Pickup Game

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Pickup Game
California United's Paul Verdon at the West L.A. office of the bank

By early this year, Paul Verdon could tell that First Regional Bank, the Culver City institution where he had been working for 12 years, was heading down a bad path.

So he made a few calls and, in late January, the 58-year-old banker lined up a new job – just days before regulators shuttered First Regional because of huge losses on construction and development loans.

“We got shut down on a Friday and I started at California United on Monday,” said Verdon, who is now a senior vice president in charge of the bank’s newly established Santa Monica office.

California United, a small business bank in Encino, wasted no time in an aggressive push to capitalize on the failure of its competitor. Besides Verdon, California United snagged a number of his colleagues.

The bank is not the only institution trying to take advantage of the many dislocations that have occurred in this market.

Recently, a number of local community banks have begun positioning themselves – through stock offerings, executive changes and other moves – to expand their footprints and capture additional market share. Manhattan Bancorp in El Segundo and First California Financial Group Inc. in Westlake Village each unveiled growth plans in recent weeks.

After mostly sitting idle for the past two years, the banks see an opportunity to grow not only bread-and-butter retail deposits but expand their commercial lending.

The movement is expanding beyond Los Angeles.

“I see that going on in many parts of the state,” said Rod Brown, president of the California Bankers Association, an industry advocacy group based in Sacramento. “Things remain very stressed and strained, (but) very healthy banks with an abundance of capital and a good leadership team are poised to take advantage of that.”

Adding talent

To be sure, the financial industry still has a tough road ahead as many banks and thrifts continue to deal with souring loans, especially on the commercial real estate side. But for banks like California United that are strong and can pick their spots, opportunities abound.

A smallish bank with less than $500 million in assets, the institution is in a better condition than many peers. Its capital levels are well in excess of regulatory guidelines for “well-capitalized” banks, loan losses have been minimal and it actually turned a modest profit in 2009.

So Chief Executive David Rainer did not hesitate to snag a handful of bankers such as Verdon from First Regional when it went down. With the new hires – more than a half-dozen, many of whom brought existing clients with them – California United was able to open additional offices in such areas as Santa Monica and Glendale.

In a February interview when the new offices were first announced, Rainer said he was not happy to see First Regional fail, “but it has created some great opportunities for us.”

With the additions of new bankers, California United hopes to strengthen and expand its commercial lending operations and implement what it calls a “customized relationship banking model,” maintaining long-term relationships with business customers.

Central to that effort were moves by Verdon and former First Regional colleagues to bring as many customers with them to California United.

The weekend after First Regional failed, Verdon called many longtime clients to explain his move to California United and assure them their money was safe if they chose to go with him to the new institution, which many did.

“You get a following,” he said. “I’ve got these clients that I’ve been banking for – some of them go back 25 years.”

Some banks are looking to go a step further than California United and actually acquire an entire failed bank from the Federal Deposit Insurance Corp.

The move has been highly attractive, analysts said, because of the generous loss-sharing arrangements with the FDIC common to the deals. The agency is scaling down its largesse in that area, so acquisitions may be less attractive in the future.

Still, larger regional banks in Southern California have made significant strides by buying failures. City National Corp. and East West Bancorp Inc., L.A.’s two largest banks, each increased their assets to more than $20 billion in the past six months through picking up failed banks. OneWest Bank, a Pasadena savings and loan, is now the largest depository institution in Southern California thanks to a series of FDIC-assisted transactions.

Few small banks have acquired failed institutions, but that may change. Both Manhattan Bancorp and First California have said recently that they are looking into it.

First California, the holding company for First California Bank, completed a $41.4 million stock offering March 24 to aid in that effort.

“In addition to further strengthening our capital position to protect against an uncertain economy, this transaction provides flexibility for expansion through new growth opportunities, whether organic or acquisitive,” said Chief Executive C.G. Kum in a statement. He could not be reached for further comment.

The bank has completed one failed-bank acquisition to date, buying 1st Centennial Bank in Redlands in early 2009. That deal, however, came early in the economic downturn and did not include a loss-share agreement, noted Julianna Balicka, an analyst with New York’s Keefe Bruyette & Woods Inc., in a research report last week.

With this latest capital raise, analysts said First California is in a prime spot to snag another failed institution.

“This positions (First California) well to take advantage of growth opportunities within their footprint, which may range from taking market share to hiring lending teams or participating in bank acquisitions,” Balicka said.

‘Big coup’

One of L.A.’s newest banks, Manhattan Bancorp, is eyeing an expansion as well.

The El Segundo holding company for Bank of Manhattan opened its doors in August 2007. That serendipitous timing, executives said, helped it avoid many of the bad loans other banks made primarily in 2005 and 2006 that have resulted in substantial write-downs.

With a relatively clean balance sheet, the institution has laid low through the economic downturn.

Recently, however, the board replaced the bank’s chief executive in an effort to kick-start growth. Last month, Deepak Kumar took the helm of the bank after being lured from his previous position as chief operating officer of Schwab Bank.

Hiring Kumar, said Manhattan Chairman Kyle Ransford, was “a big coup for a bank of our size.”

The single-branch bank is small, with just $152 million in assets, but growing. Assets increased 65 percent in 2009, while deposits were up 131 percent to $111 million. Capital, meanwhile, is strong and the bank is one of the few small institutions to have already repaid its obligations under the federal Troubled Asset Relief Program.

The institution has its eyes on a considerable expansion of product offerings and branch locations through organic and acquisitive growth.

“We are looking to potentially do some acquisitions that fit within our footprint from a synergistic growth perspective,” said Kumar. “I think there are a lot of undervalued opportunities right now.”

The bank has just one branch location and a mortgage broker-dealer office. Executives hope to open as many as three branches in the South Bay in the near future.

Kumar said the bank wants to be able to provide “end-to-end customer solutions” by offering a full slate of services. To do that, in part, executives plan to expand activities in the mortgage origination and wealth management businesses.

Banks with clean balance sheets could find a very welcoming environment if they are looking to grow their loan portfolios, experts said.

“If you have the ability to lend, there’s a lot less competition right now,” said Wade Francis, president of Unicon Financial Services Inc., a bank consulting firm in Long Beach.

Still, he cautioned, the banking industry is not out of the woods and many could face further losses as loans go bad. Commercial real estate, he said, threatens to weigh down community banks, many of which have sizable commercial real estate loan portfolios.

“I think we have a big problem ahead of us in this year –commercial real estate,” he said. “What I will say is even in the darkest times, there are people who find a way to make a profit.”

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