Question: Did your experience at the U.S. Office of Thrift Supervision inform how you approached leading a bank?
Answer: I was at the office during the dark days of the S & L; crisis. I was part of the management consignment program, one of the guys who, literally, seized brain-dead banks on the weekends. I learned a lot of lessons from that experience.
Q: Such as?
A: Not to engage in things I don't understand. Not to get into areas where the potential dangers outstripped the rewards.
Q: Why did you switch from investment banking to commercial banking?
A: I made good money as an investment banker, but I sort of reached a position in life where I concluded I wanted more to make a difference than to make a lot of money. At Cal National, I saw there was an opportunity to do well by doing good.
Q: How were you able to do that at Cal National?
A: Cal National is an opportunistic, entrepreneurial bank that has what I would characterize as a very strong management team and a very supportive holding company. I thought they shared my vision of community banking as a means to make the lives of communities and businesses better.
Q: While the number of loans 90 days past due has increased at Cal National, its finances are relatively strong. How did you avoid many of the pitfalls that got other banks?
A: We didn't participate in the subprime frenzy. We maintained high credit underwriting standards. We did not engage in any form of subprime lending and have zero nonperforming consumer loans. We elected to maintain high levels of liquidity rather than make commercial loans that are supported by relatively low cap rates or debt coverage ratios.
Q: Was that tough to do when other banks were growing so fast?
A: It cost us in the short run, because we were not able to generate as much loan growth as some of our competitors. We were continuing to grow, but we were keeping our powder dry. That has put us in a position where we are not likely to experience meaningful losses to our portfolio. That has paid off, because for 2007-2008 we will grow probably 27 percent in assets.
Q: Why did the bank not get into subprime?
A: It was a local decision. We viewed the subprime product as setting the consumer up for potential disaster. As a community bank, we want to be viewed as the bank of choice for your community. We only want to sell our customers products and services that we think they will benefit from. You can't be viewed as the bank of choice when you're selling them something that you think is bad for them. We did not want to be in a position where we would have to take back people's houses.
Q: How does the acquisition of PFF fit into your vision?
A: We think the Inland Empire, while struggling right now with challenges and no housing market, is an extraordinary market. This is a 38-branch network with all but two of its branches in Riverside and San Bernardino County that have a top three market share in their communities. That creates an opportunity for us since we currently have only two branches in that region.
Q: Whose idea was it to acquire PFF?
A: It was a local management decision. We had been looking at this institution for several years, and our holding company FBOP already had a 10 percent equity interest in PFF.
Q: How soon will the banking industry bounce bank from the current crisis?
A: It will take time, but the industry will recover. We have been through cycles before. We have seen credit standards change, the industry bear the consequences of those changes then change back again.
Q: Cal National is growing substantially this year while other banks are cutting back. What does that say about the banking industry over the past few years?
A: Prudence pays.
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