.

Pacific Premier Bank

Founded in 1983, Pacific Premier Bank is headquartered in Irvine and has a dozen locations in L.A. County, as well as branches in Oregon, Washington, Nevada and Arizona. The bank offers a full array of deposit and loan products and services for commercial businesses, nonprofit organizations and consumers.

With $21 billion in total assets, the firm provides working capital to manage cash flow, obtain depository services, purchase equipment or inventory, or refinance existing debt. The bank reported $90 million net income in the third quarter of 2021, up from $66.6 million in the third quarter of the previous year.

The bank specializes in servicing small and middle-market businesses and professionals who need a range of loan, deposit and treasury management products. In addition, the bank has specific market sector expertise in commercial real estate lending and franchise lending. It is an SBA preferred lender, offering SBA and USDA loans on a national basis. It also specializes in community association banking, property banking and fiduciary banking.

USDA business and industry financing can be used for commercial real estate or business acquisition, construction, conversion, repair, modernization, refinance, equipment and working capital. The program gives companies in rural areas the opportunity to receive a loan with favorable rates and terms that might not otherwise be available.

In October, the bank committed $50 million to support organizations working to advance equitable access to capital and banking services for communities of color and other marginalized populations. Local organizations receiving funds include SoLa Black Impact Fund, located in the Florence neighborhood of South L.A., Westwood-based SDS Supporting Housing Fund, and downtown-based LISC Los
Angeles.

Preferred Bank

Downtown-based independent commercial financial institution Preferred Bank offers personalized banking options to consumers and businesses. The bank specializes in middle-market and international market business.

The bank reported net income of $26.4 million in the fourth quarter of 2021, up $5.5 million from the same quarter the previous year. Full-year earnings were $95.2 million.
“In the midst of this Covid-19 pandemic, the bank recorded strong growth in loans, deposits and total assets … Of the $783 million in deposit growth in 2021, almost 90% was in (demand deposit accounts) and money market accounts,” Li Yu, chairman and chief executive, said in a statement about the fourth-quarter earnings. “Looking to 2022, we see potential concerns. Inflation is running at levels not seen in decades and thus will result in higher operating costs … We will apply our best efforts to meet these new challenges.”

The bank’s middle-market businesses consist of manufacturing, service and distribution companies with sales of $3 million to $50 million annually and with borrowing requirements up to $120 million.

The bank also provides real estate financing for residential, commercial, industrial and other income-producing properties in Los Angeles and Orange counties.

The bank’s international market customers include importers and exporters requiring borrowing and operational products. Financing vehicles include trade financing, acceptance financing and other specialized lending programs. Other services include commercial and standby letters of credit and documentary collections.

In addition, the bank handles international private banking needs in the Pacific Rim area. Treasury management services consisting of account reconciliation, remote deposit, cash and check courier service, merchant processing, and ACH credit origination are available.

U.S. Bank National

Minneapolis-based U.S. Bancorp is the parent company of U.S. Bank National Association. The company has roughly 70,000 employees and $567 billion in assets as of Sept. 30, and it has more than 100 branch locations in L.A. County. In December the company, through its affiliate U.S. Bancorp Asset Management, purchased PFM Asset Management. The company is operating as a separate investment advisor, with its 250 employees joining U.S. Bank. In November the company announced it entered into an agreement to purchase San Francisco-based fintech company TravelBank. In September the company announced an agreement to purchase MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group for roughly $8 billion.

Keep reading the 2022 Money Issue Special Edition.

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