BANKING—Successful L.A. Community Banks Becoming Targets

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L.A.’s long history of bank mergers is in a new chapter, as community banks combine and take a foothold in the area by catering to specific ethnicities and small-business interests.

That’s the consensus of industry officials who gathered last week at a conference devoted to the ever-changing local merger landscape, now characterized by deals such as the recent combination of L.A.-based African-American-owned Founders National Bank with two East Coast entities.

“You don’t have a lot of Fortune 500 firms in L.A.,” said Steven Canup, a senior vice president at San Marino-based East West Bank, which has $2.6 billion in assets. “We’re the largest industrial base in the nation, made up of middle-market and small businesses They appreciate the service and contact we (smaller banks) give.”

Once home to several financial institution headquarters, L.A. has only a handful of sizable banking institutions left. Long gone are Security Pacific Bank, Home Savings of America, First Interstate Bancorp and the other giants that used to dot the landscape. Now L.A.’s second-tier institutions are being plucked. In addition to Founders being bought, Imperial Bank, L.A.’s third largest bank, was recently bought by Comerica Inc. and Minneapolis-based U.S. Bancorp also has been snatching local institutions.

The focus in recent years by all banks operating in the L.A. area has been on catering to the interests of small businesses, and some industry observers believe the leaders in this have been the so-called community banks.


Small companies abound

More than 75 percent of payroll checks issued in L.A. County are issued by companies with fewer than 1,000 employees, according to the state Employment Development Department.

“The market is fragmented and highly competitive,” Canup said. “It’s not easy.”

Neither is merging.

Harvey Ferguson, executive vice president and chief administrative officer of California Community Bancshares an Auburn, Calif.-based bank that bought two L.A. banks said his company has undertaken six mergers and eight conversions in the last 18 months.

At last week’s conference, at which Ferguson was a speaker, community bank leaders discussed how banks can handle post-merger difficulties such as integrating software systems, rectifying check printing differences, employee benefits, layoff notices, license agreements and service charges.

Successfully overcoming cultural differences can also play a big role in making a merger successful.

“Comerca (acquired Imperial) to expand its footprint in California,” said Joe Morford, an analyst for the financial services industry group of Dain Rauscher Wessels in Minneapolis. “It made a bigger presence there by serving the emerging growth companies, some in the entertainment business. The real challenge was merging the two cultures, where the Street’s perception of Comerica is as a discipline leader, and Imperial was more aggressive.”

Perhaps the biggest difficulty common among all mergers and acquisitions has been keeping customers happy. Customer service has been the biggest downfall among many of the big banks and a primary reason why community banks continue to thrive.


Customer service

Even Jerry Grundhofer, president and CEO of U.S. Bancorp admitted that many big banks have lost touch with customer service an advantage for community banks, he said.

“The only differentiator is the service we give,” he said.

And sometimes that service is tailored to a particular ethnicity.

That’s why banks like Founders, which will continue to be based in L.A., specifically targeted merger partners that would make it a unit of what is now the third largest black-owned bank in the United States, an attractive niche.

And why an institution like East West Bank, with 60 percent of its customer base being Chinese-Americans, provides a niche service for Chinese-speaking people, as well as mainstream clients wanting access to Asia/Pacific markets, Canup said.

“We have branches where two to eight dialects of Chinese are spoken,” Canup said. “That’s hard for mainstream banks to replicate. Seeing that niche gives you a competitive advantage.”

As that competitive advantage leads to success, the once-small community banks eventually reach a critical mass in asset size that draws the attention of larger, acquisition-minded institutions. And the community institution gets swallowed, once again opening up an unserved or under-served niche for yet another entrepreneurial banker to fill.

“It’s a constant food chain in evolution and progress, where big banks get bigger and individuals break away to where they’re closer to their community and can survive,” analyst Morford said. “Then they get more critical in mass, (get bought), and the cycle starts all over again.”

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