It’s a bank you haven’t heard of. And that makes loans other banks typically don’t. And that goes out of its way to keep a low profile. And that doesn’t even have a website.
But it’s also the most consistently profitable bank in Los Angeles County.
For the past three years, tiny First Credit Bank in West Hollywood has posted an average return on equity of 18.6 percent. The median for local banks is 6.8 percent.
First Credit is tops in return on assets as well, averaging 5.8 percent over the past three years – more than twice that of the next highest bank.
Farhad Ghassemieh, the bank’s chief executive for the past 31 years, said those big returns come from making the same kind of high-margin loans through boom times and busts alike.
“It’s discipline,” he said. “We don’t get too crazy when business is good. We don’t get scared when business gets bad. We just concentrate on what we do best.”
What he does best – and almost exclusively – is make short-term, high-interest loans to real estate investors. First Credit specializes in what’s called bridge financing, which is usually used to buy a property before rehabbing it or bringing in new tenants.
That’s a peculiar line of business for a bank. Bridge financing typically comes from nonbank lenders, sometimes called hard-money lenders, and it comes into play before banks feel comfortable lending. For example, a bank might not lend to an investor buying a half-empty office building. In that case, the investor would buy with hard money, bring in new tenants and then secure cheaper financing from a bank.
Because banks don’t do much bridge financing, they don’t often compete with nonbank bridge lenders, said W. Scott Dobbins, president of private real estate lender Hankey Capital, part of L.A. billionaire Don Hankey’s Hankey Group.
“That’s why people come to a bridge lender,” Dobbins said. “They have a property in transition. At the end of that transition, they can go get bank financing.”
That goes a long way toward explaining First Credit’s returns.
Nonbank real estate lenders typically charge interest rates approaching 10 percent. Last year, First Credit’s average loan charged 9.1 percent interest – a bit less than most private lenders but more than twice the average interest charged by L.A. banks.
“Our competition is mostly from private funds,” Ghassemieh said. “And we’re less expensive than a typical fund. There’s always enough business for us.”
With assets of $403 million, First Credit is in the middle of the pack among local banks, but tiny compared with multibillion-in-asset lenders such as City National Bank.
First Credit traces its roots back to two failed Southern California lenders: Merchants and Farmers State Bank in the desert town of Blythe, and Commercial Bank of California in what’s now West Hollywood.
When the Blythe bank failed in 1983, Ghassemieh and a handful of investors bought it from the Federal Deposit Insurance Corp., with plans to move it to Los Angeles. A few months later, Commercial Bank also failed, and Ghassemieh said it was easier to simply buy that bank and merge the institutions rather than move the other bank.
“We liked the location of the second bank better,” he said. “That’s still our location now. When I first heard of Blythe, I’d never heard the name. If you haven’t driven to Arizona by car, you’d have no reason to hear about it.”
Ghassemieh closed the Blythe location and consolidated the two banks. His original plan was to turn the banks into an institution catering to Persian emigrants who, like him and his family, had fled Iran in 1979. But over the years, the bank turned into a general commercial lender specializing in loans other banks wouldn’t make.
For the most part, that’s bridge financing. But First Credit also writes other even riskier loans. In the early 1990s and again after the most recent recession, First Credit offered loans to investors who wanted to buy nonperforming real estate loans from banks. In other words, writing loans to people buying bad loans.
But Ghassemieh said most of those loans have paid off. Other banks were trying to shed bad assets, selling real estate loans for less than what the underlying property was worth, even after real estate prices fell.
“A bad loan purchased at a deep discount could be a very good loan,” he said.
First Credit also specializes in making loans to buy gas stations – properties that can be difficult to underwrite because environmental issues can severely deplete underlying land value.
Most of First Credit’s deposits are in the form of interest-bearing certificates of deposit, and about one-third are so-called brokered deposits – money gathered by outside brokers, typically earning higher interest rates. The bank’s interest expenses are higher than those of most other lenders, but its high-interest loans more than make up the difference.
Ghassemieh acknowledges that he takes on riskier deals than most banks do, but he points out that First Credit is in good standing with regulators and its risks have been paying off for years. First Credit has been profitable every quarter going back to 2002, as far back as the Federal Deposit Insurance Corp. keeps quarterly data.
What’s more, despite its risky portfolio, First Credit has relatively few problem loans and bad assets. The bank’s problem assets amount to about 15 percent of its equity – lower than 21 local lenders, including larger institutions such as BBCN Bank and Pacific Western Bank.
And if you’ve never heard of First Credit, that’s by design. The lender has just two branches, one in Irvine near John Wayne Airport and one at its West Hollywood headquarters. First Credit rarely advertises and doesn’t have a website.
That means nearly all of the bank’s business comes in through referrals, and that’s how Ghassemieh likes it.
“If we advertised in a broad way, we’d get too many calls,” he said. “It’s disruptive to our business.”
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Low-Key Lender Bridges Gulf By Servicing Real Estate Deals
- The Un-Bankers
- Closing Loans More Quickly
- Hitting Hard
- Hankey Riding High: Billionaire Founder of Westlake Financial Sees Record Revenues
- Digging In Again
- These Institutions Have Found Their Way Off the Beaten Path
- The 50 Wealthiest Angelenos: Don Hankey